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Retirement proposal is discriminatory & regressive

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20 March 2013. It's a massive sacrifice for somebody who is earning R200,000 to save 50% of that for retirement; but if he is really desperate to save for a decent retirement, why shouldn't he enjoy just as much of a tax break as somebody earning far more? To do anything other than giving lower earners at least as much of a tax break as higher earners is discriminatory in a regressive manner.

The proposal

In the 2013 retirement reform proposals from National Treasury it is suggested that individuals contributing to retirement funds receive a tax deduction of 27.5% of the greater of remuneration & taxable income, with a ceiling of R350,000. This discriminates against lower income earners and somebody needs to speak out about it.

Tax breaks

It's quite simple to see the discrimination against lower earners - somebody earning R100,000 only gets a tax break of R27,500 whereas somebody earning R1m gets a tax break of R275,000.

Remuneration

Tax Break

R100,000

R27,500

R1000,000

R275,000

Regressive tax system

This is what's known as a regressive tax system, where you give larger tax breaks to the rich than to the poor.

Counter proposal

Let's give poor people just as much incentive to save big for retirement as the rich. The way this could be done is by setting a fixed Rand amount which anybody can contribute to retirement funds in a fully tax deductible manner, regardless of how little they earn. For example this could be pitched at a level of R200,000. This is simpler and more equitable than the current proposal.

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