The Presidency has rubbished the Congress of South African Trade Unions’ (Cosatu’s) assumption that President Jacob Zuma was alone in government’s recent decision to sign 2015 tax legislation into law.

In a statement released on Thursday, the Presidency pointed out that the Tax Administration Amendment Act was considered at the National Economic Development and Labour Council, openly discussed in Parliament, and passed by both the National Assembly and the National Council of Provinces following public hearings, which means Zuma did not act unilaterally when signing it into law.

Also addressing Cosatu's view that the new tax law would have "dire and lasting consequences on the relationship between government and the workers", the Presidency made assurances that the new tax and retirement reform would encourage workers “to save (more) through retirement funds to curb age-old poverty and excessive dependency on relatives”.

The Presidency also clarified that the implementation of the Taxation Laws Amendment Act would not take away the right of provident or pension fund members to withdraw their benefits before or at retirement as a lump sum. Rather, it aimed to ensure that provident fund members would be able to claim a tax deduction on their contributions to their funds, similar to pension and retirement annuity fund members.

“Different types of retirement funds have different tax rules, and provident fund members enjoy no tax deduction for their contributions,” said the statement, which also highlighted government’s concern about high-income taxpayers’ tax avoidance structuring. This enabled these tax payers to structure their remuneration packages to significantly reduce their tax liability – an allowance that government deemed exploitive.

With this in mind, the Presidency believed the new changes would make the tax system “more equitable and progressive”.

“The [amended] law therefore harmonises the remuneration base for tax purposes for all retirement funds, and consolidates both employer and employee contributions to reduce the scope for tax structuring.”

In addition, the new law, when implemented, would limit tax deduction to R350 000, thereby improving horizontal equity “by harmonising the same deduction across all retirement funds”.

“The government is encouraging everyone who has a job or income to save for their retirement and does so by allowing a tax deduction of up to 27.5% of income (up to R350 000) on all contributions made towards a retirement fund. The government also wants to be fair and allow this benefit to all members of any retirement fund,” added the Presidency.

It further highlighted that the current tax deduction system was “complex and confusing”, which was why, in addition to improving vertical and horizontal equity between high- and low-income tax payers, the reformed legislation sought to simplify the tax treatment of contributions to retirement funds, enhance post-retirement income by extending the requirement to purchase an annuity to provident funds, and protect the vested rights of individuals to ensure that the impact of annuitisation takes longer to be felt by provident fund members.

The Presidency added that the new legislation would take a long time to impact on provident fund members and would, therefore, not affect those currently close to retirement.

“All provident fund members will still be able to take all their retirement savings that they would have accumulated as at 1 March 2016 as a cash lump sum whenever they go into retirement.

“The conversion of a portion of the retirement money into income at retirement will only apply to new contributions made by those who are younger than 55 when the legislation comes into effect.”

The Presidency therefore believed there was no need for provident fund members to worry about the legislative changes, as the reforms would not take away the provident fund members’ rights to their benefits before or at retirement. “Instead, the reforms enable a slower use of such benefits in retirement, by requiring annuitising from a certain amount.”

It further explained that, while the new law would not abolish provident funds altogether, it would cause provident funds to evolve in the long term as they underwent the same tax treatment as pension funds when it came to contributions and benefits, which entailed a one-third retirement lump sum and a requirement to buy an annuity with the remainder if above R247 500.

The Presidency concluded that, while the Tax Administration Amendment Act was implemented to encourage South Africans to save, it would also ensure better governance practices. “[We have] no intention to take over the hard-earned deferred income of workers, whose funds will remain under the control of their trustees.”