Draft Tax Laws Could Hit Ordinary South Africans with ‘Stealth’ Savings Blow

South Africans have become used to the idea that tax season always brings surprises. But this year’s draft Taxation Laws Amendment Bill (TLAB) has drawn sharp criticism from tax experts, who warn that the proposals could quietly erode long-term savings and increase tax bills in unexpected ways.

Collective investments under fire

At the centre of the controversy is the treatment of collective investment schemes (CISs), better known to most people as unit trusts. These are a popular way for South Africans to save, especially for retirement, precisely because they allow for tax-efficient compounding over time.

National Treasury now wants to close what it calls “loopholes” in the system. Currently, investors can transfer shares into a CIS without triggering capital gains tax (CGT). If the fund later sells those shares, no immediate tax is paid either. Tax is only due when an investor eventually sells their CIS units often years down the line.

Treasury argues this creates an unfair advantage compared to someone who sells their shares directly and pays CGT immediately. Under the draft laws, those benefits would be removed, and certain CIS distributions would be treated as capital gains in the hands of investors.

Why experts call it a ‘stealth tax’

Law firm Webber Wentzel has called the move a “stealth tax”. Their concern is that it undermines the very reasons South Africans invest in CISs in the first place: predictable, long-term, tax-friendly growth.

“This policy shift actively deters the savings culture South Africa desperately needs,” the firm warns. With fewer than 6% of South Africans able to retire comfortably, even small changes to savings vehicles can have huge knock-on effects.

For ordinary workers, this could mean being taxed earlier and more heavily on investments that were designed to be left untouched until retirement.

Expats face new calculations

The draft amendments also touch on South Africans working abroad, a group already under scrutiny in recent years. One key change involves the “remuneration proxy,” a formula used to calculate taxable values when actual salaries aren’t available especially for fringe benefits like housing.

Treasury says excluding certain exempt incomes has allowed expatriates to benefit unfairly from lower taxable values. By tightening the rules, it aims to ensure that perks like employer-provided housing are taxed closer to their real economic value.

Tax specialists note that while the R1.2 million foreign income exemption still applies, many expats could see their overall tax bills rise.

Why it matters for ordinary South Africans

From Johannesburg’s middle-class families trying to build retirement funds through unit trusts, to South Africans abroad juggling foreign salaries and local tax rules, these proposals strike at the heart of how ordinary people manage their money.

Critics argue that, instead of encouraging savings in a country already struggling with a low savings rate, the proposals risk discouraging participation in CISs and increasing financial strain on expats.

Public submissions on the draft bill close 12 September, leaving a narrow window for individuals and industry groups to make their voices heard before the changes potentially become law.

Source:Money Web

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