Gazetted Green Paper proposes taking a further 12% tax for state-managed fund

In the third contribution by BizNews columnist Niemöller, the heavy tax burden that South Africans bear was addressed. Niemöller stated that they added up all the tax that they pay, which amounted to 70% of their total income. An astonishing amount – particularly in a country where, on most days, there is nothing to show for the hard-earned tax money of South African citizens.

Niemöller’s remarks concerning our current tax obligations preceded the following, being the latest inauspicious development in the chronicles of our country.

On Wednesday, the Department of Social Development, spearheaded by Lindiwe Zulu, gazetted a new Green Paper on Comprehensive Social Security and Retirement Reform. A Green Paper is a government policy discussion paper that details specific issues, and then points out possible courses of action in terms of policy and legislation. It articulates possible solutions that are yet to be adopted by government. It is a precursor for a White Paper which articulates a policy position of government that has been approved by Cabinet.

The gazetted Green Paper addresses ‘significant gaps which remain in our social security system.’ Among the key gaps identified in the Green Paper are:

  • Absence of a mandatory system for social security pension provision for retirement, death and disability benefits for all workers. 
  • Systemic weaknesses in the private retirement system which exclude millions of workers due to voluntary participation resulting in poor risk pooling and low levels of income replacement.
  • The absence of provisions to address the plight of individuals who have no income but do not meet the means test criteria to receive social grants (the 18 – 59 age group challenge).
  • The current social security system is which is fragmented both at policymaking and implementation levels.
  • Governance weaknesses and inconsistencies among the different social security institutions. 

The Green Paper asserts that the social security system ‘requires some reform initiatives to meet Constitutional provisions.’ The most notable gap in our social security system, according to the Green Paper, is the absence of a mandatory contributory public social security fund that provides retirement, disability and survivor benefits to the workforce.

The key reform proposal is the introduction of a National Social Security Fund (NSSF), a centrally managed public fund to provide retirement, survivor, disability benefits and unemployment benefits. All employers and employees will be obliged to initially contribute between 8% and 12% of qualifying earnings up to a ceiling, based on the Unemployment Insurance fund (UIF) ceiling, which is currently at R276,000 per annum.

The Green Paper notes that interested persons and organisations are invited to submit any substantive comments or representation by no later than 10 December 2021.

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