Is tax-free saving on the horizon for equity investors in SA?
It seems as though new avenues of tax-exempt investment vehicles are on the cards for South Africans. Although South African savers are incentivised to save money for retirement via a number of methods, equity investing is not directly part of that bundle, at Sanlam's upcoming i3 Summit the focus will be placed on tax-free savings proposals. The tabling of the draft that Carl Roothman of Sanlam Investments discusses below highlights the details of what we could expect from Government's tax-free savings plans. For the everyday South African it is a very exciting prospect, and perhaps more so for the JSE. – LF
ALEC HOGG: Sanlam Investments and Glacier will be hosting its first ever i3 Summit and at this summit tax-free savings proposals are going to be on the agenda. Carl Roothman, Chief Executive of Sanlam Investments Retail has more. Carl, nice to have you here with us, I know we had a little bit of a discussion earlier with your colleague, Patrice Rassou about financial results and if I listen to him and then look at the way that the Government is going on, tax-free opportunities. Maybe it would be a nice place to park some money into First Rand Shares, but is that going to be possible, in the future, is Government going to be a little bit more relaxed and say, 'give you more leniency on where you can invest your income for retirement tax-free'?
CARL ROOTHMAN: Alec, I think it's a 'one off' opportunity that the Government is creating on this 'tax-free savings accounts'. Obviously, the idea of it is to create savings, so within the country and more people to participate in savings, so at the moment, what we are seeing from the paper, the draft paper that's out is that it will allow you to invest in equities. It will allow you to invest in most of the investment products that are out there. I think the idea is for it to be transparent, for it to be cost effective and obviously, to encourage as many people as possible to invest.
ALEC HOGG: So once you've put the money in, presumably, if it's going to be tax-free, is it's got to stay there for a while, until you retire.
CARL ROOTHMAN: Yes, if you look at the details of the draft document, so the idea is to incentivise long-term investment and, having said that what we've seen is that there's an annual limit of R30,000 a year. You can utilise that annual limit but the Government is definitely weary for people to use it as a short-term savings vehicle, so what they do want to discourage is the withdrawal of funds, from that savings account. Obviously, the benefit is that your proceeds would be tax-free and any dividends and interest earning on those investments, are to be tax-free but once you've withdrawn from that fund, in that year, you will, basically be penalised, so that you can't reinvest in that amount, to get you back to the threshold. The idea is to keep it medium-term to long-term, and the idea is for individuals to keep invested in the product.
ALEC HOGG: That's good news Carl. We've had a kind of a mixed messages coming on tax-free investments. You would recall, some time ago, when we had Building Societies. They used to have tax-free investments. You can now get a certain percentage of your savings or your interest on savings tax-free but moving into equities. That's new for this country.
CARL ROOTHMAN: I think it is new but if you look at the industry, if you look at the Unit Trust industry, equities forms a big portion of most individuals' savings accounts, also the basis of most individuals' retirement savings, so I think to provide them the opportunity to invest in existing products that's out there in South Africa. The industry is incredibly developed; we sit on First World Financial Services industry in South Africa, so I think it's a great opportunity to allow new entrants into the market and to participate in these types of products. I think even your trackers, like your Satrix and other ETF type of products, will also come in handy, and so it's really the idea is to actually, to widen the investment product range for individuals. Having said that, also to make sure that it is cost effective, and that it is transparent and that you have the investors' best interest at heart for it.
ALEC HOGG: Just to understand it properly, you can then put in R30,000 per year, is that per taxpayer?
CARL ROOTHMAN: That is per taxpayer, yes, so you can put in R30,000 per year. At the moment, the draft says that it's for 16-years, which means it's a limit of R500,000 per investor per taxpayer so you can utilise R30,000 per year for 16-years roughly, to get your R500,000 limit. The initial idea is that that R30,000 may move and increase per annum, with inflation. At the moment, it is uncertain as to the R500,000 threshold. My view or my plea, to The Treasury and to Government, would be to increase the R500,000 threshold as well, and it is per taxpayer, so obviously part of this would be to incentivise and to encourage families and households to keep on saving and saving more. I would like to see that being, extended to maybe households, where you can allow also, save for your children for education and so on. If you think about R30.000, I think for the majority of South Africans that's a big number, so I think it will have an impact on the industry and I think a lot of South Africans would see that as the only saving vehicle in their lifetime.
ALEC HOGG: Well, it certainly is an exciting development. When are we going to get finalisation of this?
CARL ROOTHMAN: The initial idea was for this to be effective from the 1st March 2015. The industry is still talking to Treasury. We are waiting for the latest or the last drafts to come out. Hopefully, we will have a bit more clarity on this, within the next couple of weeks and months and then to be able to launch this on the 1st March. I think, from an investment house like Sanlam or any other investment house in South Africa, there are administrative burdens that you need to go through, or administrative issues, to make sure that you can manage it effectively. The fact that it is tax-free and your earnings on it is tax-free, I think it would create additional operational workings behind it, so hopefully they will give us enough time, just to make sure that we can provide the right product at the right price, with the right transparency to the individual. The idea, at the moment, is the 1st March 2015.
ALEC HOGG: That was Carl Roothman, who's the Chief Executive of Sanlam Investments Retail. I think we'll be talking a whole lot about that at the i3 Summit, which is next Thursday. I'll be involved there as well, so I won't be on CNBC Power Lunch that day. I'll be getting my fill, and then come back on Friday and tell you all about it.