{"id":809988,"date":"2025-02-03T11:45:23","date_gmt":"2025-02-03T09:45:23","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=809988"},"modified":"2025-02-03T11:45:29","modified_gmt":"2025-02-03T09:45:29","slug":"big-trouble-for-over-200000-taxpayers-in-south-africa","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/government\/809988\/big-trouble-for-over-200000-taxpayers-in-south-africa\/","title":{"rendered":"Big trouble for over 200,000 taxpayers in South Africa"},"content":{"rendered":"\n

The South African Revenue Service (SARS) has issued a stern warning to taxpayers following a surge in tax directive applications related to the new two-pot retirement system. <\/p>\n\n\n\n

As of January 2025, SARS has processed 2,664,279 applications for tax directives concerning withdrawals from the Savings Withdrawal Benefit. <\/p>\n\n\n\n

Out of these, 2,403,379 have been approved, allowing funds to be released, while the remaining applications were declined due to issues such as incorrect identity numbers and tax numbers.<\/p>\n\n\n\n

A staggering gross lump sum of R43.42 billion has already been paid out, underscoring the significant impact of the two-pot system. <\/p>\n\n\n\n

However, SARS Commissioner Edward Kieswetter has cautioned that these withdrawals come with tax implications that many might be trying to avoid. <\/p>\n\n\n\n

Withdrawals are taxed at the individual’s marginal tax rate, which ranges from 18% to 45%, depending on the taxpayer’s income bracket.<\/p>\n\n\n\n

This means that higher-income earners will face steeper deductions, and the withdrawal itself could push some taxpayers into a higher tax bracket, increasing their overall tax liability for the year.<\/p>\n\n\n\n

Kieswetter emphasised the importance of careful financial planning before making withdrawals, as tax directives issued by SARS are final and irreversible.<\/p>\n\n\n\n

Despite clear guidelines, SARS has identified 213,654 taxpayers who have deliberately understated their taxable income to secure a more favourable tax rate. <\/p>\n\n\n\n

Kieswetter did not mince words in addressing this issue, stating, “SARS is deeply concerned that 213,654 taxpayers have been identified where they have declared incorrect taxable income with the view to have a more favourable tax rate. <\/strong><\/p>\n\n\n\n

“If taxpayers understate their income, they are intentionally involved in evading their tax obligation. A penalty will be imposed on taxpayers who have understated income.<\/p>\n\n\n\n

“I wish to caution taxpayers to refrain from this unbecoming conduct that borders on criminality.<\/strong> There are real consequences for this behaviour,” said<\/p>\n\n\n

\n
\"\"<\/a>
SARS Commissioner Edward Kieswetter<\/em><\/figcaption><\/figure><\/div>\n\n\n

Two-pot caution <\/h2>\n\n\n\n

While tax compliance remains a pressing issue, financial experts are raising concerns about the long-term implications of the two-pot retirement system. <\/p>\n\n\n\n

Coronation, a leading fund manager, has highlighted the hidden costs associated with early withdrawals from retirement savings. <\/p>\n\n\n\n

While the system offers flexibility by allowing partial access to retirement funds, it also poses significant risks to financial security in later years.<\/p>\n\n\n\n

Rael Bloom, a product development actuary at Coronation, pointed out that many South Africans are focusing on the immediate liquidity provided by the two-pot system without considering the long-term consequences. <\/p>\n\n\n\n

Calculations by Coronation reveal that R1 withdrawn from an individual’s retirement savings at the age of 35 could have a nominal cost of R30 by the time they retire.<\/p>\n\n\n\n

In real terms, this reduces the retirement capital by approximately R6, reflecting the substantial opportunity cost of lost compounded growth.<\/p>\n\n\n\n

Bloom explained that the immediate downside of early withdrawals is the tax burden, as these are taxed at the individual’s marginal rate.<\/p>\n\n\n\n

This results in a significant portion of the withdrawal being lost to taxes, unlike withdrawals made at retirement, which benefit from preferential lump sum tax tables. <\/p>\n\n\n\n

Beyond the tax implications, the disruption of long-term compounding is perhaps the most critical concern. <\/p>\n\n\n\n

Compounding allows savings to grow exponentially over time as returns generate additional returns.<\/p>\n\n\n\n

Withdrawing funds prematurely interrupts this process, severely diminishing the potential growth of retirement savings.<\/p>\n\n\n\n

For example, withdrawing R1 from a retirement fund 30 years before retirement could reduce the future value of an individual’s savings by around R6 in real terms.<\/p>\n\n\n\n

This stark reduction highlights the importance of compulsory preservation, which ensures that retirement funds remain invested to maximise growth through compounding.<\/p>\n\n\n\n

In light of these warnings from both SARS and financial experts, South African taxpayers are urged to approach the two-pot system with caution. <\/p>\n\n\n\n

Ensuring compliance with tax regulations and making informed decisions about retirement savings will help secure financial stability both now and in the future.<\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Taxpayers have deliberately understated their taxable income, and the SARS commissioner did not mince words when addressing this issue. <\/p>\n","protected":false},"author":92,"featured_media":810017,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[853,19922,19264],"class_list":["post-809988","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-government","tag-south-africa","tag-south-african-revenue-service-sars","tag-two-pot-retirement-system"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/809988","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/92"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=809988"}],"version-history":[{"count":7,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/809988\/revisions"}],"predecessor-version":[{"id":810028,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/809988\/revisions\/810028"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/810017"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=809988"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=809988"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=809988"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}