Rising taxes amid global debt and high inflation haven’t led to better lives for many people. Families are asking whether their tax money is being used effectively, especially in important areas like education and healthcare. In the past five years, the cost of raising a child has increased significantly in the UK (230 000 GBP) and the US ($233 000), with parents facing higher expenses for childcare, school, and medical care. South African families are no exception (R 1000 000 upwards) are also struggling financially, making it harder to raise their children.

Governments need to up their game

To show that taxes are worth it, governments need to improve services in these key areas. Parents should see clear benefits from their taxes, like better schools, improved healthcare, and more affordable childcare. Effective investing of tax money by governments should clearly be seen to enhance the quality of life for their citizens. Allocations to key sectors should have a direct impact the households a their costs of living.

Real delivery … not just talk

If people see real benefits from their taxes, they are more likely to support necessary tax increases. It’s vital for governments to prove that their efforts an intentions are focussed on improvements in the lives of families, Collecting taxes is very real for households. How real is the evidence of how the taxes are spent is the question.

Paying extra on your vehicle’s installment sale agreement can be a strategic move to alleviate debt and achieve ownership faster. One of the primary advantages is the reduction in overall interest paid. By contributing additional funds toward the principal, you effectively lower the balance more quickly, leading to significant savings over the life of the loan. Additionally, paying off the vehicle sooner means you can free up your budget for other financial goals, such as saving for emergencies or investing.

Complications to Consider

However, there are complications to consider. Simply making extra payments isn’t always straightforward. The installment agreement often requires formal adjustments to account for these payments, which can involve recalculating the remaining balance, adjusting monthly installments, and potentially affecting your credit score. Not all lenders offer flexible terms for extra payments, and some may apply them in ways that don’t optimize your savings, such as applying them to future payments instead of the principal.

Check with your lender

Moreover, if you plan to sell or trade in the vehicle before the loan is fully paid off, understanding how extra payments affect your payoff amount is crucial. Overall, while paying extra can be beneficial, it’s essential to communicate with your lender and fully understand the terms of your agreement to maximise the advantages.

Understanding Wealth Creation vs. Saving

Wealth creation and saving are often conflated, but they represent distinct concepts. Saving focuses on the act of setting aside a portion of your income for immediate or short-term goals, such as emergencies or planned purchases. In contrast, wealth creation is a broader journey that involves growing your financial assets over time through strategic investments, business ventures, and asset accumulation. While saving is essential, it alone does not lead to significant wealth; instead, it forms a foundation upon which wealth can be built.

Investment Diversification

Investing is crucial for wealth accumulation. Diversifying your investment portfolio across various asset classes—stocks, bonds, property, and mutual funds—can help mitigate risks while enhancing potential returns. Researching and understanding market trends can empower you to make informed decisions. Additionally, consider seeking advice from financial advisors to tailor an investment strategy that aligns with your risk tolerance and long-term aspirations.

Protecting Your Assets

Wealth creation also involves safeguarding your financial future. Income protection insurance is vital, ensuring you have a safety net in case of disability or unforeseen events. Life insurance can provide financial stability for your loved ones after your passing. Establishing an emergency fund to cover unexpected expenses is equally important, allowing you to maintain your wealth without depleting your investments during crises.

Tax revenue collected is R2,1555 trillion for the 2023/2024 financial year. After paying back refunds the net revenue is R1, 741 trillion. As with many other areas of the financial industry AI has taken its place as a crucial driver.

Artificial Intelligence (AI) is changing how the South African Revenue Service (SARS) works by making tax collection easier and more efficient. With AI, SARS can analyse large amounts of taxpayer data quickly, helping to spot patterns and unusual activities. This means they can catch tax evasion more effectively, which helps increase revenue and reduces the workload for tax officials.

Predicting Tax Compliance

AI also helps SARS predict how much tax they will collect and identify risky taxpayers. By using smart algorithms, SARS can find suspicious behaviour and potential fraud. This allows them to focus on specific audits and take action where needed, leading to higher compliance rates and a fairer tax system.

Better Service for Taxpayers

AI improves the experience for taxpayers, too. Tools like chatbots can quickly answer questions and guide people through the tax filing process. This not only makes taxpayers happier but also lessens the pressure on staff, allowing them to focus on more complicated cases.

In summary, AI is transforming SARS into a more efficient and friendly service, helping to collect more taxes and support economic stability.

The Financial Sector Conduct Authority (FSCA) has launched a significant initiative aimed at enhancing financial literacy among South Africans. This program mandates financial institutions to allocate 0.4% of their after-tax profits towards educational programs. The primary goal is to equip individuals with the knowledge to recognise and combat financial scams, including Ponzi schemes and other fraudulent activities.

Importance of Financial Education

Financial education is essential in today’s complex financial landscape. With the rise of digital platforms, consumers face an increasing number of scams. By understanding the characteristics of these fraudulent schemes, individuals can make informed financial decisions and protect their savings.

Key Focus Areas

Identifying Scams:Educational programs should focus on how to recognise common scams, including red flags and warning signs.

Understanding Ponzi Scheme: Clear explanations of how Ponzi schemes operate and the dangers they pose can help individuals avoid such traps.

Financial Management Skills: Teaching budgeting, saving, and investing basics empowers consumers to manage their finances better.

Resources for Reporting Scams: Providing information on how to report suspected scams can foster a proactive approach to consumer protection.

This initiative by the FSCA is a crucial step towards creating a financially savvy population, ultimately leading to a healthier economy.

Provisional tax in South Africa primarily impacts various categories of taxpayers, making it essential to understand who needs to comply. Here are key groups affected by provisional tax:

1. **Self-Employed Individuals**: This includes freelancers, consultants, and independent contractors. Those who generate income without a formal employer relationship must register for provisional tax, as their earnings are not subject to PAYE.

2. **Small Business Owners**: Entrepreneurs running sole proprietorships or partnerships must also adhere to provisional tax regulations. This applies to businesses across various sectors, including retail, services, and agriculture, where profits are not automatically taxed through payroll deductions.

3. **Investors and Property Owners**: Individuals earning significant income from investments, rental properties, or other passive income sources may also fall under provisional tax. If the income exceeds the tax threshold, these taxpayers must register to ensure compliance.

4. **Directors and Shareholders**: In certain cases, company directors and shareholders who receive income that isn’t subject to PAYE, such as dividends or director’s fees, may need to pay provisional tax.

Understanding the nuances of these categories is crucial for compliance, as failure to register can lead to penalties and interest on unpaid taxes. Consulting with a tax professional can help clarify obligations and ensure accurate payments.

Climate change poses significant risks to the South African economy due to its potential to disrupt key industries, infrastructure, and the overall stability of the country. The Reserve Bank is taking this seriously as it anticipates the risks posed on jobs into the future. It has adopted a hawkish stance as climate change adds to the other key economic factors which are considered in protecting the value of our rand.

Here’s why and how it could affect South African jobs:

1. Agriculture: South Africa’s agriculture sector is vulnerable to climate change impacts such as droughts, floods, and changing rainfall patterns. This can lead to crop failures, reduced yields, and livestock losses, affecting the livelihoods of farmers and agricultural workers.

2. Tourism: The tourism industry, a major contributor to the South African economy, relies heavily on the country’s natural beauty and wildlife. Climate change-induced events like extreme weather, sea-level rise, and habitat destruction can diminish tourism appeal, leading to job losses in the hospitality sector.

3. Mining: South Africa’s mining industry, a significant employer, is exposed to climate-related risks such as water scarcity, extreme temperatures, and regulatory changes aimed at reducing carbon emissions. This could impact job security for miners and related workers.

4. Energy: The shift towards renewable energy sources due to climate change mitigation efforts could disrupt the traditional fossil fuel-based energy sector in South Africa, potentially leading to job losses in coal mining and power generation industries.

Climate change has the potential to impact South African jobs across various sectors, highlighting the urgent need for adaptation and mitigation strategies to safeguard the economy and livelihoods of its people.

To help get your head around the new two pot system here is a breakdown of what happens to the pots. (There’s actually three of them). Basically, the provident fund which had access to 100% cash will end and all funds will take on the aspects of a pension fund where only a third is available in cash and two third has to go to a pension.

Example

Let’s use an example of a retirement fund with a value of R100 000 fund at the 31st August 2024 with a monthly contribution of R3000.

With the new two pot system for retirement starting on the 1 September 2024 here’s what will happen.

10% will be transferred to the new savings pot along with a third of the monthly contribution.

So in September the savings pot will start with R11 000. 

10% of the current funds (R10 000)

R1000 (one third of the September contribution).

Your retirement pot will have R2000 and the first pot will have R90 000.

From the 1st September you can

Leave the pots alone for retirement

The first pot (the one up to 31st August) will be have the same options as it does now. Third in cash if a pension or RA. Full cash if a provident fund. All three pots can be invested in a life or living annuity. The savings pot can be cashed. The retirement pot has to be used for a pension. 

Access the first pot if you leave your employer as you can do at the moment

Access the savings pot once a year in full or in part (minimum R2000). It will be taxed with your taxable income in that particular tax year. 

There are some exemptions to the two pot system

If you have an old legacy retirement annuity it may be exempt subject to conditions outlined by the FSCA. You will need to transfer it to a different platform to join the two pot system.. Be careful as it may impact on fees and values.

If you are a provident fund or preservation provident fund member aged 55 before the 1st March 2021 you will not be affected. You can opt to join the two pot system ‘once-off’ after the 1st September but cannot change back.

The new system will take some time to understand and use effectively. You should consult with your financial advisor before making any decisions. 

The risk is evident

Startling data from Standard Bank this week reveals that 52% of their customers earning above R25 000 per month have less than one month savings in place for emergencies and unforeseen expenses. 

Emergency Fund is crucial

An emergency fund is not just another financial cushion; it is a crucial component of a robust financial plan that provides peace of mind and security in times of uncertainty. Setting aside funds specifically for unexpected expenses and emergencies can make all the difference when life throws you a curveball.

A shield against the unforeseen

The primary importance of an emergency fund lies in its ability to shield you from financial crises. Whether it’s a sudden medical bill, a car repair, or even a job loss, having a contingency fund can help you weather the storm without derailing your long-term financial goals. In the event of a job loss, having savings to cover several months of expenses can provide a buffer, giving you time to explore new opportunities without the pressure of immediate financial strain.

Investment in peace of mind

Building an emergency fund offers a multitude of benefits, including reduced stress levels, increased financial resilience, and the ability to handle unexpected expenses without resorting to high-interest debt. By setting aside a portion of your income regularly, you are investing in your financial well-being and creating a safety net that can offer peace of mind and financial security in times of need. Start building your emergency fund today – your future self will thank you.

In the process of claiming seeded retirement funds under the two-pot system from 1st September, beneficiaries should be aware that a 10% seeding is applied to a maximum of R30,000. The new system has processes which will cause delays. 

Admin delays

When initiating the withdrawal process, beneficiaries should see the seeded amount available. Some fund administrators may not be ready to reflect this in your account on the 1st September. So one possible delay will be the admin process. The big difference will be found between funds which are digital verses those that are manual.

Tax delays

However, beneficiaries should note that the seeded amount is subject to tax implications based on their marginal tax rate and any potential SARS directives for withholding taxes. Beneficiaries should be prepared for potential delays related to tax withholding on the seeded amount and plan accordingly for the impact on their overall retirement fund withdrawal process.

Understanding the specifics of the 10% seeding feature and its tax implications can help beneficiaries make informed decisions about accessing their retirement funds under the two-pot system.