Cape Town - The 2009 Taxation Law Amendment Bills will result in South Africans receiving tax relief of R13.5 billion, said Finance Minister Pravin Gordhan on Tuesday.
"For individuals, the most important amendment was the adjustment to the personal income tax thresholds, which resulted in tax relief for individuals estimated at R13.5 billion," said Minister Gordhan.
The minister said the bills contain the tax proposals as announced in the February 2009 Budget Speech by the previous Minister of Finance and as elaborated on in the 2009 Budget Review.
For technical reasons, he said, the amendments are split into two Bills - a money Bill (under section 77 of the Constitution) and an ordinary (or section 75) Bill.
Minister Gordhan said other important amendments relate to the taxation of lump sum withdrawals from retirement savings before retirement and on retrenchment, especially in the current economic environment.
"A significant simplification of the tax treatment of lump-sum payments from retirement savings upon retirement, and pre-retirement lump sum withdrawals, will be implemented as from this year.
"For pre-retirement lump sum withdrawals from retirement savings, the first R22 500 will be tax-free," the minister said.
The marginal tax rates on larger lump sums range from 18 percent to 36 percent for lump sums in excess of R900 000.
In the case of a lump sum upon retirement, the first R300 000 is tax-free and the marginal tax rates also range from 18 percent to 36 percent for lump sums above R900 000.
He said in an attempt to encourage individuals to preserve their retirement savings for the time they actually retire, the law provides for a more generous tax-free amount upon retirement.
In addition, and to limit potential abuse, all lump-sum withdrawals and payments will be aggregated over the life of the taxpayer, meaning that once the tax-free portion has been used, it cannot be used again; subsequent lump-sums will be taxed at higher marginal rates.
Minister Gordhan said that given concerns about the plight of workers losing jobs in the economic crisis, the draft bills propose that withdrawal from retirement funds on retrenchment will qualify for the R300 000 exemption.
"This concession will allow taxpayers significant tax relief in instances where circumstances beyond their control force them to make use of their retirement savings due to involuntary unemployment," he said.
He said to improve the equity of the income tax system and broaden the tax base, treatment of travel allowances will be reformed.
This meant that the "deemed kilometre method" for deducting travel expenses would be repealed with effect from 1 March.
"This amendment will eliminate an unintended subsidy for commuting by car," he said.