The ability of thousands of low-income families to receive tax-exempt bursaries for their children is threatened by an alteration to the Income Tax Act.
The amendment has been passed by the National Assembly and the National Council of Provinces (on Tuesday) and now heads to President Cyril Ramaphosa’s desk for approval.
Those currently benefiting from the tax-exempt bursaries are majority black, low-income households and this alteration would severely impact the financial circumstances of thousands of families, straining their ability to effectively save for educational purposes, especially significant in a post-Covid-19 economy.
Many experts are of the view this amendment is ill-advised and it is hoped the Presidency will veto it.
Recent public hearings held by National Treasury on the proposed changes have received hundreds of submissions from the public opposing the change, including employers, schools and parents who use this unique and progressive incentive.
Marli Botha, a manager at SmartFunder, is surprised that the government has not stayed true to its commitment to make access and funding to education more accessible and affordable.
“In 2006, National Treasury decided to make salary-sacrifice as a component of non-taxable bursaries allowable. An employee originally had to earn less than R100 000 per year to qualify for the incentive, but National Treasury has increased this limit a number of times since 2006 to allow for more people to use it and, as it reads today, employees earning less than R60 000 per annum qualify for this benefit,” says Botha.
Employees within the above threshold can voluntarily give up part of their own salary, called a ’’salary sacrifice’’, in exchange for a non-taxable bursary for a relative. These bursaries are capped at R20 000 for NQF levels 1 to 4 and school, and R60 000 for tertiary NQF levels 5 to 10 education.
National Treasury is now seeking to reverse its 2006 decision to make employer-provided bursaries to relatives of employees taxable in the hands of employees, if an element of salary-sacrifice is present – effective from 1 March, 2021.
“This is going completely against the tide of our government’s commitment to make access and funding to education more accessible and affordable in South Africa and has raised many eyebrows among many stakeholders,” says Botha.
Kholofelo Monyela, Human Capital Consultant at RMA, says: “Of all the current tax incentives available, the assistance on education is such an important one, allowing low-income earners to provide a quality education for South Africa’s next generation.”
Vedika Andhee, a leading tax expert, says: “Covid-19 has devastated our economy. Dual income households have become ‘single’ income’ or ‘no income’ households.
’’Fortunately, as is the culture in South Africa, irrespective of how difficult their own circumstances, where employed family members can assist, they readily step up. It has therefore become more important than ever that this benefit continues to exist and relief is provided to these employees.”
Other concerns raised included the inability of National Treasury to accurately quantify the loss to the fiscus that they have been arguing as the reason for the proposed change, coupled with the fact it has not yet done an impact study to determine the positive and negative effects of the proposed changes.
Jako le Roux, Benefits Manager at Dimension Data, says: “The success stories of the lives changed from this benefit is heart-warming and it will be a big blow for the education prospects of the impacted children when it comes to getting a chance at a better future through this incentive.’’
Botha adds: “It is unclear why a decision that will negatively affect thousands, is being made based on assumptions rather than performing the necessary steps to ascertain the effects of such a change.”
Motivating against the amendment, Monica Mpofu, a parent, says: “I am a breadwinner at home and a single mother of two girls, 17 and 13 years old. Before the tax benefit, I could barely afford providing for my family, after paying school fees out of my net salary.
’’I found myself getting involved in debt just to manage during the month before the next payday. This has made a huge difference in our lives.”