Business / Local
Tax reprieve for retrenchees
06 Dec 2015 at 03:28hrs | Views
FINANCE and Economic Development Minister Patrick Chinamasa gave workers who were retrenched on three months' notice an early Christmas present in his 2016 National Budget Statement when he announced that all those fired following the 17 July Supreme Court ruling will get their pensions without being taxed.
According to the announcement, workers who will get $10 000 or less will not be taxed at all while those who will receive pension payouts of up to $60 000 will have a third of their money being exempted from tax, a facility which was previously reserved for the prescribed retirement age of 55.
At least 20 000 workers were retrenched following the ruling which gave employers power to terminate workers' contracts at any time, without offering them packages by giving them three months' notice.
The Government then amended the law with retrenched workers getting a minimum retrenchment package of one month's pay for every two years served. The amendment was backdated to July 2015, meaning employers who retrenched since then will have to fork out for payouts they thought they avoided.
Presenting the 2016 National Budget Statement, Chinamasa said due to the harsh economic conditions, workers who were retrenched deserve not to be taxed so that they can be able to start a new life.
"The current legislation provides for exemption from income tax on a third of the total value of the pension or annuity commuted by an individual who has attained the prescribed age of 55 years. In terms of Pension Fund rules, a member who is retrenched before attaining the prescribed age of 55 years is deemed to be a pensioner and is allowed to commute a third of the total value of the pension or annuity," said Chinamasa.
"However, the commutation is subject to tax. Due to the current economic challenges, a number of employees are being retrenched before attaining the prescribed retirement age of 55 years. Most of these employees, however, have minimal opportunities to be re-employed.
"In order to provide relief to retrenched employees who have not yet attained the prescribed retirement age, I propose to exempt a minimum value of $10 000 or one third of the total value of the pension or annuity up to a maximum of $60 000.
"Future pension payouts accruing to these retrenched employees will, however, not benefit from the income tax exemption."
Economic analyst Mr Bongani Ngwenya said the reprieve is a good incentive which will assist retrenchees in making decisions regarding their future.
"To employees who were retrenched, what matters most is that they are going to get their money in full. It is a reprieve because that little money whether it's a dollar or less than that which was going to be taxed, will go a long way in assisting them.
"This is really good because the future still looks bright for retrenched workers and this is the best which the minister can do in assisting retrenched workers," said Mr Ngwenya.
Mr Ngwenya also advised ex-employees to start up business ventures. He said many people who during the economic hardship of 2008 had lost hope, started their own business ventures and are now doing well. With the money people are going to get, Mr Ngwenya said, their lives will be rejuvenated.
"The majority of people who were retrenched should also try to establish their own small business. There are some people who are doing well in their small to medium enterprises.
"On average, employees were getting good salaries hence they are going to have more money which they should use wisely," he said.
Gweru-based economic analyst Mr Trust Chikohora described the reprieve as a "pain killer".
He applauded the minister for the move as failure to do so was "going to inflict more pain to retrenched workers".
"I can describe what happened as a pain killer. The real problem is still there and that involves helping people get new jobs.
"However, the Government did a good thing because their full package, no matter how small it can be it is going to assist them.
"We also hope that these Chinese deals which were signed are going to unlock some opportunities which retrenched workers can utilise," said Mr Chikohora.
According to the announcement, workers who will get $10 000 or less will not be taxed at all while those who will receive pension payouts of up to $60 000 will have a third of their money being exempted from tax, a facility which was previously reserved for the prescribed retirement age of 55.
At least 20 000 workers were retrenched following the ruling which gave employers power to terminate workers' contracts at any time, without offering them packages by giving them three months' notice.
The Government then amended the law with retrenched workers getting a minimum retrenchment package of one month's pay for every two years served. The amendment was backdated to July 2015, meaning employers who retrenched since then will have to fork out for payouts they thought they avoided.
Presenting the 2016 National Budget Statement, Chinamasa said due to the harsh economic conditions, workers who were retrenched deserve not to be taxed so that they can be able to start a new life.
"The current legislation provides for exemption from income tax on a third of the total value of the pension or annuity commuted by an individual who has attained the prescribed age of 55 years. In terms of Pension Fund rules, a member who is retrenched before attaining the prescribed age of 55 years is deemed to be a pensioner and is allowed to commute a third of the total value of the pension or annuity," said Chinamasa.
"However, the commutation is subject to tax. Due to the current economic challenges, a number of employees are being retrenched before attaining the prescribed retirement age of 55 years. Most of these employees, however, have minimal opportunities to be re-employed.
"In order to provide relief to retrenched employees who have not yet attained the prescribed retirement age, I propose to exempt a minimum value of $10 000 or one third of the total value of the pension or annuity up to a maximum of $60 000.
"Future pension payouts accruing to these retrenched employees will, however, not benefit from the income tax exemption."
Economic analyst Mr Bongani Ngwenya said the reprieve is a good incentive which will assist retrenchees in making decisions regarding their future.
"To employees who were retrenched, what matters most is that they are going to get their money in full. It is a reprieve because that little money whether it's a dollar or less than that which was going to be taxed, will go a long way in assisting them.
"This is really good because the future still looks bright for retrenched workers and this is the best which the minister can do in assisting retrenched workers," said Mr Ngwenya.
Mr Ngwenya also advised ex-employees to start up business ventures. He said many people who during the economic hardship of 2008 had lost hope, started their own business ventures and are now doing well. With the money people are going to get, Mr Ngwenya said, their lives will be rejuvenated.
"The majority of people who were retrenched should also try to establish their own small business. There are some people who are doing well in their small to medium enterprises.
"On average, employees were getting good salaries hence they are going to have more money which they should use wisely," he said.
Gweru-based economic analyst Mr Trust Chikohora described the reprieve as a "pain killer".
He applauded the minister for the move as failure to do so was "going to inflict more pain to retrenched workers".
"I can describe what happened as a pain killer. The real problem is still there and that involves helping people get new jobs.
"However, the Government did a good thing because their full package, no matter how small it can be it is going to assist them.
"We also hope that these Chinese deals which were signed are going to unlock some opportunities which retrenched workers can utilise," said Mr Chikohora.
Source - Sunday News
