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Would the authorities consider waiving the tax on withdrawal completely and raising penalties for early withdrawal instead?



People who do not pay tax today (i.e. lower income earners) are unlikely to pay tax on their SRS withdrawals. This is because of the significant effective tax exemption on much of their SRS withdrawals, as elaborated below.    With effect from Year of Assessment 2003, all taxpayers are not subject to tax on their first $20,000 of income (zero tax rate income band). Retirees will also enjoy a further 50% tax concession on their SRS withdrawals, that is, only 50% of SRS withdrawal is subject to tax. The result is that a retiree is taxed only on the amount of SRS withdrawals exceeding $40,000, assuming that he has no other sources of income.   To illustrate, consider a retiree making an SRS withdrawal of $50,000. As a result of the 50% tax concession, only $25,000 is subject to tax. However due to the zero tax rate for the first $20,000 of income, the retiree is actually subject to tax on only $5,000 of SRS withdrawal. Non-taxpayers should therefore not be deterred from making SRS contributions by the tax on withdrawals. Over a 10-year withdrawal period, a retiree can withdraw up to $400,000 from SRS tax free (based on current marginal tax rates).

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