As with many other ill-advised politicians before her, Gill Marcus, the Deputy Minister of Finance, has dared to enter the murky waters of tax evasion and tax avoidance.
Not only did Marcus attack a perfectly legal tax-reducing mechanism, but she also branded investors in these "tax bucket" schemes as being immoral and possibly even criminals. She threatened to scrutinise their tax affairs going back 10 years.
This is not only outrageous, but indicates a fundamental lack of understanding of the difference between tax evasion, which is a criminal act, and tax avoidance, which is a fundamental human right and a very rational human endeavour.
Derek Keys, some years ago, also launched a similar attack and even coined a phrase namely "tax avoision", in his efforts to justify his scurrilous attack.
For the record, these so-called "tax buckets'', for want of a better description, are not only perfectly legal in terms of both the Income Tax and Usury Acts, but the marketing of these policies was cleared by the Department of Finance as recently as October last year.
Also, certain of the assurance companies marketing these products have taken senior council's opinion on the legality of these policies. The reply was that they were perfectly legal in terms of existing legislation.
Although there are small difference in the various policies currently sold by a number of assurance companies, including Old Mutual, Liberty Life, Momentum and Federated Life, the scheme, for want of a better word, works as follows:
An investor, who will be receiving a large amount in the future, invests a relatively small amount of money as a lump-sum into an endowment policy. Via an arrangement with a commercial bank, the investor also applies for a loan up to 25 times his investment.
His contribution plus the loan amount is invested as a single premium into a five-year endowment. For example, with an investment of R50 000 a loan of R1 250 000 is created and R1,3 million is invested.
However, the loan of R1 250 000 is repaid immediately which leaves the original R50 000 in the policy. In terms of current legislation one such loan is permissible within the first five years of the endowment. As the loan carries no interest, the investor does not have to worry about the size of the loan relative to the investment and can repay this loan at a later stage.
The major attraction of this geared endowment is that after five years the policy can produce a tax-free income for life equivalent to the bonus rates declared on a particular portfolio by means of partial surrenders.
Everything is above board and everything is perfectly legal. But not according to our Marcus.
This investment is particularly attractive for people five years or so away from retirement or those who stand to receive a large amount of money in the future and who would be looking to secure a tax-free income for life.
It's also incorrect, really, to talk of a tax-free income as the assurer pays tax at 30 percent on the taxable income if the owner is a "natural person" and 35 percent if the owner is a company. But, in most cases this tax rate is substantially lower than the top marginal rate of 45 percent. In the hands of the taxpayer, who owns this policy, the income is not taxed again.
Marcus also had a side-swipe at the sale of second-hand policies, threatening to take legal action against the sale of these endowments, supposedly for the same reason that this practice is immoral and possibly even illegal as is the setting up of dummy policies for resale at a later stage.
Again she needs to be reminded that these practices are legal and are not in contravention of any existing legislation. If she wants to change the law she must go ahead and do it, but she knows very well that she cannot do it retroactively, as she threatens to do.
In this instance I would like to refer her to the interim constitution which protects vested rights, including those of investors. What Marcus has managed to do is to persuade the assurance industry to stop marketing these policies with effect from Tuesday next week. No doubt she must have used some veiled threats to get her way.
Not only have I had no hesitation in recommending these policies, I have also taken out some myself for personal use or for resale. There is no immoral or illegal intention behind these moves. If you can still get hold of one on Monday my advice is to go ahead and do it!