'Tax hikes expected as government tries to plug R50bn hole' - Economist


SA expats rally against law planning to tax workers for income made abroad

The proposal would significantly harm South Africans sent to work abroad

'Tax hikes expected as government tries to plug R50bn hole' - Economist


There have been many recent articles in the SA news expressing the dismay of South Africans and their reactions to the announcement of the repeal of the 183/60 exemption on foreign income earned section of the tax laws.

There has been little attention placed upon the social and fiscal impact on the wider South African economy.

South Africans working abroad have formed a group intent on opposing this change. Our group has grown in a few months to over 11000 members and the petition we raised above 8000 signatures.

SA Expats income tax

It is important for both our government and the general public to understand that measured in terms of the international countries fiscal systems and cost structures we work in, we are not the affluent income group, measured in rand terms we may appear to be in the upper 1% in terms of the SA  Bureau of Market Research (BMR) tables.

We also acknowledge news articles from some academics; these professors should take note that we cannot be dismissed so easily by their opinions of South Africans working abroad.

With the publication of the bill proposing the repeal of Section  10(1)(o)(ii) Act, No 58 of 1962 (183/60 day exemption on foreign income earned) our group is currently submitting comments in-masses to the national treasury, the closing date for these comments being 18 August 2017.

After this phase and depending upon the response from our treasury we will oppose this bill with all our skills and financial resources that this group can muster.

There may be a short term increase in revenue by our SARS by means of CGT – capital gains taxes but in the long term, the adverse effect of South Africans financially dis-investing from South Africa will be significant and not yet realised by the general public.

The companies in South Africa deploying employees abroad will face serious challenges as their work force becomes less competitive in financial terms. Workers approaching 60 will simply retire and no longer be part of labour force.

Properties entering the housing market that South Africans start selling, withdrawal  of annuities , closure of bank accounts will have a negative effect that both the treasury , receiver of revenue should take serious note of. The only beneficiaries will be the financial institutes currently advertising their financial emigration services with vigour.

At this stage it is difficult to quantify the full affect as the statistics on South Africans working abroad is not readily available and actions such as creating a database “tracking south africans abroad for more than 3 months” appears to support that proper analysis has not been done by government on the full implications of this change.

Those who do not have the option or resources to financially emigrate form South Africa will return to the SA job market and due to circumstances in the current economy join the more than 27% un-employed adding to the burden already on the fiscal and social infrastructure.

The following points in summary are just some of which that are being raised to our government. Our group representatives will continue on behalf of all South Africans , those currently working abroad, and those supported in South Africa with capital injected into the economy and the future generations, oppose this bill:

Taxing South Africans who work abroad

  • The unintended consequences of the proposed change in legislation and change in my resident status, will result in withdrawal of my South African retirement funding and remaining assets due to unduly penal legislated changes.
  • I understand that a change in resident status may attract an exit tax. That said, did Treasury consider the unintended economic consequences, such as capital flight as a result of the proposed changes in legislation, and if so, are Treasury comfortable that the potential tax collection, if any, will exceed capital outflows, thus not having a detrimental impact on the economy. (Recent reports from the World Bank Suggest remittances from expats, outweigh that of Foreign Aid)
  • By injecting capital into the SA economy on a monthly/annual basis, I’m without obligation, availing direct and indirect contributions to the economy. I also am not a financial burden on the infra-structure and social services of the country. The unintended consequences will result in having no alternative but to discontinue such capital flows into the economy.
  • By working abroad where other country expatriates are not taxed including United Kingdom, United States (Exemption on foreign income earned – de minimus rule and housing deduction), France, Germany, India, China, Russia, Brazil, Canada (and pretty much every other country providing skilled resources), you place All South Africans working abroad at a disadvantage compared to other nationalities (Both current and Future generations).
  • Given the current untenable unemployment rate (recent research suggest 27.7% – Q1, 2017) and limited job opportunities available within South-Africa, consider the unintended socio-economic consequences on the labor force, both present and future generations, who would now almost certainly be precluded from participation the international labor market, as noted above. (Recent reports suggest conservatively a further reduction in 1,000,000 jobs during 2018). 
  • Did our government conduct any research/analysis to draw a comparison between countries with a consumption tax model (low and/or tax free jurisdictions) and those with the more familiar income tax system (South Africa, etc.). Whilst countries whose revenue system/collections is based on the consumption model, may charge tax at significantly reduced rates, sometimes even 0%, it will be incorrect to assume that no taxes are paid, typically the cost of day-to-day living are significantly higher than those countries which follow the income tax model. Paying tax through means of higher cost of living and additional income tax would amount to double taxation, for which there would be no relief.
  • The unintended consequences of the preceding comment would again leave me with no other option but to either change my resident status or to return back to South Africa. However, as commented on earlier in light of the record high rates of unemployment, did Treasury consider the social and economic impact? Would those returning expats be able to secure employment, most of whom took up employment abroad as a result of not being able to secure employment in South Africa in the first instance.
  • The limitation of deductions for housing, employee social costs, higher cost of living (Consumption tax model) and other “taxes” in the host country in the form of additional levies should be considered as this is not currently deductible within the SA tax system, otherwise such exemption will not place me working abroad on par with other South Africans, but actually leave me far higher taxed or effectively double taxed. 

Visit the South African Tax Petition Group on Facebook