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


SA residents who work abroad set to lose tax exemption on all foreign earnings

Big earners bypassing income tax laws have forced the Treasury to propose sweeping changes

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


South African residents who make money from overseas employment could now be taxed domestically on their earnings.

Under current law, if an SA tax resident works in a different country to SA for more than 183 days a year and passes certain income thresholds, they do not have to pay tax on their foreign-based income.

However, The National Treasury’s “Draft Rates and Monetary Amounts and Amendment of Revenues Laws Bill” is proposing to scrap this tax exemption, as a reaction to high-income earners using offshore tax havens to bend the rules.

Read: Saffas in Dubai: Don’t get stung by proposed new SA tax laws

Yanga Mputa is the Treasury’s Chief Director of Legal Tax Design, and he explained that there are many loopholes being exploited by (non) tax-payers:

Why foreign earnings may now be universally taxed:

. Initially introduced to ease the tax burden on employees, the Treasury encountered situations in which no income tax was paid in SA or in the foreign country.

. The UAE, for example, pays no income tax and the Treasury believe this needs regulating.

. Removing the exemption would mean that tax would be paid on worldwide income in SA, whatever the length of time worked abroad.

. The Treasury does maintain that tax credits will be recognised for any foreign taxes paid.

The bill is looking to make comprehensive changes to revenue laws: Yanga and his team also want to introduce a levy on bargaining councils to tackle non-compliance, as well as pursuing more ‘anti-avoidance’ avenues.

The buying-back of shares, dividend stripping and contributed tax capital will all be under review from the new legislation.

Read: A reminder of how dividends are taxed

The proposal is still open to comment until August 18th, and the Treasury has vowed to listen to the public’s reaction. They plan to hold workshops and meetings with citizens in order to develop a fairer system.

Pending any amendments, the law should come into effect from March 1st, 2019.