The consequences of scrapping tax exemptions on income earned outside SA
Economist Magnus Heystek says that government’s push towards scrapping tax exemptions for South Africans earning a salary in foreign country will encourage a tax revolt.
South Africans have expressed a mix of concern and outrage over the past week, following the news that the government is seeking to scrap tax exemptions for citizens earning money in other countries, looking for more revenue streams to boost lagging tax numbers.
The Draft Rates and Monetary Amounts and Amendment of Revenues Laws Bill, which is currently open for public comment until 18 August 2017, is aimed at high-income earners who are using offshore tax havens to circumvent national income tax laws.
Under the current laws, if a tax resident works in a foreign country (outside of South Africa) for more than 183 days per year and passes the current income thresholds, the income earned from employment in that country during this period will be exempt from tax in South Africa.
Removing the exemption would mean that tax would be paid on worldwide income in SA, whatever the length of time worked abroad, though tax credits would be recognised for any foreign taxes paid.
In a column on MoneyWeb, Heystek said that tens of thousands of South Africans could be affected by this new policy, and it will ultimately encourage those earning a salary in other countries to “consider aggressive tax avoidance measures”.
According to Heystek, it is unclear if SARS can force international companies to disclose salaries payable to South African taxpayers to local tax authorities – and existing loopholes are in place where these employees can effectively flout the law by not declaring income or assets.
But even if SARS can somehow exceed its jurisdiction in foreign countries, “do not underestimate what offshore tax havens will come up with in an effort to create all kinds if loopholes,” he said.
Heystek said that South African taxpayers are already being pushed to their limit, with higher income taxes, capital gains taxes, dividend income taxes, taxes paid by trusts and perhaps even an inheritance tax in sight. Even low-income earners like plumbers and electricians are starting to go ‘off-book’ with invoicing, he said.