Treasury urged to review double tax on expat workers

Cape Town – Tax experts on Tuesday urged National Treasury to give careful consideration to the economic implications of repealing a provision that exempts certain South Africans who work overseas from paying tax in South Africa.

Parliament’s standing committee on finance hosted public hearings to allow stakeholders to give input on a range of new tax proposals from National Treasury.

One of the most controversial is to repeal the exemption that allows locals who work abroad for a period of longer than 183 days a year to pay tax in the country where they are working, and not in South Africa.

National Treasury claims the exemption, which was introduced in 2001, has been abused and created the opportunity for some South Africans to not pay any tax at all – especially those living in low or no tax jurisdictions.

Kyle Mandy, tax policy leader at PricewaterhouseCoopers, said in his submission that aspects such as the higher cost of living associated with living overseas should be taken into account when Treasury considers repealing the exemption.

“Most countries we’re dealing with here are far more expensive than South Africa, for example the UK and the United Arab Emirates (UAE). These factors need to be taken into account.”

He also pointed out that South Africans working abroad will not receive a tax credit for making contributions to social security in the countries where they work.

In addition, a number of expats are maintaining two households, which comes down to a duplication in living costs for them.

“We recommend that National Treasury do a full review of the economic impact (of this proposed repeal),” Mandy said, “and take into account options and mechanisms that will mitigate the unintended consequences.”

Mandy said it’s still unclear how much the repeal of the exemption will contribute in terms of revenue collection.

“No one really knows the answer to this – not even National Treasury, because we don’t know how many South African expats there are. Rumour has it there are 50 000 in the UAE, but no one knows for certain.”

Erika de Villiers from the South African Institute of Tax Professionals pointed out that the South African Revenue Service’s foreign tax mechanism is onerous. “Even if you do everything correctly, taxpayers struggle two years to get their credit back.”

That means a South African working overseas could be liable for paying 75% tax (in South Africa and in the country where he or she is working), and then wait a considerable time for the tax credit.

The South African Institute of Professional Accountants pointed out in its presentation that there are vast differences between what is taxable in various countries.

The institute also said that a number of other countries, even so-called low or no tax jurisdictions, have indirect taxes Treasury’s proposal is not taking into account.

In its response, National Treasury stated it will take the submissions and public comments into account before a decision is reached about the repeal.

The new regulation is expected to be implemented in 2019.

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