You can't live in a world without taxation, says Treasury

Treasury's Ismail Momoniat. (File, Netwerk24)
Treasury's Ismail Momoniat. (File, Netwerk24)

Cape Town – Government’s bid to repeal the foreign employment income tax exemption is not a “crazy proposal” compared to other tax jurisdictions, said Ismail Momoniat, Head of Tax and Financial Sector Policy at National Treasury.

Speaking to journalists on the sidelines of a parliamentary briefing on new tax proposals in two separate pieces of draft legislation, Momoniat and his colleague at National Treasury Chris Axelson, director: personal income taxes, emphasised that government will be open to listen to comments and input from stakeholders about the intended tax measure.

“The implications of this repeal can be significant,” Momoniat said, “but the key issue is you can’t live in a world without taxation. If you live in a tax haven and you have connections here in South Africa, you must pay your share.”

National Treasury proposes a number of tax amendments in the draft Tax Administration Laws Amendment Bill and the Taxation Laws Amendment Bill among others to repeal an exemption that creates the opportunity for South Africans who work abroad to not pay tax at all.

The proposals will be subjected to public hearings at Parliament on Tuesday August 29 when the general public, tax practitioners and other stakeholders will be invited to give feedback.

In its presentation on Tuesday, National Treasury said that since South Africa moved to a residence-based tax system in March 2001, South African tax residents have been subjected to their worldwide income. This means South Africans who work outside South Africa for a period longer than 183 days (for a continuous period of at least 60 full days) were exempted from paying tax to eliminate taxation of the same income.

This exemption, Treasury noted, was never intended to create situations where income is neither taxed in South Africa nor in the foreign host country, but it has come to government’s attention that the current exemption creates opportunities for double non-taxation.

The proposed implementation of the repeal of this section in the tax legislation is March 1 2019, National Treasury said.

Individuals who are no longer South African tax residents, such as those who have permanently left South Africa, will not be affected. However, if these individuals have not previously informed the South African Revenue Service (SARS) that they are non-resident, they will need to notify the institution and capital gains tax will be payable on their assets.

According to National Treasury, a tax resident is defined as someone who has a home or a family in South Africa and intends to return to the country.

Individuals who were physically present in South Africa for 91 days during the current year of tax assessment, and for 91 days during each of the five previous years of assessment and more than 915 days in total over the past five years of assessment, are also considered as tax residents.

Where do South Africans go when they leave the country?

Data from the Community Survey compiled by Statistics South Africa in 2016 showed that 26% of South Africans went to Australia between 2006 and 2016, 25% went to the UK and 13.4% to the US.

Based on this information, National Treasury provided a breakdown of the tax treatment these individuals would receive in foreign jurisdictions.

In Australia, for example, tax residents are taxed on their worldwide income, including their foreign employment income.

In the UK, residents pay tax on all their income and individuals are automatically considered tax resident if they have spent 183 days or more in the country in a particular tax year.

In the US, citizens or resident aliens of the US who live abroad are taxed on their worldwide income. This however is related to citizenship and not tax residency. 

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