Treasury, SARS not budging on expat tax

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Despite hosting a workshop last week where they were given feedback from experts in the financial industry, National Treasury and the SA Revenue Service (SARS) are not budging on an amendment to the foreign income tax exemption set to become effective on March 1, 2020.

In terms of the amended section of the Income Tax Act, South Africans working abroad will in future be taxed in South Africa on any foreign income exceeding R1 million.

National Treasury stated at the start of the workshop that it would only deal with administrative and implementation issues, while attendees, again, raised policy concerns included in their submissions.

One major point of contention was the taxation of certain fringe benefits ought to be exempt in certain instances.

"Basically, the message we got at the Treasury workshop was that the only way the implementation of the amendment could be stopped or changed, would be to approach Treasury's and SARS' political 'superiors'," Jonty Leon, a tax attorney at Tax Consulting SA, told Fin24 on Monday.

"It was clear that we can make as many submissions as we want, but the policy decision sticks. That means the exemption of only R1m stays and at the same time fringe benefits and allowances will become taxable."

Leon pointed out that in some parts of the world security is essential and companies often supply their employees with such protection services, which can be quite expensive. Under the proposed amendments to the SA Income Tax Act, however, a SA taxpayer would have to pay tax on this kind of "benefit" if his R1m initial exemption is surpassed.

"The reality is that with this amendment, any additional cost would ultimately have to be borne by the employer, as no expat would accept an assignment without these benefits and, to ensure that these assignments remain lucrative, the employer would have to increase the expat’s package," said Leon.

He said a possible next step would be to try and "fight" the amendments. It might mean having to take the issue to Parliament.

"Whether that will work or not, is not sure. Otherwise all we can do is provide basic tax assistance for these South Africans working abroad in figuring out what would be best for them to protect their foreign income," said Leon.

He said there are a few countries in the world following the same approach as the one intended by Treasury and SARS in SA.

"But most countries do not follow this route and allow foreign income to be exempt. On top of that many countries usually have far lower standard tax rates than SA," said Leon.

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