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Cape Town – When South Africans heard that government is proposing to repeal a provision that exempts those who work overseas from paying tax in South Africa, they thought it was fake news, Barry Pretorius from the Expat Tax Petition Group told Parliament on Tuesday.
Pretorius was one of the interested parties who made a submission before the standing committee on finance during public hearings on National Treasury’s new tax proposals.
His submission dealt specifically with the intended repeal of an exemption – Section 10(1)(o)(ii) in the Taxation Laws Amendment Bill – 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.
Pretorius, who works in the United Arab Emirates (UAE), told members of Parliament that National Treasury’s draft legislation in this respect created “confusion and stress” among South Africans abroad.
“There has been a groundswell of voices and we urge you to please pay attention to what we’re saying.”
Pretorius claimed that South Africans who work abroad are “working class people who are busy earning a wage and merely trying to survive in foreign jurisdictions”.
He added that there is no such thing as countries with “no tax”, as people who live and work there pay consumption-based taxes.
“If government decides to repeal section 10(1)(o)(ii) that allows for tax exemption it will stifle South Africans’ ability to be competitive in the foreign countries in which they’re working," he said.
He added that foreign nationals inject about 70% of their income back into South Africa. If National Treasury goes ahead with the proposal to repeal the exemption, it will place foreign nationals in the highest tax bracket in South Africa.
“Overseas we fall in low or middle class income groups. What little capital we have left we inject back home.”
Pretorius also claimed that “194 out of 196” countries around the world don’t tax their expats.
Jerry Botha, managing partner at Tax Consulting, said in his submission that National Treasury’s proposal will have a considerable impact on students who want to work outside South Africa, newly qualified professionals and professionals who want to gain work experience overseas.
“Don’t ruin it for them, please. These people may break ties with South Africa if they can’t adhere to these regulations.”
He said in the UK people are exempted from paying tax if they earn below a certain threshold.
“But in South Africa the tax threshold is far higher. We plead with you to look at this properly,” Botha said.
Treasury's preliminary response
Chris Axelson, director of personal income taxes and saving at National Treasury, said in his preliminary response to the submissions heard that Government had put considered thought behind this proposal.
He also contested Pretorius’ assertion that double taxation does not occur in other countries.
“Research that we have done has shown Australia, New Zealand and Canada treat this exactly the same. In Canada, for example, if you have a car registered in your name (although you don’t work there most of the time) you’re being viewed as a tax resident.
“Our proposal isn’t out of line. In fact, the exemption has put us out of line with the rest of the world,” Axelson said.
He added that a number of South Africans who work abroad have not formalised their affairs with the South African Revenue Service (SARS).
“They’re seen as tax residents when in fact they are no longer that. So what do you do? Do you tell SARS and then you are liable for capital gains tax on your worldwide assets?”
Axelson said National Treasury received in excess of 1 300 submissions on the tax proposals.
“A lot of people wrote to us about their particular circumstances and we’ll carefully consider them.”
He conceded that the implications of the repeal will be “severe”, especially for people working in low tax jurisdictions.
“Say for example you work in the UAE and you earn a million rand, you need to pay R350 000 tax.”
Axelson said Government is indeed concerned about people with skills leaving South Africa permanently.
“We are saying, ‘don’t give up your passports'. This proposal is just a draft and we’re still discussing this. It seems we have been too generous in the past (with the exemption), but we’re willing to make amendments if we need to.”
On September 12 National Treasury will give extensive feedback on the proposals received.
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