Five areas of expected change in the personal income tax policy of South Africa

29 January 2019

Tax Consulting South Africa has weighed in on the tax discussion in the country yet again, this time enumerating five key areas of the current revenue system where significant changes can be expected. The predictions come from Managing Partner at Tax Consulting SA Jerry Botha.

Healthcare is the first broad domain within which significant changes can be expected with respect to revenue policy. A National Health Insurance scheme is imminent, and the funding for the same is expected to come via the abolition of the current tax credits around medical assistance, according to Botha.

This tax credit is a part of employee salaries, and its removal is expected to cause a reduction therein. Employees will be dealt another major blow as the hike in tax rates is likely to bring about a reluctance to spend, and consequently a reluctance to increase salaries and remuneration.

On the other hand, an area where employees might expect more is in the domain of reimbursements for company travel, primarily as a result of adaptations made in accordance with spikes in the cost of fuel. Employees will also gain from an increase in flexibility in the labour market arising out of this scenario.

Five areas of expected change in the personal income tax policy of South Africa

As explained by Botha, “We have now seen a revolution in employee remuneration by ‘Total Guaranteed Package with Flexible Benefits’, which allows an employer cost-neutral approach, but the employee can structure their remuneration to suit their personal financial requirements.”

The last area where Botha expects changes – a claim that has been publicly reinforced by some of his colleagues – is the taxation policy with respects to wealthy South Arican expats across the globe. According to a new policy that is due to be enforced in March this year, South African expats with income in excess of R1 million could be paying as much as 45% tax.

The new policy is aimed at reducing some of the strain being placed on South African public coffers by tax defaults, in addition to disincentivising the increasingly popular practice among South African businesses to move their operations and employees abroad to places with lower tax rates.

Irrespective, Botha expects most changes to affect employees rather than firms. “Personal income tax, which is mostly collected from employees, is by far the largest contributor to tax in South Africa, The goose which lays the golden egg is employees and not corporate taxes or VAT,” he explains.

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South African companies to be amongst the worst hit by expat tax

16 April 2019

As the realities of the proposed expat tax gradually come to light, experts at financial consultancy Tax Consulting SA have indicated that the new policy is likely to hit companies and employers harder than it is expats themselves, particularly domestic organisations that send employees abroad. 

So far, the focus has been on the struggles in store for wealthy South African expats, who might be taxed a considerable amount of their income if they earn in excess of R1 million. As a result, South Africans living abroad are losing their competitiveness on the job market, given that they require a larger cushion.

Now, more analysis has revealed that the scenario is equally bad for South Africans working for domestic firms, who are sent abroad on assignments. As per the new proposed policy, if the foreign assignment runs for more than 183 days, then the employee is subject to the heavy expat tax.

South African companies to be amongst the worst hit by expat tax

Calculations have placed this tax as high as 45% of foreign income in some cases. Rather than ensuring compliance, which is the purpose of the policy, the new tax is at risk of deterring South Africans from accepting foreign assignments, which runs against the current goals of the government.

The President has made clear his goals of opening South Africa’s doors to foreign businesses. Nevertheless, trade and collaboration with foreign firms is a challenge if South Africans are not predisposed to working abroad. Analysts at Tax Consulting SA have been watching the developments closely, and have warned of this danger. 

“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 the firm.

The new tax is also likely to affect other sections of South Africans living abroad, including those who are permanent residents in another country but continue to have assets in South Africa. Others who will be hit include permanent residents abroad who have not yet settled their finances in South Africa.