Expat tax might dent competitiveness of South African professionals abroad

As the South African government makes preparations to introduce the expat tax  at the start of March next year, professionals at Tax Consulting SA have asserted that the law in its current form is unfit to be formalised, given that it deals disproportionate disadvantages to wealthy South African expats.

The law is aimed at regenerating some of the capacity in the public coffers in South Africa, primarily by levying taxes on South Africans who live abroad and earn more than R1 million. While the policy might deter the practice of moving abroad in order to avoid high tax rates within the country, it might prove unjust for wealthy expats in some cases.

Parts of the law are problematic, and the South African National Treasury has moved to rectify these issues by organising a workshop for a number of stakeholders in the new policy, including tax payers, government officials and consulting firms. Tax Consulting SA is among the firms that has closely been monitoring the tax policy in the country.

As per the firm, the new policy has potentially negative implications not only for wealthy expats but also for the South African economy in general, given that it will impact the payment practices of multinational firms with South African employees. South Africans living abroad will require higher remuneration, which might act as a barrier for employment.

The workshop is due to be held on the 6th of March, which is weeks after the budget for this year will be announced. Last year, the budget introduced a number of reforms to tax policy, including an overall hike in tax rates. The expat tax is likely to be among the highlights for this year.

The recommendations made in the March workshop are expected to be considered before amendments to the expat tax take effect from 2020. “We hope and believe that the workshop will address the fact that the law as it currently stands must either be scrapped or amended,” says Tax Consulting Attorney Jean du Toit.

“In some instances, taxpayers are offered certain benefits that are actually absolute necessities because of the jurisdictions they work in, such as the services of a security guard or a driver if they work in a jurisdiction where this is an absolute requirement,” explained du Toit about the shortcomings in the policy.

“As the South African Rand weakens against these currencies South Africans are effectively paid more in the foreign currency simply because of the volatility of the local currency. Their taxable income would be unrealistically or disproportionately inflated,” he added.