Expat tax could be seen as a mechanism to ensure compliance

A senior executive at Tax Consulting SA has indicated that the highly debated and anticipated expat tax to be implemented in March this year is more of a “scare tactic” than anything else, pushing South Africans living abroad to reassess their financial affairs and ensure that they are compliant. 

Since its announcement, the expat tax has been cause for a considerable amount of debate and controversy. Mounting pressure on the public coffers has driven the treasury to examine the funds being lost to foreign countries through individuals that emigrate for more than 183 full days per year.

Where these individuals were previously exempt from tax, they will now pay traditional income tax on any income that exceeds R1 million. Many have discussed the possible implications of this on South Africans living abroad, and on the South African economy as a whole.

Some have argued that the increased tax burden will affect the competitiveness of South African candidates for jobs abroad, which is a significant repercussion given the government’s intentions of boosting foreign trade and investment. Others feel that this will only serve to further hinder the amount of tax money being returned from abroad. 

According to Nicolas Botha at Tax Consulting SA, the expat tax is more a means to pish South Africans living abroad to focus on compliance. “Treasury cross-referenced South African experts and immigration stats and compared them to compliance with tax returns,” he explained.

“What they noticed was that there was a vast difference between these immigration stats and people being compliant, so it was almost a bit of a scare tactic to wake up South Africans to correct their returns and get compliant, Obviously they are also under-budget, and expats earn a lot, so they perhaps want a piece of that pie as well.” he added.

The legislation might serve to rejuvenate government revenues, although concerns remain on how this will fare for international trade relations. Even South African companies that wish to send their employees for assignments abroad will be affected, if the assignment exceeds 183 days. News of the legislation has already prompted many to begin taking evasive steps.