South African residents working abroad must start paying tax, embattled finance minister Pravin Gordhan said this week, as the government adopts new controversial tax hikes and amendments to spur the country’s ailing economy and make up for revenue collection shortfall.
Under the current law, an income earned by a South African taxpayer from working in a foreign country for more than 183 days per year is exempted from tax in South Africa.
However, the treasury believes this exemption is too generous, as the individual is not expected to pay tax in the country of employment in some cases.
Experts said the tax exemption seems to have helped many people working abroad, as some focused on paying off their student debts, saving for a property, or generally creating a financial foundation for themselves as they continue their careers in South Africa.
But the honeymoon seems to be over, as the state wants everyone, including those who work in foreign countries, to pay tax from the 2017-2018 fiscal year. The Treasury has proposed to amended that law, to make it only applicable where income earned for services rendered in another country was subjected to tax in that particular jurisdiction.
Therefore, where no tax was paid in the country of employment, the full amount of the income earned in this period, will be subject to tax in South Africa.
Gordhan, who is engaged in a fierce battle with ANC die-hard supporters of President Jacob Zuma and the Gupta family to save his job and political career, said South Africa was ‘at a crossroads’ and needed to make ‘tough choices’.
But ‘irritated’ tax experts seem unfazed by his warning, saying the change in tax policy will negatively impact the decisions of those who wish to work overseas to raise funds.
Furthermore, the decisions of employees being seconded to work overseas for a period of six months, as well as the planning of their tax treatment during this assignment will also be affected, Sharon Machutchon, tax consultant at Mazars, said this week.
“As an example, for a South African tax resident living and working in a country such as Dubai, this change will dramatically affect their tax liability to South African Revenue Service, increasing from zero to a substantial portion of the money they intended on bringing into South Africa,’ she said.
‘It may be necessary for the individual to do more planning from a tax perspective, if they want to take a job outside of South Africa. Without doing the proper research on the taxes that need to be paid, the foreign income may result in a sizeable hole in the individual’s pocket when filing their returns at the end of the tax year,” Machutchon concluded.
Photo: South African finance minister Pravin Gordhan