Finance minister Godongwana on South Africa’s new ‘exit tax’ – and why it’s not a tax

Finance minister Enoch Godongwana has clarified Treasury’s place on South Africans who change their tax residency, saying it’s incorrect to name the current amendments ‘exit taxes’.

Answering in a written parliamentary Q&A this week, Godongwana mentioned that these amendments deal with many long-standing inequities in South Africa’s residency-based tax system.

Up to now, tax administration of international incomes and taxpayers’ motion was hampered by an absence of jurisdictional help and poor data past the jurisdiction of any tax authority, he mentioned.

“The worldwide sharing of data between tax authorities is enabling income assortment choices that had been lengthy troublesome to pursue, even in instances the place South Africa could have had taxing rights in precept.

“Our current amendments, that some colloquially and inaccurately consult with as an ‘expat tax’ or ‘exit tax’, take away exemptions which have benefited South African tax residents who spend a portion of their time in employment overseas.”

Because of this any will increase within the tax liabilities confronted by these taxpayers come up from stopping beneficiant exemptions somewhat than the imposition of latest taxes, Godongwana mentioned.

What’s the ‘exit tax’? 

Nationwide Treasury printed the most recent Draft Tax Payments on 28 July 2021, which incorporate the tax proposals made within the 2021 Finances.

The Draft Taxation Legal guidelines Modification Invoice (TLAB) incorporates an modification that proposes to tax retirement fund pursuits of people after they stop South African tax residency.

On account of come into operation on 1 March 2022, this proposed modification could be an extra blow to South Africans desirous to stop their tax residency, following the three-year lock-in rule imposed on retirement annuities earlier this yr, mentioned specialist advisory agency Tax Consulting SA mentioned.

“The rule said that people should be non-residents for tax functions for 3 consecutive years earlier than being allowed to withdraw their funds in full,” the agency mentioned.

“This creates a mismatch between withdrawal and the precise date of ceasing tax residency, which necessitated this newest modification.”

Spending, not gathering, is the difficulty

Answering whether or not these extra revenues might be misplaced via ’embezzlement, rampant corruption and mismanagement’, Godongwana mentioned that part 213 of the Structure requires that every one income collected from a nationwide tax or levy should be paid into the Nationwide Income Fund (NRF)

Additional, cash can solely be withdrawn from the NRF through an appropriation or direct cost when it comes to an Act of Parliament. The NRF can be yearly topic to an audit, and its monetary statements are tabled in parliament yearly, he mentioned.

“The Treasury is ready to guarantee the nation that the move of income from SARS after it has acquired the income due from taxpayers to the NRF is protected and there’s little danger of losses via corruption and embezzlement.”

“The largest scope and danger of corruption happens as soon as funds are allotted from the NRF to organs of state when it comes to the funds, when it’s as much as the accounting officer or accounting authority to handle the spending of budgeted funds, together with their procurement processes, when it comes to the Public Finance Administration Act or Municipal Finance Administration Act. ”

It’s on this spending and procurement section that authorities wants to enhance its mechanisms to maintain funds protected and be sure that all spending is in step with budgeted aims and that the state will get full value-for-money, he mentioned.

Learn: Retirement expectations in South Africa vs actuality.


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