President Cyril Ramaphosa has assented to the Taxation Laws Amendment Act meaning the government’s promise to scrap the exit tax on retirement interests has been confirmed. However, it is looking increasingly likely that government will consider new measures for South Africans leaving the tax net in 2022, says Jean du Toit, head of tax technical at specialist advisory firm Tax Consulting SA.
The 2021 Draft Tax Bills were published in July last year, which tabled the proposal to tax the retirement interests of South Africans ceasing tax residency.
The reason for the proposed tax was that certain tax treaties restrict the South African Revenue Services’ (SARS) right to tax retirement interests of South Africans once they leave the country, said du Toit.
“Government sought to impose an exit tax to counter the potential loss to the fiscus. But the proposal was met with fierce opposition from industry stakeholders and in particular the Expat Petition Group. The problem with the proposal was, among several others, that it would override South Africa’s international treaty obligations,” he said.
“It was announced with Medium-Term Budget Policy Statement that the proposal will be withdrawn following the extensive public participatory deliberations with members of the public in parliament, where the problems with the proposal were ventilated. The promulgation of the TLAA simply confirms the decision to pull back.”
Expect changes going forward
Expatriates and those with plans to emigrate must be aware, however, that this may not be the end of the matter, said du Toit.
“The fact that South Africans are leaving the tax net in droves is in itself a headache for National Treasury and SARS,” he said, adding that the idea that many of these individuals take their retirement interests with them is a real bugbear for them.
“National Treasury and SARS indicated in their response document that they will not let this go and further amendments will be considered in the 2022 legislative cycle. What these new proposals will involve is anyone’s guess, because this problem can only be overcome by renegotiating our existing treaties.”
Du Toit said new changes are expected to be formally outlined in this year’s tax bills. “We will have to wait for the 2022 tax bills to see if expatriates have a new fight on their hands.”
Treasury data published in August shows that the Covid-19 crisis could prove to be a tipping point as more skilled people look to leave the country.
For the first time since the current tax brackets were established six years ago, the country will see a drop in the number of top earners in the 2021 fiscal year, the data shows.
Revenue from the three highest brackets will fall by 8%, or around R22.6 billion according to previously unreported treasury forecasts.
The number of taxpayers earning R1.5 million or more will shrink 9.6% for the 2021-22 fiscal year.
The R1 million to R1.5 million bracket is expected to contract 13%.
The R750,000 to R1 million rand bracket is expected to contract 1.1%.
Personal income tax accounts for 38% of total tax revenue, far eclipsing corporate tax receipts, and those in the top three brackets represent a third of the total personal income tax base.
Treasury said that it cannot attribute the drop directly to emigration as it does not track data on how many people have left the country. However, immigration consultants, real estate companies and bankers have said that they are seeing clear signs of wealthy people leaving.