There’s a major problem with SA’s new double-tax laws: expert
A Facebook page with over 8,000 members condemning South Africa’s new tax laws has backfired, with SARS stating that the large group clearly shows that more people were dodging taxes than previously thought.
South African Revenue Service (Sars) group executive for legal policy and research Franz Tomasek told MPs on Tuesday that the number of protesters on the page was an indication that there were far more people who had left the country than the 5‚109 individuals who declared non-taxable foreign remuneration in 2014/15, reported TimesLive.
The Facebook page is the latest in a large group of South African’s who are calling the new tax laws “discriminatory”.
The amended laws which will come into effect in March 2019, state that South African residents who earn while working abroad will now be subject to tax on all such remuneration in South Africa in the same way that they are taxed in South Africa.
To counteract this, South African taxpayers will be entitled to claim a foreign tax rebate against their South African income tax for any foreign taxes paid in any other country in respect of that remuneration.
A big issue
While the majority of criticism is focused on the “unfair” new laws, they will also introduce a number of issues of their own, said Jenny Klein a principal associate at ENS Africa.
One of the biggest issues that arises in relation to claiming foreign tax rebates, is that this may only be done in the employee’s annual tax return.
“There is currently no mechanism for taking foreign tax rebates into account for purposes of employees’ tax (pay-as-you-earn “PAYE”) withholding.”
“This may result in an employee who is on a South African payroll being subject to PAYE in South Africa and foreign withholding tax in the country of source (ie where the services are rendered), without being able to offset the foreign tax against the PAYE.”
The only way to get around this would be to get a directive directly from SARS, she said. However any refunds due by SARS in respect of the foreign tax rebate claimed in the employee’s tax return may also take some time to be processed and paid.
“As a result, there would be cash flow implications for the employee or for the employer if the employer pays the taxes due on behalf of the employee in terms of a tax equalisation policy,” she said.
Tax equalisation is the offsetting of any such difference so that working abroad is tax neutral for the worker.
Klein also believes it will be difficult for taxpayers to obtain adequate documentary proof of the taxes paid in a foreign country for purposes of claiming a foreign tax rebate.
This is further complicated by the fact that the foreign country’s tax year is typically not aligned with the South African tax year.
“If the employee renders services in a jurisdiction that has a lower income tax rate than South Africa, the removal of the exemption would result in a higher overall tax liability for the employee than is currently the case.”
“If the employee is tax equalised, this could result in a significantly higher tax cost of the assignment for the employer, particularly taking into account the fact that any taxes borne by the employer on behalf of the employee are required to be grossed up for fringe benefit tax purposes,” she said.
Read: Move to double-tax SA expats slammed as discriminatory
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