October 15, 2021

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 latest amendments ‘exit taxes’.

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

Up to now, tax administration of overseas incomes and taxpayers’ motion was hampered by a lack of jurisdictional help and poor info past the jurisdiction of any tax authority, he stated.

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

“Our recent amendments, that some colloquially and inaccurately refer to as an ‘expat tax’ or ‘exit tax’, remove exemptions that have benefited South African tax residents who spend a portion of their time in employment out of the country.”

Which means any will increase within the tax liabilities confronted by these taxpayers come up from stopping beneficiant exemptions relatively than the imposition of new taxes, Godongwana stated.

What’s the ‘exit tax’? 

Nationwide Treasury revealed 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) accommodates an modification that proposes to tax retirement fund pursuits of people after they stop South African tax residency.

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

“The rule stated that individuals must be non-residents for tax purposes for three consecutive years before being allowed to withdraw their funds in full,” the agency stated.

“This creates a mismatch between withdrawal and the actual date of ceasing tax residency, which necessitated this latest amendment.”

Spending, not gathering, is the problem

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

Additional, cash can solely be withdrawn from the NRF by way of an appropriation or direct cost by way of an Act of Parliament. The NRF can also be yearly topic to an audit, and its monetary statements are tabled in parliament yearly, he stated.

“The Treasury is able to assure the country that the flow of revenue from SARS after it has received the revenue due from taxpayers to the NRF is safe and there is little risk of losses through corruption and embezzlement.”

“The biggest scope and risk of corruption occurs once funds are allocated from the NRF to organs of state in terms of the budget, when it is up to the accounting officer or accounting authority to manage the spending of budgeted funds, including their procurement processes, in terms of the Public Finance Management Act or Municipal Finance Management 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 according to budgeted goals and that the state will get full value-for-money, he stated.

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