Global Courant 2023-05-28 20:00:16
Wealthy South Africans are dragged out of the country and it costs the country billions.
Reply to a recent parliamentary questions and answersthe finance minister said the phenomenon of “mobile higher incomes” is well documented and under review since 2018.
Income tax revenue in South Africa depends to a large extent on a smaller tax base of wealthy people.
According to the minister, a large share of income comes from higher income groups – more than many other peers in the country – due to both a relatively high income tax exemption threshold and high rates for higher incomes.
When asked about recent South African Revenue Service (SARS) tax statistics showing thousands of South Africans having ended their tax residency in the country, the minister said more than 32,000 people had changed residence in the period between 2017 and 2017. 2021.
Of those individuals, about 2,700 earned more than R500,000 per annum and 1,100 earned more than R1 million per annum.
In total, this amounted to R1.3 billion in tax.
However, the National Treasury downplayed its effect on the overall tax base.
“While any loss of revenue is important to track and understand, it’s helpful to indicate the magnitude of the phenomenon relative to our ability to generate revenue,” the company said.
Despite the large loss of tax revenue, the Treasury said it is aiming for R280.6 billion by 2023/24 from taxpayers with taxable income in excess of R1 million per annum.
The minister said it is unclear whether the country will lose or gain more income tax revenue. He said growth recovery is the most reliable determinant of higher tax bases.
As it stands, the National Treasury has not considered alternative methods to make up for this loss in the tax base, with no new policy announcements or proposals designed to ban or discourage taxpayers from leaving.
“From a tax point of view, the goal is to ensure that the correct tax is paid on assets that are transferred abroad. Some of the existing measures have become obsolete due to exchange control reforms,” the minister said.
“As a result, the tax provisions related to paid work abroad and the withdrawal of early retirement pensions upon cessation of tax residence have undergone major reforms over the past five years,” he added.
In the medium term, Treasury also aims to broaden the tax base to lower tax rates, as high rates create a stronger incentive not to comply.
SARS
Tracking taxpayer emigration is officially not done; therefore it is often a complex figure to determine.
One has to rely on immigration data from other countries, estimates or migration experts and the number of questions they have received.
However, ending tax residency in South Africa and emigrating have the same effect: South Africa loses tax revenue.
The latest data from SARS shows that as of the 2017 tax year, more than 40,500 taxpayers reported that they were no longer tax residents. However, in 2021, the number of taxpayers who are no longer tax residents has fallen to 32,831, representing a decrease of 12.1%.
In addition, there was a significant decrease in taxable income, by 46.4% to R6.9 billion, and tax payable fell by 48.5% to R1.9 billion.
SARS said these declines in the value of taxable income and tax paid were mainly caused by the income group above R500,000 taxable income, mainly by persons between 18 and 34 years old and mainly by men.
Despite this indicating a lower but still significant number of South Africans ending their tax residency, Thomas Lobban, the head of cross-border individual taxation at Tax Consulting SA, said it does not paint an accurate picture.
He said the falling number may be due to taxpayers who have already left, but is also rooted in the taxpayer’s new targeted approach to high net worth taxpayers.
SARS has made it increasingly difficult to end South Africa’s tax residency, despite the fact that it is easier to comply with tax obligations. Lobban said systems make it difficult for expatriates to declare that they are no longer a tax resident in South Africa.
SARS has made changes to the emigration processes
Among the most notable developments are changes to the Tax Compliance Status Process and the new Approved International Transfer (AIT), which replaces the traditional way of “emigration”.
The AIT now requires further documentation to support international transfers, including, but not limited to, statements of assets and liabilities, details of locally listed securities and specific documents demonstrating the sources of capital invested.
Tax Consulting SA said the continued impact of emigration on South Africa’s tax base means that individuals considering leaving the country face increasing challenges in doing so.
Read: It should be all downhill from here
