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income tax
The National Treasury and SARS recently confirmed that their proposal to impose an income tax on the retirement interest of immigrating taxpayers would not be included in the final Taxation Laws Amendment Bill, which was previously expected to be tabled in Parliament.
The initial proposal

In July of last year, the 2021 Draft Tax Bills were unveiled to reveal a controversial proposal, which suggested an introduction of exit tax on retirements interests for South Africans who leave the country.

This tax was proposed on the basis that SARS may lose out on the right to tax individuals on retirement interests should they choose to cease their South African tax residency. A concern arose from the wording in certain double tax treaties, which gives the country where the taxpayer is resident exclusive taxing rights over these interests.

To offset the loss in these instances, an exit tax was proposed on the value of the taxpayer’s retirement interest on the day before their departure, which would be payable to SARS once the individual receives access to their interest. Understandably, this proposal was met with resistance.

Opposition from South African expatriates

This proposal was seen as a new amendment directed to a particular group of taxpayers who have been continuously hurt by year-to-year tax law modifications. As a result, The Expatriate Petition Group (EPG), with an active membership status of over 15,000 individuals, banded to oppose the proposal.

In arguments submitted on behalf of the EPG, it was claimed that the proposal adds to the narrative of marginalization of expatriates and would isolate another critical segment of South Africa’s tax base.

The submission also highlighted several other challenges the proposal faced, the most notable being that the proposal was designed to undermine the provisions of existing double tax treaties. This would be uncharted territory for a country that has always upheld international treaties. Enacting domestic legislation to go around treaty provisions goes against not only the treaty with the relevant partner but also the country’s obligations under the Vienna Convention on the Law of Treaties.

For the taxpayer, the acceptance of this proposal would result in double taxation without recourse, as the exit tax levied in South Africa would be deemed illegitimate. The individual would undoubtedly suffer financial strain, as the proposed section would charge interest on the delayed tax.

Response from the South African Government

National Treasury acknowledged the validity of the remarks made, particularly those about breaching international treaty obligations. However, they did highlight that the proposal would be revisited, as the problem should somehow be addressed. Although the initiative may be brought back in the future, we can expect little movement on the problem unless existing treaties are renegotiated.

We help both individuals and businesses with comprehensive income tax services. Please get in touch with the team of expert consultants at MMS Group for assistance or advice on your tax matters.

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