The National Treasury and the South African Revenue Service’s (SARS) intended plans to try to cast the tax net even wider may end up causing more damage than economic benefits.
Proposed amendments to tax legislation to bring foreign employers into the tax net could have far-reaching consequences, according to Thys van Zyl, CEO of Everest Wealth.
If the proposed amendments are accepted and come into force, it will mean that foreign employers with remote workers in South Africa will be required to register and withhold Pay-As-You-Earn (PAYE), in addition to paying Unemployment Insurance Fund (UIF) and skills development levies.
“This may have a negative impact on remote workers’ ability to continue to live and work in South Africa as it may result in foreign companies prematurely suspending the contracts of these workers and no longer appointing South Africans or digital nomads who want to live and work in the country.”
It is not yet clear whether this will also apply to foreign companies that employ South African taxpayers abroad.
“This creates uncertainty and can discourage foreign companies from looking for talent and skills in South Africa and instead look to other countries where there is less red tape. This will also limit South Africa as a destination for remote workers and may instead result in more people emigrating to work abroad.”
Meanwhile, South Africa is losing more taxpayers due to emigration and those ceasing their tax residency in South Africa. South Africa also does not necessarily have double taxation agreements with all countries and this can cause problems with foreign employers who are in countries with which there is no agreement.
“South Africa lost more than 6 000 taxpayers to emigration last year. At least 400 of these were high-net-worth individuals, people with a net worth of more than $1 million. It is expected that a further 500 of these individuals may leave the country this year. These are people who pay huge amounts of tax that will now be lost.”
The possibility that taxpayers may be taxed even more heavily, such as for example funding the government’s proposed National Health Insurance (NHI), will also result in more people considering options to leave the country. Presumably, this will also lead to an exodus of expertise, which will obviously reduce South Africa’s tax base even further.
South Africa already has a very high-income tax burden relative to other countries. Just over 2.5 million people pay 84% of all personal income tax. Economists have long warned that the tax burden on a smaller number of individuals is getting heavier, with the economy not growing and many taxpayers leaving the country.