South Africa : ‘Exit tax’ for South Africa under review

  • 28 March 2022 / News / 401 / Fares RAHAHLIA


South Africa : ‘Exit tax’ for South Africa under review

The National Treasury will look at the possible introduction of an ‘exit tax’ on retirement funds in 2022 after walking back on the proposal last year.

In 2021 the National Treasury announced a proposal to levy an exit tax on the retirement interests of South Africans planning to emigrate. While the proposal has been provisionally withdrawn for several reasons, the government has made it clear that it intends to revisit the exit tax in the future.

In its national budget review published on Wednesday (23 February), Treasury said that consultations around the proposal are expected to commence in the coming months.

“Consultation on last year’s proposal regarding the tax treatment of retirement interest when changing tax residence showed that multiple tax treaties need to be revised to ensure South Africa retains taxing rights on payments from local retirement funds. The government intends to initiate these negotiations this year,” it said

Jean du Toit, head of Tax Technical at Tax Consulting SA, said that the proposal to impose a tax on retirement interests when taxpayers cease residency was withdrawn last year, as it was at cross-purposes with South Africa’s treaty obligations.

“As promised, however, the Budget Review confirms that the process of renegotiating the applicable treaties will be initiated this year, which may eventually enable the government to implement the proposal,” he said.

The reason for the proposed tax was that SARS may in certain instances lose out on the right to tax retirement interests of taxpayers if they cease South African tax residency.

The concern lies in the wording of certain double-tax treaties that allocate the sole taxing right on these amounts to the country where the taxpayer is resident.

To counter the loss to the fiscus in these cases, it was proposed to trigger a tax on the value of the taxpayer’s retirement interest on the day before the person ceases residency. The tax would only be due to SARS when the benefit becomes payable in future. The proposal has been met with fierce opposition.

“Despite the possibility of an exit tax being reintroduced,  it is important for prospective emigrants to avoid acting on impulse regarding their retirement money, said Samukelo Zwane, head of product at FNB Wealth and Investment.

“Spend some time considering the pros and cons before making a hasty and costly decision to withdraw your retirement benefit and deposit it overseas.”



source: guardian.ng

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