Tax revolt coming soon

LAST STRAW?: SARS TO PURSUE SALARIES SA CITIZENS ARE EARNING IN OTHER NATIONS

Those who would be affected reacted with fury via chat shows this week, saying they’ll do anything to avoid paying Sars.

If Sars can force companies in low-income tax jurisdictions to report salaries payable to SA taxpayers, it may result in aggressive tax avoidance measures. It seems government is set on pursuing the income South Africans earn in non- or low-income tax countries.

Some reports state, based on current trends, Sars could be short of anything between R50 billion and R70 billion, regarding its budgeted 2017 numbers.

Last week Treasury confirmed it intends to go ahead with its plan to tax the South Africans who, over the last 20 years or so, have sought employment opportunities elsewhere.

How large this number is, is difficult to say. South Africans are now working in places such as Dubai, Saudi Arabia, the United Arab Emirates and even Thailand in ever-increasing numbers.

The tax arbitrage of working in these low-income countries resulted from the so-called 61/184-day application of the definition of tax residency. Work an aggregate of at least 184 days outside SA, of which 61 days at least must be continuous, and you only pay the tax applicable in your host country, which can range from 0% (Dubai) to 15% in Mauritius.

Now, Sars wants to tax these South Africans as much as a 45% marginal rate, even though they’ve spent very little, if any, time in SA.

The cost of living in many Mideast kingdoms and emirates is substantially higher than in SA. Any move to tax these incomes at SA rates will wipe out the advantages of working in another country.

On chatshows and in website comment sections where this issue was discussed in February and this week, it was a hot topic. Callers, either working in Dubai themselves or their family members in SA, were livid about these plans. The consensus was that they would do everything in their power to disguise their assets. In short: they’ll now start cheating and hiding their income as best they can.

What is not yet clear is whether Sars can force foreign companies in these jurisdictions to report salaries payable to South African taxpayers to the local revenue authorities. It also creates, in my view, the incentive for these affected taxpayers to consider aggressive tax avoidance measures.

Don’t underestimate what offshore tax havens will come up with in an effort to create loopholes.

Tax morality in SA has, by and large, despite the obvious tax evasion revealed by #Guptaleaks, remained quite acceptable by world standards.

In my little world taxpayers may grumble but they generally pay their dues.

But tax morality is under pressure from a variety of sources. Personal taxes in particular, have been creeping up on a wide front. Taxes are much higher than a couple of years ago, whether it be capital gains taxes, dividend income taxes, taxes paid by trusts or other conduits of income/capital.

Next in line is inheritance taxes and many concessions existing today will be gone in a couple of years, further adding to the pressure on disposable income for high net worth taxpayers. Even low-income earners are using all kinds of techniques to avoid being caught in the tax net. Is this a sign of things to come? Magnus Heystek is investment strategist at Brenthurst Wealth.