South Africa could reintroduce an ‘exit tax’ next week

BUSINESS DAY: 18 February 2022: ( Staff Writer)

Finance minister Enoch Godongwana is expected to provide further details on an ‘exit tax’ for South Africa in his inaugural budget on 23 February, say legal experts at ENSafrica.

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 While the proposal has been provisionally withdrawn for several reasons, the government has made it clear that it intends to revisit the exit tax in the future.

“Last year, proposed changes were announced to impose a deemed exit tax on an individual’s interest in a retirement fund when the individual ceases to be a South African tax resident,” ENSafrica said.

“These changes were withdrawn from the 2021 draft tax bill after public participation and a process of renegotiation of affected tax treaties is required. The minister is expected to announce the next steps in this regard.”

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 was 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.”