OWN CORRESPONDENT, Cape Town | Thursday
THE South African Revenue Services (Sars) has proposed substantive amendments to its proposals to shift this country to a worldwide tax system, including concessions for headquarter companies and contract workers.
Briefing Parliament’s finance portfolio committee, SARS law administration general manager Kosie Louw defended the government’s reasons for changing the tax system but alluded to some concessions being considered by SARS.
These included exempting foreign headquarter companies from paying local tax, and easing restrictions on contractors working on projects outside South Africa’s borders.
High net worth individuals hoping to retire to this country, however, would not receive preferential treatment, as has been proposed by some private sector tax experts.
The bill – which seeks to move the country from a source to a residence-based system, as announced by Manuel in his Budget speech in February – has come under fire from the business community.
In submissions to the committee earlier this month, tax consultants warned the move could result in lost foreign investment and might block outward investments by local firms.
In addition, the South African Chamber of Business unanimously passed a motion at its annual convention this week condemning the move as “anti-investor”.
Louw said the residence basis of taxation was an “internationally accepted system introduced by virtually all our trading partners, developed and developing countries”.
It was part of government’s overall effort to lower tax rates to become more internationally competitive, he said.
In terms of the bill, residents and locally-controlled companies will be taxed on their South African and foreign income, while a foreign worker or company in South Africa will pay tax on their local income.
Louw said foreign companies setting up regional headquarters in South Africa with a view to using the country as a base for operations in Africa would fall out of the tax system.
The company would qualify for the exemption if it was wholly owned by foreign shareholders, if local residents held indirect interests of less than 5%, and provided that at least 90% of its assets were foreign-owned.
He said SARS would also allow tax sparing on projects in African countries.
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