Durban - Tax experts and analysts have described the taxman’s move to lock down emigrants’ retirement annuities for three years as “draconian” and harking back to former apartheid exchange control regulations that would frighten investors.
Free Market Foundation chief executive Leon Louw said the move to force emigrants, many of whom, according to emigration agents, are heading for the UK, Australia, New Zealand and Canada, to keep their retirement annuity funds in South Africa for three years before being able to transfer them abroad, reflected a “doomsday mentality”.
According to the new rule in the Taxation Laws Amendment Bill, citizens who have already emigrated or plan to permanently leave South Africa have until February 28, 2021, to financially emigrate, or face their retirement annuities being locked in for three years. National Treasury and Sars presented the proposed amendments to the Standing Committee on Finance in Parliament this week. The three year lock-in will be implemented from March 1, 2021.
“Why, they should ask, is the problem emigration - personal and financial - rather than, as in attractive countries, immigration? At a time when self-immolating expropriation without compensation is envisaged, what might be called inpropriation is being added to a growing list of anti-prosperity policies,” Louw said.
“There is no appreciation of the fact that forex (foreign exchange) control is Neanderthal. Most countries, even poor countries like our SADC neighbours, abandoned it, or most of it, long ago. They are taking us back to the past. We suffer under the yoke of an ever-tightening oppressive apartheid measure, imported from Hitler’s Nazi regime in the 1960s ,” Louw said.
He said new policies should be preceded by Socio-Economic Impact Assessments (SEIAs).
“None has been undertaken. For that reason alone, the idea should be ditched. A properly conducted SEIA includes quantified estimates of impacts, especially unintended consequences, such as the effect of the message this sends investors, namely get out and stay out,” Louw said.
PWC tax technical policy leader, Kyle Mandy, said the move was “draconian” but the aim was to encourage the preservation of retirement funds so that people did not become a burden to the state. However, he said the decision had upset people.
“On the basis of preservation you can’t willy-nilly access retirement funds but the one exception is emigration. The controversial aspect is you have to wait three years and that is what has upset a lot of people.
There are two primary objections - very often those funds are required for emigrants to set themselves up in another country, given the costs of doing so; and the second objection is emigrants have to leave funds behind in rand exposed to currency depreciation while they are sitting in another country. To force emigrants to wait for three years to access their funds when they have no intention of returning to South Africa is rather extreme,” he said.
However, Anchor Capital wealth manager Sandy van der Zanden said the regulations represented a relaxation of exchange control measures.
“The proposals actually represent a relaxation of exchange control as members of retirement funds will no longer be required to ‘emigrate’ in order to access the funds when leaving South Africa. Instead of emigration, members will have a new tax-residency test - members must have ceased to be a taxpayer and remain a non-tax resident for at least three consecutive years before accessing the funds.
“The net effect of this is that funds will potentially be locked up for three years before they can be accessed,” he said.
“There may be a mismatch here between the letter of the law and the spirit of the law and this should possibly be reviewed.”
Meanwhile, emigration agents have reported that despite the lockdown, steadily high numbers of people are seeking to emigrate.
Strategies Migration Services South Africa managing director Munyaradzi Nkomo said the firm had experienced consistently high numbers of people seeking to emigrate, including professionals and tradesmen, but also people who wanted to join family abroad.
Migrate2Oz emigration agent Reuven Abeshouse said business had initially died at the start of lockdown but numbers of people seeking to emigrate had since risen.
“We have seen an increase it is an ongoing increasing trend towards people wanting to leave ,” he said.
He said in the past two months as more people retuned to work, the firm had seen a “positive trend” of people seeking to emigrate.
The Mercury