South African Services Withholding Tax Could Deter Investors

By ExpatBriefing.com Editorial 09 May, 2013

PwC Tax Services has warned that the introduction of a withholding tax on cross-border services payments, as proposed by Finance Minister Pravin Gordhan in the Budget announced in February this year, "may erode South Africa as an attractive destination to foreign investors."

Gordhan disclosed in his Budget that a withholding tax (possibly at 15%) will be imposed on service fees paid to non-residents from March 2014, at the same time as the much-delayed introduction of a 15% withholding tax on interest paid to non-residents and the increase to 15% (from the current 12%) in royalty withholding tax.

"Recent proposals to extend the reach of a withholding tax on cross-border services provided to non-resident persons is not in line with international norms and make South Africa unattractive as an investment or operating location," said Elandre Brandt, PwC International Tax Partner and Head of the Africa Tax Desk based in Johannesburg.

"The South African Government is concerned that non-resident providers who derive income from South Africa may not all be paying tax in the country; therefore the need to deduct the tax before their payments are received," Brandt continued.

It was pointed out that South Africa could be "better off not scaring away potential investors and creating another administrative tax burden to South African taxpayers." In practice, a withholding tax, which should be an advance payment of tax on profits, but which is often imposed on turnover at percentages that range from 5% to 20%, effectively erodes the profit margins made by businesses, and results in price rises on goods and services.

"South African taxpayers who regularly procure services from abroad will also have the administrative burden of deducting the tax, remitting same to the South African Revenue Service (SARS), and ensuring that proof of the tax suffered is obtained (from SARS) and provided to the service provider," added Brandt. "Although guidelines on compliance with the administration of the tax are yet to be released, this unrewarded obligation will require a fair amount of investment (both time and infrastructure) and recurring man hours from taxpayers."

Tags: Expatriates | South Africa | Compliance | Tax | Business | Royalties | Tax Rates | Withholding Tax | Services | Africa |

 





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