Improved tax benefits for foreign employees = more skills

Disclaimer: Please note that this article is at least 12 months old.
Any information herein was accurate when published on 6 October 2008

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Offering comprehensive tax incentives to inbound expats could significantly increase our skills base, says Kemp Munnik, director at BDO Spencer Steward Tax Services.

Inbound corporate relocations are critical for the development of South Africa. With the skills shortage impacting on virtually every business sector, it is vital that we incentivise highly skilled people from other countries to enter the local workplace and, in so doing, create and support jobs at the lower end of the skills spectrum. A key means for South Africa to create incentives for companies to import skills and motivate individuals to immigrate to our country is through tax benefits – something we're not using to our advantage.

Skills create jobs, both of which are in short supply in South Africa. Even before the pre-2010 growth spurt, many sectors were already struggling to source the skilled staff needed to service existing business. This has had a significantly negative impact on the growth potential of local companies. Without the skilled staff needed to manage the production of goods and services, one cannot accept future business. Jobs cannot be created.

With skills in short supply internationally, South Africa arguably finds itself in the same situation as many other countries across the globe. This means that for local businesses to compete for staff effectively with companies in London, New York or Sydney, they have to not only offer expats financial compensation that's on par with these, but additionally “prove” that South Africa is the ideal place to further one's career – and this is where our dilemma emerges.

When faced with a choice of London or Johannesburg for the same salary, factors like the exchange rate, and safety and security start to weigh heavily in the equation, placing South Africa at a distinct disadvantage. While climate and natural beauty are a given, personal safety and security cannot be guaranteed. The cost of living is on the increase with the Rand steadily decreasing in value, and load-shedding looks set to be a challenge we will have to live with well into the foreseeable future. If one is therefore appealing to a skilled individual to relocate, especially with their family, a comparative salary will simply not be enough to lure them here.

This is where I believe offering comprehensive tax incentives could make a difference. Our current situation where inbound expats are taxed virtually the same as South African citizens does not assist businesses import critical skills and consequently create local jobs. Companies have to invest a large amount of money and resources in facilitating relocations, as well as make financial packages extremely lucrative so they outweigh local challenges – with no real tax benefits encouraging this or making it any less costly. Simply put, offering an individual a small accommodation and personal expenditure budget, while taxing their salary at a rate of 40%, isn't a good deal for anyone looking to relocate – and something that usually forces a company to considerably sweeten the package it's offering, again with no tax relief. This can become prohibitive and impractical and, ultimately, an exercise which is subsequently aborted.

If, on the other hand, companies could pass on worthwhile tax benefits to their foreign expats while profiting from this type of exercise themselves, they would be far more likely to invest the time and money required to source international skills. Positions that would otherwise remain vacant – with the subsequent knock-on effect lower down the skills tier – could potentially be filled that much faster as a result, with foreign staff incentivised to stay to the end of their contracts. Until such time as this becomes reality however, we continue to limit our economy's growth by virtue of the limited skills available within our borders.

For South Africa to therefore take its rightful place as an attractive expat destination, authorities are going to have to become realistic about our country's challenges – and use the appropriate financial tools at their disposal to make these less of a deciding factor for immigrants. By creating a tax haven where foreigners can make real money while enjoying the benefits of an incredible climate, incomparable natural beauty and first world standards of living, South Africa could become a real competitor in the international job market and, in so doing, finally start to dent our local unemployment rate.

Disclaimer: Please note that this article is at least 12 months old.
Any information herein was accurate when published on 6 October 2008