CIARAN RYAN: This is CFO Talks and today we’re joined by Tanya Tosen of Tax Consulting. Tanya has over 15 years of tax and employee benefit experience, which encompasses optimising employee salary packages incorporating all benefits, both from a tax and cost perspective. Her years of experience also extend across complex payrolls, providing specialist technical knowledge around employee and expatriate taxes. She’s one of the few consultants who has worked both as an in-house tax analyst, as well as a specialist consultant and, thus, understands both perspectives. Previously she was with Johnson & Johnson and Hatch Goba, where she worked in both payroll and finance departments managing local employees and over 150 expatriates in 15 countries, including Africa, Europe and the Middle East. She was also a tax manager at Deloitte. Now she is part of Tax Consulting, which is a firm specialising in employee remuneration structuring, employees tax audits and employees tax training. With her largest client having over 1200 expatriates, Tanya also assists many multi-nationals with both complex remuneration and tax solutions. She’s also considered as one of the leaders in the areas of tax and benefit compliance and process optimisation. Welcome, Tanya, given your background with multinational companies, you would have a pretty good sense of how South Africa stacks up against other countries in terms of the complexity of its tax code. Is our code more complex than other countries?
Thank you for having me on the show. Yes, most definitely, I would definitely say that South Africa stacks up as one of the most complex tax systems in the world.
CIARAN RYAN: Really?
Yes, most definitely.
CIARAN RYAN: Why so?
TANYA TOSEN: A lot of the countries, I remember when I did my post-graduate degree, our tax lecturer actually told us that for a lot of countries their tax law only has about 100 pages and for our [tax law] we got these massive manuals and I was so overwhelmed and she actually told us that it’s usually because South Africans always try to find a loophole somehow. We are very creative in not abiding by laws. So they have tried to generate as much revenue as possible by closing in certain loops and we’ve seen this over the years. If we just take travel allowances, for example, and reimbursement travel and how that has changed over the years and how SARS is trying to generate additional income, as well as with the retirement reform, which came into effect on March 1 2016, they have made it, seemingly, easier and encouraging for individuals to contribute more towards their retirement fund. But with the complexity around those calculations we continuously see that companies still get it wrong.
CIARAN RYAN: Right, I remember reading an article some time ago about the United States tax code, it’s apparently 29 000 pages long. I don’t think we are there yet, are we?
TANYA TOSEN: No, definitely not there yet. However, there are specialist areas within our tax system, where I would encourage individuals or corporates to consult with because you can get yourself into a sticky spot with SARS if you don’t know what you are doing.
CIARAN RYAN: Just for people who are not South African, SARS stands for?
TANYA TOSEN: The South African Revenue Service.
Generally South Africans are not totally law abiding
CIARAN RYAN: Our favourite organisation, okay. So we do have a complex tax code and it’s because SARS, our South African Revenue Service, is trying to close loopholes, so we’re pretty good at finding loopholes?
TANYA TOSEN: Yes, I think you can even see that on…if you just take our highways, for example, our laws are generally just a guideline for South Africans, so we try to find areas where we can optimise a situation.
CIARAN RYAN: Right, you’re talking about our e-tolls and where I think it’s only 20% of the people who are paying for e-tolls, the rest are getting a free ride and the system is broken and will never work. So this is kind of indicative of our national character in South Africa.
TANYA TOSEN: Correct and generally South Africans are not totally law abiding, unfortunately, and SARS has picked up on this and they are now taking stringent measures to generate…SARS is not making budget year-on-year and they are taking stringent measures to actually capture those non-compliant individuals and hold them accountable. For argument’s sake it’s now a criminal offence if you do not submit your tax returns. Last year the Common Reporting Standard also entered South Africa and what that means in layman’s terms is the South African Revenue Service now has access to all bank accounts worldwide. So for those individuals who have not disclosed their income from a global perspective, which is required if you are a South African tax resident, SARS now has access to a whole bunch of information.
CIARAN RYAN: So if you have a Swiss bank account and you’ve been hiding your money away in Switzerland, they can get access to that bank account as well?
TANYA TOSEN: Yes, 100% that is correct.
CIARAN RYAN: Goodness gracious, what about the Cayman Islands, is there no place safe from SARS at the moment?
TANYA TOSEN: No.
CIARAN RYAN: No place at all?
TANYA TOSEN: No, not to my understanding. They are upping their technology and their IT skills, and because the world has become a global village with technology this is easily accessible and SARS has entered into arrangements with the respective countries accordingly.
CIARAN RYAN: How do you become a tax consultant and what drew you to this area?
TANYA TOSEN: Especially with South Africa being such a complex tax system I always thought it would be beneficial from a personal perspective to educate myself and to understand how you can optimise your current structure, whether it’s from your personal salary side, as well as your tax return. So I knew it was a challenging system and I enjoy challenges but I thought it would be great to actually educate myself and understand the reasoning and how our tax system works.
CIARAN RYAN: Okay, Tanya, if you were designing the tax code from scratch, are there any areas that you would redesign completely? How would you start, if you had a blank piece of paper what kind of tax system would you come up with?
TANYA TOSEN: I often get the question that is how can we pay no tax and that’s what every South African would love, especially in the Middle East there are zero tax systems in place, and everyone has the perception that that would be like utopia, why can’t we follow that route. Unfortunately, what employees and corporations sometimes don’t understand is that the cost of living over there is so much higher, so they capture their taxes in a different mechanism. So there might be no tax against your salary, however, your cost of living is exorbitant in comparison, so they make up for it in other areas.
CIARAN RYAN: So in an ideal world we’d have zero tax, that blank piece of paper would stay blank in your ideal world?
TANYA TOSEN: I think our system in South Africa is a little bit fundamentally flawed in the sense that we generate most of our taxes from individuals, which is a very big concern when our economy is taking so much strain, where retrenchments are on the up and up and our GDP is not growing significantly enough and we’re not creating enough jobs. So if I could swing where the taxes are generated from I would like to possibly provide individuals with more tax relief because there’s continuous pressure on South Africans, which you can see on an annual basis.
Only 3 million taxpayers in SA
CIARAN RYAN: Right, I think it’s individuals and when we talk about individuals we’re talking about middle class South Africans who are paying the bulk of the tax in this country, is it over 50%?
TANYA TOSEN: Yes.
CIARAN RYAN: Coming from what, is it 3 million taxpayers?
TANYA TOSEN: Correct.
CIARAN RYAN: That’s a frightening figure, isn’t it?
TANYA TOSEN: It is and it’s concerning when jobs are lost and especially after the budget speech this year there was no inflationary adjustments to the tax brackets, so ultimately South Africans are poorer based on that.
CIARAN RYAN: Now, just talk for a minute about your line of work, you consult to companies, give us an idea of some of the typical issues that companies run into, what are their big tax concerns? Is it for their employees, they are trying to retain their best employees and they’ve got to offer them good packages, which are tax efficient?
TANYA TOSEN: That’s 100% correct.
CIARAN RYAN: So how do you do that?
TANYA TOSEN: A lot of organisations approach us to try to optimise their remuneration structure, both from a tax and cost perspective. They also ask us how they can attract the correct talent into their pool. The way we consult and recommend solutions is the fact that you will find a lot of organisations if they have a traditional remuneration structure approach they have a flat contribution to, let’s say, the pension fund or the provident fund and they have fixed contributions for life cover, disability cover and medical aid. What happens is when a new employee, who they are trying to attract into their organisation, they have to actually gross that package up quite significantly to either match that net pay that the individual is getting or to better that to attract that individual to their organisation. So what we do and what we recommend to organisations is that they provide a level of flexibility into the benefit structure and that allows the individuals to make personal selections according to their financial requirements.
CIARAN RYAN: Let’s talk about flexible benefits because this is where the cream is, if you’re trying to attract and retain the very best talent, give us an example of what benefits can be flexed – if that’s the right word – with a remuneration package?
TANYA TOSEN: Yes, that’s absolutely right, Ciaran. For example, a lot of organisations would offer three times life cover, as an example, so we go in and we say to them we will help you rebroke with your service providers to offer one to ten times life cover to allow the individuals also to flex their contributions towards the retirement fund. So even though the company might have a flat 5%, we would encourage the employers to look at maybe slightly lowering that and exceeding the 5% to allow individuals to contribute more. The power behind that is often you will find because on a rigid structure a lot of employees go outside of the organisation and source additional life cover, for example, and that becomes very expensive. If you allow the flexibility within the structure, in an organisation’s remuneration structure, you have that bulk purchasing power and that 100% always is the case is a lot cheaper for the employees to buy that benefit in house, as opposed to sourcing that from an external service provider.
Providing more flexible benefits for employees
CIARAN RYAN: It’s the old retail versus wholesale argument, if you are buying in bulk you’re going to get a better deal. So if they start sourcing their life cover and their retirement benefits within the company you’re definitely going to get a better deal as an employee.
TANYA TOSEN: Correct, 100%.
CIARAN RYAN: What about employers that already offer flexible benefits, how can they provide more value to their current packages?
TANYA TOSEN: There are two areas I would like to unpack here, I think employers need to engage with their staff and look at their workforce and their demographics, do a proper analysis, which we also do for organisations, and that helps in decision-making processes on providing benefits that your employees with value because a lot of the time, let’s say, for example, you have a very young workforce, I know Discovery has a life cover where they also provide an education benefit, if you pass away your children’s education is catered for up until university. Now, that would add no value if most of your workforce is single and they have no children. So it’s about analysing your workforce and seeing how can you motivate them by providing certain benefits. The sky is the limit here, as you mentioned earlier, with that bulk purchasing power you have so much opportunity as an organisation to actually optimise the employees’ remuneration structure. For argument’s sake, you could even provide insurance for motor vehicles, you could provide a gap cover premium that will actually help compensate on medical aid, where individuals are over-insured. A lot of people have a fear factor around medical aid, as an example, so they over-insure themselves. So it’s also creating awareness and that understanding from the employees’ perspective.
CIARAN RYAN: Picking up on that point about the medical aid, what if this person has this fear, as a lot of people do, some people who are approaching their 50’s and 60’s, retirement age, and they want to make sure that they’ve got maximum cover, just take that area and how would you recommend that they structure that for tax efficiency and also to get the maximum medical aid benefit?
TANYA TOSEN: I think it’s important to actually understand your needs and look at what requirements you need for medical. As you mentioned, people have that fear factor and generally over-insure themselves but when they look at their day-to-day needs and what do they need to be covered, like a good hospital plan, you will generally find they are choosing a max plan and utilising a very small portion and don’t really understand what medical aid stands for.
CIARAN RYAN: So in a lot of these areas people are overspending, their medical aid, they’re not using that to the maximum efficiency, they’re overpaying for that. Life cover, they are either underinsured or can you ever be over-insured, I’m pretty sure you can.
TANYA TOSEN: No, in life cover you can have as much life cover as you want but where you can over-insure yourself is disability cover and a lot of people aren’t aware of that. So you can never earn more money than you are currently earning if you become disabled. So a lot of employees take additional cover and over-insure themselves only to find out if they do become disabled they will actually not get the benefit of those contributions that they’ve made.
Employee Bursary Scheme – a great tax-saving mechanism
CIARAN RYAN: We’re living in tough economic times, you saw the figures that came out last week, the contraction in the economy in the first quarter of the year, 3.2%, are there ways that employers can assist their employees in optimising their remuneration structure. You constantly hear how people would like to ensure their packages are structured more efficiently from a tax perspective but can this be done?
TANYA TOSEN: Yes, most definitely. I must be honest with you, Ciaran, SARS has tightened their net over the last couple of years. If you take something like a travel allowance, where only 50% was taxable and now it’s up to 80%. But there are still mechanisms that employers can use and one of the great ones is the Employees Bursary Scheme, if you earn under R600 000 in the preceding tax year you are allowed to legally structure almost a salary sacrifice for school fees that you pay for your children. That means you pay less tax and that saving is passed onto the employee and that’s a great tax-saving mechanism, especially for your lower income employees.
CIARAN RYAN: And that’s R600 000 per year?
TANYA TOSEN: Yes.
CIARAN RYAN: What is that called?
TANYA TOSEN: Education tax saving initiative.
CIARAN RYAN: Okay, any other ways?
TANYA TOSEN: If you look at the retirement reform, SARS specifically put that into place to encourage savings towards your retirement, so you can contribute up to 27.5% of your taxable income towards your retirement and get a corresponding tax deduction. So from that aspect they’re trying to encourage employees not to become dependent on the government when we retire. So that’s another way that you could optimise your structure.
CIARAN RYAN: We’re shocking in this country in terms of retirement savings, aren’t we, so 27.5% of your gross?
TANYA TOSEN: It’s of your taxable income.
CIARAN RYAN: Your taxable income, you can actually get a tax deduction if you put that into retirement savings?
TANYA TOSEN: Correct. There are specific rules, I haven’t given the specifics around that, it’s the minimum of 27.5% or R350 000 per annum.
CIARAN RYAN: It’s substantial.
TANYA TOSEN: Yes, it is substantial.
CIARAN RYAN: Do you have any idea how that compares to what it was ten years ago, has it really improved that much?
TANYA TOSEN: Yes, it has. As I mentioned, I am a little bit older, so I can give you that background [laughing]. If you take pension funds, you were only allowed a 7.5% tax deduction, for retirement annuities you were allowed 15% towards non-retirement funding as a tax deduction and for provident funds there was absolutely no tax deduction, so they have improved on that dramatically.
CIARAN RYAN: So it’s virtually doubled in the last decade or so, the benefits for retirement saving.
TANYA TOSEN: Yes, as well as with retrenchments there is another tax break with regard to your lumpsum payout. In the past it used to be only R30 000 and now that forms part of your lumpsum tax table, which has been maxed up to R500 000 once in your lifetime.
CIARAN RYAN: Okay, last question, Tanya, what about expatriates, are there ways in optimising their remuneration structure? Now, here, of course, we’re talking about people from overseas who are working in South Africa, is that right, or are they South Africans working abroad for South African companies?
TANYA TOSEN: That’s a very good question, Ciaran, and we provide advice for both, your inbound are expats who come from outside of South Africa, who come and work in South Africa and your outbound expats are South Africans who work outside of South Africa. So if we start with our South Africans, who are working outside of South Africa, a big thing that’s a hot topic at the moment, all corporations need to understand that Section 10-102 in the tax law is changing and that is the requirement where everybody knows that in layman’s terms that an employee who is out of the country for more than 183 days and 60 consecutive days in a 12-month period is exempt from South African taxes on their employment income. That law is being amended from March 1 2020 and that exemption is now capped only up to R1 million. What does this mean for South African expats, it means that there’s potentially an additional tax liability that will be owed in South Africa now with that change that is being implemented. So we have noticed a lot of companies now contacting us for advice because they realise that there’s either going to be a cost from a company perspective or a massive impact to the employees net pay and companies need to start to look at this now, rather sooner than later.
CIARAN RYAN: Has this got anything to do with the figures that we’ve seen recently about South Africans not quite emigrating but they’re certainly beginning to work more abroad. Where the law changes like that, if you remain a South African and you incur this additional tax liability it might be ab incentive to actually emigrate?
TANYA TOSEN: Correct and Treasury is very well aware of this and they have no problems with that. We have a division within our organisation that financially emigrates South Africans who have decided that they have a permanent intention of not returning back to South Africa and that’s one of our busiest divisions because they have severed their tax residency both with the South African Reserve Bank and the South African Revenue Services. In saying that they become like the inbound expats in the sense that they are only taxed on South African-sourced income.
CIARAN RYAN: And this is something new that you’re seeing, the busiest division, your expatriate division, purely because of the tax implications of this new change in the law?
TANYA TOSEN: Correct, there’s a massive influx of South Africans who want to financially emigrate. In addition to this, a lot of individuals haven’t been compliant, who have left South Africa and they haven’t realised there’s a formal process that they need to incur and that’s where we assist those individuals as well to formalise this process.
CIARAN RYAN: So they are also giving up their South African passports?
TANYA TOSEN: No, you mustn’t confuse citizenship with tax residency. That’s a whole different process. The other aspect I wanted to just highlight for you is about the inbound expats. So those are expats who come from a country outside of South Africa and they come to work in South Africa. As we know, generally expats are very expensive to hire and what we find in organisations is if they do not optimally structure their benefits correctly, they lose out on massive tax savings around these expats and some tax breaks that are offered to your inbound expats. So it’s absolutely crucial and critical that in an organisation there’s proper planning and understanding around what tax laws and tax breaks you can structure within your expat population.
CIARAN RYAN: Great, Tanya, we are going to leave it there. It’s been fascinating talking to you, I didn’t realise that tax was such an interesting subject. It’s something that we all push to the side, except when it comes to having to submit your returns but there’s so much development and so many interesting events unfolding around that. Thanks very much again for coming in.
TANYA TOSEN: Thank you for having me on the show, Ciaran.
CIARAN RYAN: That was Tanya Tosen from Tax Consulting.