I’ve been wondering what changes in the way we work mean for national tax regimes. From chasing an endless summer as we work from anywhere, to staying local but working global, do we need to rethink taxation?
It has long been the case that, armed with a laptop and an internet connection, knowledge workers can work from anywhere. The pandemic merely opened the floodgates. This is driving an increase in people who, striving for work-life balance, untether themselves from a fixed address and routine to work from anywhere, chasing an endless summer. On the other side of the coin, companies in countries with negative unemployment rates or aging populations are looking further afield for skills, and are happy to hire remotely.
This is an enormous opportunity for South Africans. Skilled South Africans have been emigrating to take up jobs abroad for years – that is not new. And we also have the choice of becoming nomadic workers, working as we explore the world. But now there’s another flavour of this new working reality. When you live in a country that other people relocate to for the weather, scenery and lifestyle, why would you want to leave? And today we have the option of taking up those international jobs without leaving home.
According to a survey run by contracting company Outsized, 8 out of 10 skilled workers in South Africa are considering quitting their traditional jobs and going solo. It is likely that these people will pick one of the options above: emigrating, working while traveling, or working for an international company while remaining in South Africa.
And it is equally likely that these people will look to optimise their tax affairs given their new circumstances. This brings me back to my original question. Where and how are these workers being taxed? Should you be taxed where you physically reside or where you provide the service? If tax is residence based, in the context of a nomadic workforce, should an individual be taxed on an annual basis or on a time-in-residence basis? Will personal tax become far too complex and should we consider moving to a VAT-type environment where what you spend is taxed rather than what you earn?
Complexity inevitably leads to loopholes and the opportunity to arbitrage between various global tax authorities, resulting in personal tax falling into a camper van-shaped gap as people follow the sun (or even stay put and work for global firms).
It is critical to realise that remote working is not hypothetical nor an exception. It is here to stay and will only grow in popularity. This, in my view, necessitates a fundamental rethink around just how personal and company taxation needs to adapt to changing times.
What does this mean for local companies?
The tech skills shortage in South Africa predates these changes in how we work. But it is being accelerated by today’s employment and working trends. As the owner of a local IT company, this hits close to home. If IDU and companies like us can’t hire smart, skilled South Africans our ability to run successful, profitable businesses (often with an international customer base) is going to be impacted. And this, in turn, is going to limit our ability to create more jobs locally, contribute to South Africa’s tax income and grow our GDP.
As published in Accountancy SA - October 2022