The National Treasury has for now abandoned its highly contested proposal to remove the tax exemption for foreign pensions applied to South African tax residents. This follows a robust public participation process where several role players warned of the unintended consequences of scrapping the tax exemption by 1 March 2026.

During a virtual meeting of the Standing Committee on Finance on 4 November 2025, Chris Axelson, a Deputy Director-General at National Treasury, announced that the proposed amendment in the draft Taxation Laws Amendment Bill (TLAB) to delete section 10(1)(gC)(ii) of the Income Tax Act No. 58 of 1962, is withdrawn.

The decision comes as National Treasury acknowledged that it expected the strong push-back on the proposal since it was published in August 2025 and elects now to follow a more consultative process to ensure any future recommendation is “watertight”.

John-Paul Fraser, Team Lead: Cross-Border Taxation at Tax Consulting South Africa, who presented to the committee in October about the far-reaching negative consequences if the exemption was to be removed, welcomed the decision. Currently the law provision exempts pensions, annuities and lump-sums received by South African tax residents from foreign employment being subject to normal tax. 

At the time Fraser told the committee the removal of the tax exemption, which has been in place for more than two decades, could deter wealthy foreigners and expatriates from choosing South Africa as a retirement destination, discourage return migration, and scare off global investors from starting businesses in South Africa. 

He emphasised that deleting the exemption in its entirety would amount to economic retrospectivity. Many individuals who are nearing retirement, have structured their financial futures around it and repealing it now would, in effect, change the rules midstream. 

“They would unexpectedly go from zero tax to full tax, potentially leaving retirees financially exposed in their later years,” he said. 

Axelson also acknowledged this impact in addressing the committee on Tuesday.

In responding to these and other submissions to the committee on the draft TLAB and draft Tax Administration Laws Amendment Bill (TALAB), Axelson explained that the draft amendment was aimed at protecting South Africa’s taxing rights and ensuring the South African Revenue Service (SARS) does not miss out on revenue due to it. 

He said the exemption was initially intended as a temporary measure and Treasury has indicated in the past that it will be revisited. He added that the withdrawal is not an indication that a similar amendment “will not come back”.

“Although Treasury is still concerned that South Africa is giving up its taxing rights on foreign pensions and that the law creates instances of double non-taxation. To find a balance between the need for protection of South Africa’s taxing right under DTAs (double tax agreements), the technical nuances of retirement taxation regimes of several countries and the role of many expats and foreign retirees’ contribution to the economy, government will initiate a renewed consultative process with stakeholders to identify a balanced approach that both addresses the stakeholder concerns raised and aligns with government’s commitment to prevent double non-taxation,” he said.

One of National Treasury’s stated concerns had been that the blanket exemption may permit double non-taxation — for example, where neither the foreign jurisdiction nor South Africa taxes the retirement benefit at any point in time — or where South Africa forfeits taxing rights granted under a DTA by maintaining the exemption. 

During the comment period stakeholders warned that removing the exemption without sufficient data and analysis would likely discourage skilled expatriates and retirees from returning to South Africa, deter foreign nationals from choosing South Africa as a retirement destination, and reduce investment and spending in the domestic economy. 

In reaction to National Treasury’s announcement, Fraser said by withdrawing the amendment and opting for extended consultation, Treasury signals that it is heeding those concerns and want to fully understand a measure that could have huge economic consequences.

Written by Tax Consulting SA