New wealth tax for South Africa off the table

Finance Minister Enoch Godongwana has reiterated his concerns about introducing a wealth tax in South Africa, saying the current system is more effective at raising revenue and redistributing wealth.

Godongwana explained that it is essential to consider the impact of the overall spending and tax proposals in South Africa’s budget, as the lion’s share of government spending is allocated to the social wage.

This was said in response to a Parliamentary question from MK Party MP Brian Molefe, who asked the minister why he refuses to introduce wealth taxes that could reduce inequality.

Molefe said, while the Medium Term Budget Policy Statement claimed to prioritise low-income households, South Africa continues to increase its reliance on regressive taxes, rather than progressive taxes like personal income tax or a wealth tax.

He made specific mention of the fuel levy, which saw an inflationary hike in the 2025 Budget as part of the National Treasury’s efforts to increase revenue after a value-added tax (VAT) hike was rejected.

Molefe asked what rationale Godongwana has for a tax policy framework that “disproportionately burdens the poor and working class while shielding the wealthiest 1% who control more than half of the economy of the Republic”.

In his response, Godongwana pointed out that, prior to the inflationary fuel levy hike in the 2025 Budget, this levy had not been adjusted for three years.

He said this provided tax relief of about R11.5 million, and the inflationary hike introduced in 2025 will increase the government’s revenue by about R3.5 billion.

“If the fuel levy relief were granted for another year, the shortfall would need to have been recovered from the government’s planned overall expenditure,” Godongwana said. 

“An inflationary adjustment of the fuel levy seeks to maintain the real value of the levy.”

Alongside the fuel levy hike, the National Treasury also introduced other measures to increase government revenue.

This included no adjustment to personal income tax brackets and rebates, above-inflation increases in excise duties on alcohol and tobacco products, and diesel refund relief for primary sectors.

Taxing the wealthy

On the topic of wealth taxes, Godongwana explained that South Africa currently has a progressive income tax system, which means tax rates increase as taxable income increases.

He pointed out that taxpayers earning above R750,000 pay over 60% of all personal income tax, while making up only 12% of the tax base. 

“In addition, South Africa also taxes wealth extensively through estate duty, transfer duty, donations tax and securities transfer tax,” he said. 

“The percentage contribution of these taxes to GDP is larger than the OECD average.”

While South Africa has debated introducing a wealth tax for years, Godongwana said international experience has shown that a comprehensive income tax system – like South Africa’s – is far more effective at raising revenue than taxes specifically targeting wealth.

He explained that only four countries currently levy an annual wealth tax, and they do not contribute more revenue as a percentage of GDP than the existing taxes targeting wealth in South Africa. 

“Most countries abandoned annual wealth taxes since they are costly, difficult to administer and generate limited revenue,” he said.

Previously, the minister also warned that a wealth tax could push some wealthy South Africans to leave the country, which would negatively impact capital and investment flows.

“It is important to consider the impact of the overall spending and tax proposals contained in the budget, which are progressive, and not necessarily a single instrument in isolation,” he said. 

“The more effective tools to help achieve distributional objectives are personal income taxes, which are highly progressive, and spending programmes, while other tax instruments focus on achieving efficiency and revenue goals.”

In a separate Parliamentary question and answer with MK Party MP Adil Nchabeleng, Godongwana pointed out that all tax proposals are evaluated with the objectives of efficiency, fairness, simplicity and certainty in mind.

“National Treasury attempts to balance these objectives so that sufficient revenue is collected without harming the economy or overburdening taxpayers, particularly those at lower income levels,” he said.

“To assess the socio-economic impact of tax policies, one must consider the relative impact of the budget holistically, and not only the impact of specific policies.” 

He explained that the additional revenue raised in the 2025 Budget enabled 61% of the government’s non-interest spending to be directed to the social wage. 

“Together with the progressive income tax system, this reinforces the highly redistributive character of the budget, with redistributive measures aimed at protecting the vulnerable,” he said. 

“In addition, increasing infrastructure spending will support future growth and service delivery for the benefit of all citizens.