Wealth tax warning for South Africa

Deborah Tickle, an independent tax analyst, warned that an additional wealth tax could have devastating consequences for South Africa.

Her comments followed news that the National Treasury is analysing data from the South African Revenue Service (SARS) as part of a wealth tax consideration.

The National Treasury is assessing information on South African high-net-worth individuals a wealth tax will target.

Chris Axelson, Treasury’s acting head of tax and financial sector policy, said SARS collected information on individuals holding assets valued at R50 million or more.

He said this information gives the National Treasury and SARS a better picture of the wealth within South Africa and a potential wealth tax.

The revenue service also established the High Wealth Individual Unit in 2021 to consolidate data on wealthy taxpayers through third‐party information.

“This will assist in broadening the tax base, improving tax compliance, and assessing the feasibility of a wealth tax,” the Treasury said.

Tickle told SABC News that a new wealth tax could take two forms:

• A percentage of the wealth of a person at a particular time.

• A presumptive tax assumes a return on a person’s wealth.

“Both of these taxes are problematic in how they will be implemented and will levy very little money,” she said.

She added that the government would also have to look at all the other existing wealth taxes to ensure there was no double taxation.

“A very complex scenario will have to take place before any new wealth tax could be put in place,” she said.

Another problem is that wealth taxes based on a percentage of a person’s wealth have failed globally, with most countries which tried them rolling them back.

“Such a wealth tax distorts the economy, collects very little, and costs a lot to implement,” she said.

It relies on valuing a person’s wealth at a particular time. However, wealth changes because of numerous factors, like stock market swings or currency changes.

A wealth tax can also distort investment decisions. For example, if a person is taxed on shares, they will move into property.

The biggest challenge is that wealthy people have the means to move their money overseas or emigrate financially.

Should an additional wealth tax be implemented in South Africa, the country will see a flight of capital, which could wreck the economy.

South Africa already has many wealth taxes

Tickle highlighted that South Africa already has many wealth taxes which target rich people in South Africa.

South Africa’s wealth taxes include estate duty, donations tax, securities transfer tax, and transfer duties.

“All of these are traditional wealth taxes, and the estate duty, in particular, is the one recommended by the OECD,” she said.

The country has also added or changed several taxes aimed at wealthy South Africans.

• The country introduced a luxury car tax in 2011.

• The capital gains tax inclusion rate was increased in 2016.

• There is 11% transfer duty on properties over R2.7 million.

• Dividend tax is 20% instead of 15%, which is the global norm.

• The estate duty and donations tax are up to 20%, and the portions which are tax-free have not been adjusted since 2007.

Wealthy individuals are unable to plan taxes away as they used to because new legislation prevents it.

Wealth taxes’ biggest economic impact is disincentivising entrepreneurship and investment in South Africa.

“The government has conflicting policies. On the one hand, they want people to invest their money, grow business, and employ people,” she said.

The incentive for people to take risks and work hard in a business is to make money and become wealthy.

“However, the government is now saying, if you make money, ‘we will take it away from you’,” she said.

“The government wants people to risk their money in the hope of getting wealthy. However, if they succeed, the government threatens to take it away from them.”

Tickle said that is a very dangerous message which can discourage investment and harm the economy.