South Africa’s hidden wealth taxes 

South Africa already has multiple “stealth wealth taxes” that act like traditional wealth taxes, which generate tens of billions of rands for the government. 

To raise additional revenue, the National Treasury has floated the idea of implementing a purpose-built wealth tax using data collected by SARS’ High Wealth Individual Unit. 

However, such a tax is unlikely to benefit South Africa and may actually result in less tax revenue being collected as wealthier individuals take their money out of the country. 

This is feedback from the head of tax and fiduciary at Investec, Elizabeth Fick, who outlined some of the existing wealth taxes in South Africa and the potential consequences of a full-on wealth tax. 

The National Treasury recently confirmed to Parliament that it has been exploring the feasibility of a wealth tax in South Africa. 

It explained that it would use data from SARS’ High Wealth Individual Unit to specifically target the top 1% of South African taxpayers. 

According to SARS data, to be in South Africa’s top 1% of taxpayers, an individual must earn approximately R1.95 million per year, with just over 100,000 such individuals. 

To be classified as an ultra-high net worth individual, one must have a gross wealth of R75 million or more.

A wealth tax is levied on an individual’s net asset market value, including all asset classes, both financial and non-financial (movable and immovable).

However, South Africa already has numerous “stealth wealth taxes” that act the same as this purpose-built wealth tax, including –

• Luxury car tax, introduced in 2011.
• Capital gains tax, introduced in the early 2000s and adjusted in 2016.
• Transfer duty, charged on properties valued above a certain amount.
• Municipal rates, based on the value of property.
• Dividend tax, currently set at 20%, which is higher than the global average of 15%.
• Estate duty and donations tax, currently at 20% or 25% and unchanged since 2007.
• Securities transfer tax, tax on the transfer of securities .

The Davis Tax Committee Report acknowledged that these existing taxes are sufficient, although it also notes that better administration of these taxes is needed.

Arguably, SARS should continue to focus on tax compliance rather than implementing new taxes, Fick said. 

Problems with a wealth tax in South Africa

A wealth tax is essentially a tax based on the total value of a person’s assets, which could include property, cars, and investments. 

Unlike other taxes that are triggered by specific events – like selling a house or inheriting money –a wealth tax is usually charged every year based on the value of these assets and is a deemed tax.

Fick said it is widely accepted in South Africa that a small group of people own the vast majority of the country’s wealth. 

This enables politicians to use the wealth tax as the “Robin Hood” of taxes, where money is taken from the rich and given to the poor. However, the reality is often very different. 

South Africa’s tax base is extremely narrow, with 2.6% of taxpayers paying over 76% of all personal income tax. 

This not only means that a small portion of South Africans are being squeezed to fund the government but that the tax base is highly vulnerable to shocks. 

With regard to a wealth tax, this means that the pool of money that can be raised from taxing a tiny portion of these taxpayers is relatively small. 

According to the South Africa Wealth Report published by The AfrAsia Bank, private wealth in South Africa totalled US$649 billion. 

Just under 40,000 people had net assets worth more than US$1 million, with just over 2,000 people worth more than US$10 million.

This shows that there is simply not enough wealth in South Africa to tax. This s further exacerbated by the fact that a wealth tax is notoriously complicated and expensive to administer. 

The juice likely isn’t worth the squeeze, Fick said. 

Instead, the government should focus on building out the “missing middle” by creating jobs and stimulating the economy rather than introducing a wealth tax, which might not help much anyway.