The government’s hidden way to take money from rich South Africans

The South African Revenue Service (SARS) taxes nominal returns instead of real returns for Capital Gains Tax (CGT), which has been described as wealth confiscation.

CGT was introduced in South Africa in 2001. This tax applies to the disposal of assets and forms part of the normal income tax system.

It was implemented to enhance the fairness of the tax system and reduce the incentive to convert ordinary income into tax-free capital income.

CGT is triggered upon the disposal or deemed disposal of assets, with various inclusions and exclusions.

In the 2026 tax year, individuals and special trusts can exclude the first R50,000 of capital gain or loss.

The first R3 million of a capital gain or loss on the disposal of a primary residence is also excluded.

The percentage of the gain added to taxable income is pegged at 40% for individuals and 80% for companies.

Despite these exclusions, many people argue that capital gains should be calculated on real returns rather than nominal gains.

Real returns are the gains in investment when they are adjusted for inflation. Nominal returns are not adjusted for inflation.

For example, if you invest R10,000 and it grows to R11,000 in one year, your nominal return is 10%.

If your investment earns a 10% nominal return but inflation is 6%, your real return is roughly 4%.

Inflation is a secret tax on people who invest or save, as it erodes the value of money. A core reason people invest is to beat inflation to ensure their wealth grows.

Taxing nominal returns for Capital Gains Tax

Many experts argue that SARS should not tax nominal returns for CGT. The argument is elementary. If a person invests in an asset and only achieves the same growth rate as inflation, there is no true capital gain.

For example, if a person bought shares for R10 million in 2006 and they grew at the same rate as inflation, they would now have R29 million.

When they sell these shares, SARS would treat it as a R19 million capital gain, which would be heavily taxed.

However, in real terms, the person only protected their money from inflation. The capital gains tax means that they now have less wealth than they had in 2006.

Dr Brian Benfield, a retired professor from the Department of Economics at the University of the Witwatersrand, is a strong critic of this tax.

He said government policy is actively hurting savings and investments by punishing the people who could help to improve South Africa’s chronic shortage of invested capital.

“Capital gains tax is taxing phantom gains, illusions created by inflation and currency depreciation,” he said.

“This is a hidden tax on capital that erodes returns, discourages long-term investment, and undermines the foundational principle of tax fairness.”

He argued that the state is taxing its own failure, as inflation is the consequence of government monetary and fiscal mismanagement.

“CGT taxes the inflationary component of asset price increases as if it were genuine profit,” he said.

“This means investors are being penalised not for earning a real return, but for enduring the erosion of their investment’s value.”

Benfield explained that capital is the engine of economic growth. “We must stop punishing it,” he said.

He added that market economies thrive on capital mobility, private investment, and entrepreneurship.

“All of these require a tax system that respects property rights and rewards long-term thinking. South Africa’s CGT regime does the opposite,” he said.