Sa Wealth Tax As An Accelerant For Sa Residents To Leave South Africa

According to the United Nations Department of Economic and Social Affairs, 914 901 South African citizens emigrated between 2015 and 2020. Although job opportunities are one of the reasons why South Africans emigrate, economic and political reasons also play a role for those who take the big decision to relocate. One such factor is the looming wealth tax.

The South African Revenue Service (SARS) has clarified its intentions regarding the country’s wealthiest taxpayers. It has established a special High Wealth unit to focus on the tax affairs of the rich while also strengthening its investigative capabilities to tackle ‘unexplained wealth’ in the country. Although not yet implemented, it is the cause of much uncertainty.

SARS is piloting new methods of taxing and tracking funds for high-net-worth individuals, as well as new initiatives to test if it can use existing legislation to target unexplained wealth.

A point of concern relating to the proposed wealth tax is the departure of high-net-worth individuals, who would be the subject of such tax if imposed. Various economists have shared this sentiment, with a recent Intellidex report predicting that some taxpayers may withdraw from the tax system altogether by relocating to jurisdictions where taxes are lower and where they feel they may receive a better return on the taxes they pay.

Additionally, numerous consulting firms have reported an uptake in the number of enquiries from high-net-worth individuals, entrepreneurs and professionals who are considering moving to other jurisdictions, whether via investment migration, dual citizenship or emigration.

Various countries have tried to impose a wealth tax, with many failing and moving away from this practice again. Only three European OECD countries levy a net wealth tax: Norway, Spain, and Switzerland. France and Italy levy wealth taxes on selected assets but not on an individual’s net wealth per se. A wealth tax levy works in these countries because of a minimal or lack of additional taxes such as estate duties, capital gains tax and VAT.

It is submitted that high-net-worth individuals are already taxed at very high tax rates in South Africa, and a further wealth tax may only serve to decrease an already diminished taxpayer base. More entrepreneurs leaving the country will significantly impact the fiscus through lower future tax income, reduced wealth creation opportunities and fewer potential employment opportunities through local businesses.

It remains to be seen if a wealth tax is feasible and will be imposed, but at this stage, it seems as though it might have more adverse consequences for the country than positive ones.