Government plans to raise R40 billion through wealth taxes in South Africa

The National Treasury plans to raise an additional R40 billion in tax increases over the next four years with additional measures, such as a proposed wealth tax, set to help with this collection.

A proposal document presented by Edgar Sishi, acting head of the budget office, to the National Economic Development and Labour Council (Nedlac) last week shows that this R40 billion will be made up of R5 billion in collections in 2021-22.

Treasury then plans to collect an additional R10 billion in 2022-23 and in 2023-24 each, and R15 billion in 2024-25.

The proposal document, which has been seen by Bloomberg, states that additional tax measures will be announced in February 2021, with research and analysis currently being focused on wealth taxes.

In July, Sishi said that Treasury was considering research reports from the Davis Tax Committee on the possible introduction of new measures, including the viability of a wealth tax and how it relates to a land tax and estate duty.

“We are looking at these recommendations. It is important to remember that tax amendments over the last five years have included some of these proposals and we are looking at additional proposals for the 2021 budget,” he said at the time.

Finance minister Tito Mboweni has said that Treasury is discussing the possibility of an inheritance tax and a so-called solidarity tax in a bid to raise additional finances.

Taxes on the wealthy are favoured politically and a solidarity tax, associated with the virus outbreak, would be limited in duration. In South Africa’s top income-tax rate is 45%, corporate tax is 28% and VAT is 15%.

Problems with a wealth tax 

Samantha Lance, fiduciary partner at Citadel Fiduciary, says that South Africa already has a long history of wealth transfer tax in the form of estate duty, donations tax and capital gains tax, but there has never been a tax on the net wealth holdings of individuals.

“The idea of implementing a wealth tax is not a new idea, it has been on the table for almost three decades since the Katz Commission addressed it in 1994. The commission, however, recommended against the introduction of wealth tax,” she said.

She added that when the Davis Tax Committee was tasked with investigating wealth taxes, it recommended a review of estate duties, and we subsequently saw a higher scale of estate duty implemented for estates larger than R30 million.

The duty on these high-net-worth estates was increased to 25%. “Internationally, wealth tax has been utilised in many jurisdictions for decades, and existed in various forms, including inheritance tax, gift tax, recurrent wealth tax and non-recurrent wealth tax,” she said.

“Experience, though, has shown that wealth tax does not always meet its goals and several countries have introduced a wealth tax only to abandon it some years later.

“With experience under the belt, most countries have rather levied a wealth tax as a crisis measure to generate additional revenue in the face of an economic setback, but the tax usually has a short lifespan.”

Lance said that a solidarity wealth tax will likely apply to people such as dollar-millionaires and other high-net-worth individuals.

Read: SARS is preparing for the next phase of the tax season – what you need to know