While no ‘solidarity tax’ was announced by Finance minister Tito Mboweni in his 2021 Budget Speech, National Treasury has indicated that it will assess the viability of a future wealth tax as it collects more data in the coming months.
“Following the recommendations of the Davis Tax Committee, SARS will focus on consolidating wealth data for taxpayers through third-party information,” Treasury said in its 2021 budget review.
“This will assist in broadening the tax base, improving tax compliance and assessing the feasibility of a wealth tax.”
From the comments made in the 2021 Budget Speech, it does not appear that South Africa will see the introduction of a wealth tax in 2022, said Roxanna Naidoo, attorney at Tax Consulting South Africa.
“However it is clear that government is actively assessing the viability of a wealth tax, which could very well be introduced in the near future,” she said.
“Government has not given clear guidance on who would be subject to a wealth tax, and the criteria for selection of these persons.
“It is likely that government themselves are unsure on this, hence the comments made in the 2021 Budget Review, that SARS will focus on consolidating wealth data for taxpayers sourced through third-party information with a view to assessing the feasibility of a wealth tax.”
Andrew Wellsted, partner and co-head of Tax at corporate law firm CMS South Africa, said that taking a closer look at the tax base is not a bad idea, but noted that it may prove to be complex, as many methods of handing one’s tax affairs to reduce liability are legitimate and not immoral.
“The budget has taken aim at high net worth individuals involved in complex financial arrangements allegedly aimed at reducing their tax liability. This is a common theme, particularly, in the public domain and with certain commentators,” he said.
“We suspect that many of the arrangements are more robust than people would imagine as there are legitimate ways to plan one’s tax affairs which do not illegally or immorally undermine the fiscus. However, a focus on the current tax base while we try and improve the economy is probably not a bad idea.”
Lifestyle audits needed
Chairperson of the Tax Review Committee, Judge Dennis Davis, has said that South African Revenue Service (SARS) should ramp up lifestyle audits for wealthy South Africans.
In a January interview with 702, Davis said the tax tables show that only around 5,000 – 6,000 South Africans report taxable income of more than R5 million, and that lifestyle audits on wealthy individuals could help make up this shortfall.
“Drive around Clifton, Camps Bay, Bishop’s Court, Bryanston and Sandton and count how many houses there are that have to have that level of income for the upkeep.
“That is apart from all of the luxury motor cars you see on our roads. So if you take R5 million (as the top bracket), there are a lot of rich people who probably have a lot more than that and are not disclosing it.”
Davis said that authorities could approach Natis, which is responsible for maintaining and registry of cars in the country, and find out who owns all of these cars and perform a tax audit on them.
“If you have a R3 million Ferrari and are reporting R100,000 in taxable income, I think the revenue authority is entitled to knock on your door and ask you to explain,” he said.
Davis said that while SARS is being improved under the leadership of Edward Kieswetter, he noted that the capabilities revenue service were ‘completely and utterly destroyed’ under previous mismanagement.
“(This year) I am hopeful we will get some of these ‘low-hanging fruit’ back into the tax net”. Davis said that he was currently working with SARS to recapacitate auditors and help target individuals through lifestyle audits.