Government knows wealthy taxpayers are leaving South Africa: analyst

 ·24 Feb 2022

The 2022 national budget provides concrete evidence that South Africa is at the top of the Laffer curve, says Tertius Troost, manager of tax consulting at Mazars.

The Laffer curve is an economic theory that shows that if citizens are taxed at increasingly higher marginal rates, then at some point revenue collections will start to decline as people stop paying. The curve is used to illustrate the argument that sometimes cutting tax rates can result in increased total tax revenue.

“Increasing the top tax rate from 41% to 45% for taxable incomes above R1.5 million in 2017/18 appears to have generated significantly less than the projected R4.4 billion per year,” said Troost.

“It shows that rate increases lead to emigrations of high-net-worth individuals which have a negative effect on state coffers. It is encouraging to see that National Treasury is keeping a close eye on this.”

Analysts have previously warned that increasing tax rates further will likely lead to an exodus of wealthy taxpayers from the country. Personal income tax accounts for 38% of total tax revenue, far eclipsing corporate tax receipts – and those in the top three brackets represent a third of the total personal income tax base.

Extensive studies have shown that South Africa’s wealthy population continues to decline with roughly 1,900 millionaires leaving since the last figure recorded in 2020.

New World Wealth’s Africa report shows a total of 4,200 high net-worth individuals have left the country over the last decade. With the possibility of higher taxes for the wealthy, this number is likely to grow.

Wealth tax? 

Despite these concerns, comments made by the National Treasury in its Budget Review document indicates that it still plans to target wealthy taxpayers, said Troost.

“In the Budget Review document, it states that all provisional taxpayers with assets above R50 million be required to declare specified assets and liabilities at market values in their 2023 tax returns, which raises the question: Is this the start of gathering information for a wealth tax?” he said.

Treasury said that provisional taxpayers with business interests are currently required to declare their assets, based on their cost, and liabilities in their tax returns each year.

“To assist with the detection of non‐compliance or fraud through the existence of unexplained wealth, it is proposed that all provisional taxpayers with assets above R50 million be required to declare specified assets and liabilities at market values in their 2023 tax returns,” it said.

“The additional information will also help in determining the levels and structure of wealth holdings as recommended by the Davis Tax Committee.”

The South African Revenue Service (SARS) has previously indicated that it will target non-compliant wealthy taxpayers with assets overseas.

In July 2021, the tax agency sent letters to 275 wealthy individuals who have financial assets abroad under the new high High Wealth Individual (HWI) Taxpayer Segment.

Read: SARS is fining taxpayers who didn’t review their auto-assessments

Show comments
Subscribe to our daily newsletter