Financial experts have warned that the South African Revenue Service’s (SARS) renewed focus on wealthy individuals in the country is priming taxpayers for the introduction of a wealth tax.
A post-budget review by National Treasury in February revealed plans by SARS to target wealthy taxpayers in the coming year as part of its broader disclosure of wealth programme.
This comes after the revenue service established a High Wealth Individuals Unit in 2021 to improve the compliance of individuals with wealth and complex financial arrangements. The tax body has previously indicated that it will target non-compliant wealthy taxpayers with assets overseas.
SARS intends to go after ‘unexplained wealth’, and has proposed that all provisional taxpayers with assets above R50 million be required to declare specific assets and liabilities at market values in their 2023 returns.
Provisional taxpayers with business interests are already required to declare their assets, based on their cost, and liabilities in their tax returns each year.
According to investors and tax experts at PSG and Allan Gray, the move is likely laying the foundation for a future wealth tax, the City Press reports.
Tax manager at Allan Gray, Komil Gordhan said that the requirement from SARS that the assets be declared at market value indicates that the taxman is trying to gauge how the value of these assets has increased, and show where opportunities for tax revenue can come from.
This was echoed by tax consultants at Mazars, who said that the process is all about getting more information on the country’s wealthiest individuals, and the true value of their wealth.
The experts speculate that the main factor driving the closer look at millionaire wealth is the government’s need for additional tax revenue to finance its social projects – such as the R350 social relief grant, which is likely to become a fixed basic income grant in the future.
The latest wealth report from global property consultancy group Knight Frank shows that super-wealthy individuals are not sticking around to be taxed.
The report shows that South Africa has seen a significant decline in ultra-high-net-worth individuals (UHNWIs) over the last year – a trend that stands in contrast to much of the rest of the world.
Ultra-high-net-worth individuals are defined as having a net worth of at least $30 million, including their primary residence.
The report shows that the number of UHNWIs in South Africa declined by 7% over the last year – from 603 in 2020 to 561 in 2021 – more than any other country in its report. This figure is expected to remain flat over the next five years, dropping to 559 UHNWIs by 2026.
By comparison, the world’s population of UHNWIs continues to grow and rose by 9.3% in 2021, following growth of 2.4% in 2020.