The South African Revenue Service’s (SARS’) latest tax data shows that thousands of South Africans have ended their tax residency in the country – with the taxman losing out on billions of rands in revenue as a result.
SARS published its national tax statistics for 2022, which cover the relevant tax data for the 2021 financial year.
Because no government department officially tracks emigration from South Africa, it is an incredibly muddy process to try and gauge exactly how many people are leaving the country in any given year.
Anyone keen on tracking the loss of skills or wealth to emigration often has to rely on immigration data from other countries or estimations, anecdotes and the number of queries from migration experts to figure out what exactly is going on.
However, one more official port of call is the taxman.
As recently as February 2023, SARS commissioner Edward Kieswetter admitted that the revenue service saw thousands of taxpayers emigrating, noting that over 6,000 people had left the country last year.
The commissioner downplayed the number, saying that wealthy individuals were only a small part of the figure and that headlines claiming capital flight and losses from the rich leaving were overstated.
However, the numbers reported by SARS this past week paint a more telling picture.
While SARS does not track emigration per se, the revenue service does track data on taxpayers who have changed their residence status.
It should be noted that tax residency is not the same as nationality, permanent residence, or citizenship, so it is not an accurate reflection of raw migration numbers.
A taxpayer can still be a South African citizen while being a tax resident in another or multiple countries. In fact, many tax and emigration experts will quickly point out that South Africans who emigrate and leave assets behind may still have tax obligations back home.
Changing your status from resident to non-resident must be done formally through a declaration process to SARS. Emigration and citizenship change is done through Home Affairs.
However, whether emigrating or changing tax residency, the end result is the same for South Africa – the country loses tax revenue.
SARS noted that ceasing to be a South African tax resident and similar changes to the status of individuals can imply permanent erosion or changes in the tax base.
However, even a person who ceased to be a South African tax resident is still taxed on their South African-sourced income, SARS said.
Since the 2017 tax year, and according to the tax resident status indicator on the ITR12 tax return, more than 40,500 taxpayers indicated that they ceased to be tax residents of South Africa for the tax years 2017 to 2021.
In 2012, 37,350 taxpayers declared taxable income of R12.9 billion, on which the tax payable totalled R3.6 billion.
In 2021, this number of assessed taxpayers decreased to 32,831 or 12.1%, taxable income decreased by 46.4% to R6.9 billion and tax payable decreased by 48.5% to R1.9 billion.
SARS said these decreases in the value of taxable income and tax paid were mainly by the income group higher than R500,000 taxable income, mainly by individuals between 18 to 34 years old and mainly by males.
At face value, the data presented by SARS shows a lower number of wealthy South Africans (R500,000+) ending their tax residency, and South Africa losing out on less tax revenue from this group. Overall, the total number of South Africans ending their tax residency seems to be declining.
According to Thomas Lobban, head of Cross-Border Individual Tax at Tax Consulting SA, however, this does not reflect the reality being experienced by tax practitioners in the country.
Lobban said that the decline in numbers touted by SARS could be due to several factors – such as many wealthy taxpayers in the country have already left – but is more than likely rooted in the revenue service’s targetted approach towards this specific group of taxpayers.
The numbers trending lower are likely a result of SARS making it more difficult for South Africans to cut ties with the country while also keeping those seeking to end their tax residency on a tighter leash for longer.
Systems have also made it difficult for expats to declare they are not tax residents in South Africa. He said these are all things tax practitioners are experiencing in dealing with these specific metrics.
Lobban said that tax practitioners would likely take exception to the lower numbers being reported by SARS, simply because they do not reflect reality. He noted that sentiment among expats has not changed, and many are struggling to jump through the new hoops SARS and National Treasury have been throwing up through legislation changes over the last six years.
One thing the data does get right, however, is the shifting demographics, Lobban said.
As indicated by SARS, more taxpayers from lower-income brackets are starting to change tax residency – which is likely reflective of taxpayers making the decision to end tax residency from a younger age.
SARS’ data shows that the biggest portion of individuals changing their tax residence status in 2021 was 25 to 34 years old (32%) – up from 27% in 2018, 28% in 2019 and 30% in 2020 – pointing to a worrying trend.
Another worrying trend in the data is that even though fewer wealthy taxpayers appear to be ending their tax residency, the average wealth they take with them is higher.
Looking at more granular data, it’s evident that SARS is losing millions of rands each year to people ending their tax residency in South Africa.
In 2018, among assessed taxpayers, the revenue service recorded 8,837 people who changed their tax residency, with a taxable income of R1.66 billion (R469 million assessed).
In 2019, 15,501 taxpayers changed residency, with a taxable income of R2.38 billion (R589 million assessed).
Between 2018 and 2021, a combined taxable income of just over R8.5 billion from 35,000 taxpayers was recorded by SARS, of which R2.5 billion was assessed.
While most assessed taxpayers who changed their residency are not top earners (12,280 earned no income at all), 3,368 taxpayers earned over R500,000 a year.
In fact, the vast minority – just 143 individuals – earned more than R5 million a year but accounted for R2.4 billion (28%) of the taxable income, and over R1 billion of assessed income lost.
Looking at millionaires specifically, 1,403 South African millionaires changed their residency status, accounting for R4.67 billion (55%) of the taxable income and R1.84 billion assessed income.
While SARS’ data shows a significantly lower number of residency changes in 2021 (2,582 vs 8,080 the year prior), the average assessed tax revenue among top-earners (R1 million+) is much higher: R1.37 million in 2020 versus R1.84 million in 2021.
This is more pronounced at the very top (R5 million+): R7.16 million per taxpayer in 2020, versus R11.28 million in 2021.