New research compiled by PwC UK for Bloomberg, shows which major jurisdictions in the world have the most relaxed tax regimes on wealthy individuals, where they are able to keep the biggest portion of their salaries after tax.
According to the data, while places like Dubai and Hong Kong – known for being low-tax regions – allow rich individuals to keep nearly all the money they make, many European nations come down quite hard on high-earners, taking almost half of their earnings.
The research looked at what a high net-worth individual would take home after taxes and social security payments in various districts, based on a salary of £250,000, £500,000, £1,000,000 and £2,000,000.
The most relaxed region, Dubai, allows high-income earners to keep all their pay – while Italy ended up taking the biggest slice at 49%.
While South Africa was not included in the write-up, it is easy to calculate how much an individual would be taxed locally, based on the same salaries.
At current rates (R20.71/£), a £250,000 directly converts to around R5.18 million. This would qualify for South Africa’s highest taxation bracket.
South Africa’s top earners – more than R1,656,601 in 2021/22 – will be taxed at a rate of R587,593 plus 45% of any amount over R1,656,601.
A salary of R5.18 million would then be subject to income tax of R2.17 million, leaving take-home pay of just over R3 million – an effective tax rate of 42%. As the salary increases, the effective rate also progresses, with the £2 million salary measured by PwC resulting in an effective tax rate of 45% in South Africa
|Salary||ZAR||After tax||Effective tax rate|
|£250 000||R51 775 00||R3 005 500||42%|
|£500 000||R10 355 000||R5 853 100||43%|
|£1 000 000||R20 710 000||R11 548 400||44%|
|£2 000 000||R41 420 000||R22 938 900||45%|
While a direct conversion doesn’t take things like purchasing power or local labour market dynamics into account, high earners in South Africa still hand over between 42% and 45% of their income to the government via income tax.
This places the country at around the same levels as the UK and Spain, where top earners are taxed between 41% and 46%.
The Bloomberg data was compiled to show the challenges countries and jurisdictions face in attracting high-level skills, or ensuring wealthy individuals are incentivised to stay.
“If keeping and attracting skilled workers and their employers are vital to a nation’s economic recovery, deciding how the bill is paid — and by whom — will be a delicate task for policy makers,” Bloomberg said.
This dilemma is of particular concern in South Africa, where wealthy individuals already pay the bulk of the country’s income taxes, but pressure is on government to increase revenue amid rising debt levels and growing expenditure.
The tax base, meanwhile, is shrinking, and it’s no secret.
In the 2021 budget delivered by finance minister Tito Mboweni in February, an unexpected windfall in revenue in latter months of 2020 allowed National Treasury to provide some tax relief – instead of increasing taxes or introducing new ones.
However, analysts have noted that this was very likely a once-off boon for the economy, and that revenue pressures remain on the fiscus. Talk of a ‘wealth tax’ has also not died down – with Treasury itself indicating that some or other measure to extract more revenue from wealthy individuals in the country still lies ahead.
“Following the recommendations of the Davis Tax Committee, SARS will focus on consolidating wealth data for taxpayers through third-party information. This will assist in broadening the tax base, improving tax compliance and assessing the feasibility of a wealth tax,” it said.
Analysts have warned that, even though the scope of such a tax is not yet clear – and it likely won’t surface for the next couple of years – government needs to tread carefully to not push wealthy individuals to leave.