South Africa’s tax base is steadily declining as more of the country’s skilled professionals look overseas for greener pastures, says Izak Smit, chief executive of the Professional Provident Society (PPS).
In an interview with BusinessDay, Smit said that the loss of these workers will not only impact revenue collection but also job creation, as many of these individuals develop businesses and generate wealth.
PPS is a financial services firm that caters exclusively to graduate professionals with honours level or higher qualifications. Smit said that around 25% of the group’s clients that left its services in the past year cited emigration as their reason.
This equates to 2,500 PPS clients in the last year alone – while an estimated 9,000 taxpayers in the R750,000+ tax bracket have left the country over the last two years.
Smit’s comments align with Treasury data published by Reuters in August, which shows that the Covid-19 crisis could prove to be a tipping point as more skilled people look to leave the country.
For the first time since the current tax brackets were established six years ago, the country will see a drop in the number of top earners this fiscal year, the data shows.
Revenue from the three highest brackets will fall by 8%, or around R22.6 billion according to previously unreported treasury forecasts.
- The number of taxpayers earning R1.5 million or more will shrink 9.6% for the 2021-22 fiscal year.
- The R1 million to R1.5 million bracket is expected to contract 13%.
- The R750,000 to R1 million rand bracket is expected to contract 1.1%.
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.
Treasury said that it cannot attribute the drop directly to emigration as it does not track data on how many people have left the country. However, immigration consultants, real estate companies and bankers told Reuters they are seeing clear signs of wealthy people leaving.
A survey published by BrandMapp in July shows that 27% of tax-paying South Africans said they were definitely planning to emigrate in the next five years. Similarly, only 30% of people said they were optimistic about the country’s future.
“This speaks to the fact that before Covid, life in South Africa was no picnic, even for the more privileged, and it’s been that way for a long time. So, it’s going to take more than a virus and a pandemic to alter our collective mindset,” said Brandon de Kock, a director at BrandMapp.
The number of people looking to leave highlights the real urgency of improving safety, governance, and prosperity in the country, he said.
“These are issues as or more important to us than Covid, and most likely even more top of mind given the recent rioting and looting.”
The latest research from New World Wealth and AfrAsia Bank shows that South Africa lost 3,400 dollar millionaires over the last year, with the country now home to only 35,000 high net worth individuals (HNWIs). HNWIs are defined as dollar millionaires or people with a net worth of $1 million (R14.6 million) or more.
In December 2019, New World Wealth reported that there were approximately 38,400 dollar millionaires living in the country – down by 800 from the number recorded for 2018 when there were 39,200 millionaires recorded.
The 2018 figure was down significantly – a loss of 4,400 millionaires – from the year before that (2017), showing a continued trend of money leaving South Africa, either through emigration, or destruction of wealth through the weak economy.
Overall, between 2017 and 2020 South Africa lost 8,600 millionaires.