About 3.5% of individual taxpayers contribute almost half of SA’s personal income tax, and there is already a significant tax burden on wealthy people in SA, most of whom are tax compliant and paying their fair share, says the SA Revenue Service (Sars).
The tax authority weighed in on the wealth tax debate last week, offering what commissioner Edward Kieswetter emphasised was advice for the finance minister.
“Sars does not take a position on whether tax policy is good or bad, but we do advise,” he said.
He was responding to a question at the release of year-end revenue numbers, which showed Sars collected almost R9bn more than the Treasury’s estimate in the March 12 budget, mainly thanks to a higher than expected dividend tax take.
Calls for SA to implement a wealth tax have revived in recent weeks as politicians have sought alternatives to finance minister Enoch Godongwana’s hike in the VAT rate.
Kieswetter went out of his way last week to avoid the kind of controversy he attracted in February, when he was reported to be dismissive of Godongwana’s proposal for a two percentage point VAT hike, saying Sars could find the revenue through increased efficiencies.
He said a decision on whether to introduce a wealth tax was “above my pay grade”. But the advice the tax authority would give was that wealthy South Africans were already significantly taxed — and that in many ways, SA already had a wealth tax.
Of SA’s 16-million employed people, only 8-million earn enough to pay tax. Of those, about 560,000 to 570,000 earn more than R1m annually and that segment contributes about 48% of all taxes from individuals.
“So about 3.5%-4% of all formally employed individuals actually pay almost half the tax, and that’s the first lens through which we must look if we ask about a wealth tax,” he said.
Second is that a number of other taxes are biased towards wealthy people because they have assets. These include estate duty, capital gains tax, property taxes and donations tax as well as securities tax on share trading. “So that’s another way of taxing wealthy people disproportionately to poor people,” Kieswetter said.
A wealth tax had not really worked successfully anywhere in the world, he said. “The one country where they had marginal success is in Switzerland, but there they swapped out income tax for wealth tax.”
Compliance
Sars high-wealth unit head Natasha Singh said the tax authority was fortunate in that it mostly experienced compliance from high-wealth taxpayers.
The unit was formed to expand the tax base by ensuring wealthy taxpayers pay their fair share, as well as to provide a differentiated service model.
It has identified and closed critical legislative loopholes and obtained a landmark court judgment that have helped it to expand the tax base, adding high-wealth taxpayers to its radar.
“We are satisfied that we are doing enough from a compliance and enforcement perspective and adding high wealth individuals to our radar,” she said.
Though some left-wing think-tanks have estimated that a wealth tax could raise tens or even hundreds of billions of rand for the fiscus, the Davis expert committee on tax, which compiled a report on a wealth tax in 2018, put the maximum take from a wealth tax at about R5bn.
The Treasury hasn’t ruled out such a tax but has been working with Sars to collect and analyse additional data on wealthy taxpayers over the past few years with a view to making informed decisions.
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