Initial data from the SA Revenue Service (Sars) indicates there are 2,850 individuals in SA with net assets of more than R50m, who have a total of R245bn in local assets and R150bn in foreign assets, finance minister Enoch Godongwana revealed in a reply to a parliamentary question about the possible introduction of a wealth tax.
This group paid R7bn in personal income tax (which is also on returns from foreign assets) and Godongwana said this revenue would be put at risk if these individuals decided to change tax residency because of a wealth tax.
“Should this group decide to relocate, it would impact negatively on capital and investment flows, as they often have business interests which generate employment and contribute towards economic growth and capital formation locally,” the minister said in reply to a question by MK party MP Sanele Mwali.
Godongwana emphasised that the tax base of high-net worth individuals in SA was small and mobile.
He pointed out that SA already had a variety of taxes on wealth, including estate duty, donations tax, securities transfer tax and transfer duty on real estate transfers. In addition, all real estate (land and buildings) was taxed at local level through property rates and taxes.
Sars collected R85.3bn in revenue from these four taxes in the four years up to and including 2024/25. They contributed 1.15% to total tax revenue, which the minister said “compares favourably to the OECD [Organisation for Economic Co-operation and Development] average of 0.5% for similar taxes”.
Capital gains tax also rendered R32bn combined in 2019/20 and 2020/21. Dividends tax and tax on interest were also taxes on the returns from wealth.
Opposition parties, particularly MK and EFF, have lobbied for a wealth tax as an alternative to the now-scrapped VAT rate increase proposal. Sars commissioner Edward Kieswetter has pointed out that there is already a significant tax burden on the wealthy and that what was needed was more efficiency in tax collection.
Godongwana said international examples showed that several countries had abandoned or significantly reduced the scope of their wealth taxes over the years as they were ineffective. At present only four countries had what could be termed wealth taxes. The reasons for abolishing the wealth taxes were the high cost of collection, administrative complexity, risk of capital flight and limited revenue gained from these taxes.
“Income tax is the most effective way to tax the wealthy and it generates multiple times more revenue for the fiscus in a more efficient and cost-effective manner.
“Research by the OECD on the effectiveness of wealth taxes found that a comprehensive income tax system which also taxes capital gains is more effective at generating revenue and redistributing wealth than taxes that specifically target the stock of wealth. SA has a very comprehensive income tax system with progressive rates and high-income earners paying a top marginal tax rate of 45%. In line with international best practice, SA levies capital gains tax to make its income tax system even more progressive and comprehensive,” the minister said.
He added that wealth taxes would discourage people from saving at a time when SA had a low gross savings rate of only 13.7%, well below its peers.
“Rather than save and add to SA’s overall savings pool (critical for investment and economic activity), wealthy individuals will rather consume their income or take it offshore. This will damage SA’s long-term development prospects.”
Godongwana said SA’s tax system was broadly progressive, ensuring higher-income earners contributed more.
Replying to Mwali’s question about the possible increase in the corporate tax rate, Godongwana said such increases were the most detrimental to economic growth and could negatively affect revenue collection in the long run. There were various ways companies could reduce their taxable income in response to tax rate increases, for example, by disinvesting or reducing investment plans, and shifting profits out of high-tax countries.
“Attempts to raise revenue by increasing the corporate income tax rate will not necessarily reduce inequality. Workers and consumers will feel the burden of a rate increase, not just shareholders,” the minister said.
“SA’s corporate income tax rate is already high when compared to most countries that have progressively lowered rates. This places greater pressure on Sars to police anti-avoidance measures.
“Alternative revenue-raising measures aimed at corporations are to broaden the corporate income tax base and enhance compliance. In this regard, SA has made progress in recent years through domestic reforms and international co-operation,” Godongwana said.
“The introduction of the global minimum tax will reduce the incentive for large multinational enterprises to shift profits and will bolster corporate tax collections from 2026/27.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.