A slice of my life’s story serves as a useful caution for those punting the introduction of a wealth tax as the immediate solution to SA’s budget and inequality problems.
The caution comes in two packages — the risk to the country’s already thin tax base, and the care that needs to go into designing such a tax, whose implementation is so complex and may yet deliver little in additional revenue.
When I was in primary school we had a craft class in which I was the only pupil who, three months into the school year, had not made anything. So my mom bought me a wooden spoon from an old local wood carver, Mr “Lipstick” Dlamini, which became my “work” for the class. I suspect the class teacher was in on it and may have hinted to her colleague (my mom) that she should get me a piece of craft to bring to class.
Because I wasn’t good with handiwork (and never will be), I sandpapered that thing at every weekly session, so much so that by the end of the school year its neck was so thin that one finger flip would have broken it.
The same caution is called for regarding a wealth tax. SA has a wafer thin tax base. Yes, we all pay VAT when we buy goods and services, but as the National Treasury said in the 2025 Budget Review (which now has no standing): “VAT is a tax on consumption. A rate increase affects all households through price increases, but most VAT is paid by higher-income households, which consume more. Over 75% of VAT revenue is derived from households in the top four expenditure deciles, which roughly corresponds to households that spend R118,000 or more per year.”
Sandpapering that thin tax base even further runs the risk of depleting the country’s pool of taxpayers. That’s simply because people with money can find ways around a wealth tax. They can shift their assets elsewhere — some have already done so — ahead of the introduction of such a tax.
We have seen this already with IT start-ups, where owners simply registered the ownership of intellectual property in favourable jurisdictions abroad, leaving the SA entity to do all the work that enhances that intellectual property. They often quote the country’s foreign exchange control regulations as a barrier to registering intellectual property in SA.
On the second point, the Davis tax committee cautioned in 2018 of the “many misconceptions that exist with regard to wealth taxes in SA... not only do wealth taxes already exist but there are also tremendous difficulties and unintended consequences that would need to be addressed prior to implementing further wealth taxes”.
The committee added that as admirable and desirable as a tax on wealth may be to some, “more work is needed to ensure that the tax is well designed and will yield more revenue than it costs to administer”. To design a wealth tax well, the committee said, the SA Revenue Service (Sars) and National Treasury would need good information about wealthy taxpayers to enable the two institutions “to iron out definitional issues” on who formed the wealthy tax base. Sars would also need such information to verify declared income.
The committee flagged the problem of the valuation of taxable assets. Experience elsewhere has shown that valuation methodologies yield different administrative costs and burdens. “Often, this brings the impartiality of the tax system into question. This highlights the fact that some taxes may not be efficient but rather symbolic, given the amount of revenue that they collect after factoring in all costs.”
The real nub of the issue is the symbolism — a pacifier effect — of the wealth tax. In a country with such high levels of economic inequality, to be seen to be taxing the wealthy has political appeal, especially because wealth and poverty remain associated with race. And politicians love to be seen to be doing something, especially something whose fruitlessness will become visible long after they have left office.
But as the Davis tax committee warned, a wealth tax is not the only available instrument to address inequality. It pointed to land reform, (which successive ANC governments have messed up — my words), and public expenditures on health and education and infrastructure (all of which successive ANC administrations have messed up too). “Wealth taxes are merely one tool, amongst many, with which to address the pressing problem of inequality.”
In short, sandpapering the delicate wooden spoon that is SA’s tax base isn’t a quick fix for the country’s budget shortfall or its inequality problem.
• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.
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