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South African high earners’ exodus may limit room for tax hikes

More than fifth of all houses valued at R2.6m or more were put on the market by emigrants.
Image: Bloomberg

South Africa’s loss of skilled and high earners could limit room to raise income taxes as the Treasury seeks to plug a budget shortfall that’s above wartime levels.

A fourth-quarter estate agent survey by FirstRand’s First National Bank shows a more than fifth of all houses valued at R2.6 million or more that were put on the market by the end of last year was because people planned to move abroad.

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This could further erode the tax base in a country where fewer than 14 million individuals in a working-age population of 39 million are registered taxpayers and where those earning more than 1 million rand a year pay 40.2% of all personal income levies.

For every high-net worth person who emigrates, an average of R1.2 million in income taxes disappears from the system and the spending, value-added tax and economic activity they generate is also lost, said Bernard Sacks, a partner at Mazars in Cape Town.

The small tax base is a symptom of South Africa’s extreme inequality, a legacy of the apartheid system of racial discrimination that disadvantaged the Black majority and ended in 1994. Today, chief executives and top lawyers make as much as R20 million a year while the official minimum wage is just over R20 an hour.

What Bloomberg’s Economist Says…

“The increasing number of high-earning emigrants has eroded South Africa’s tax base. The latest tax amendments may help to slow the decline, but it is unlikely to completely stem the outflow, posing persistent risks to the fiscus.” — Boingotlo Gasealahwe, Africa economist

High-income South Africans are finding homes abroad through residency and citizenship programs. A family of four must donate $200,000 or invest $320 000, including administration fees, in a government approved real-estate project to qualify to become citizens in the Caribbean island nation of Grenada, which is very popular at the moment, said Nadia Read Thaele, founder and managing director of LIO Global, a residency and citizenship consultancy.

The statistics office stopped collecting data on self-declared emigrants in 2004.

Finance Minister Tito Mboweni will present the 2021-2022 budget on Feb. 24 and emigration could complicate plans to raise an additional R40 billion in revenue over the next four years. In last year’s budget, the Treasury increased the exemption threshold on foreign income in a bid to prevent people from moving their tax residency abroad.

A wealth tax has been mooted several times in the past 2 1/2 decades to boost the standard of living of the country’s poor. Last year, an advisory panel appointed by President Cyril Ramaphosa said a three-year “solidarity tax” that would raise income tax for higher earners should be considered.

While a World Inequality Lab study shows a wealth tax on the net worth of South Africa’s richest could raise as much as R160 billion annually, it may push more high-income earners to leave. The Treasury said in October recent tax increases generated less revenue than expected and evidence suggested they can have large negative effects on economic growth.

“Their choices are limited and it does point to the possibility of more borrowing and unfortunately that borrowing would happen at the time when the size of our economy is shrinking,” said Siphamandla Mkhwanazi, an economist at FNB.

The government should rather enforce laws aimed at bolstering tax compliance and invest in rebuilding capacity at the South African Revenue Service, according to Nazrien Kader, head of tax at Old Mutual. A commission found the body suffered a “massive failure of governance and integrity” under former head Tom Moyane from 2014. Edward Kieswetter, the former chief executive officer of the country’s largest insurance and retirement-fund adviser Alexander Forbes, was appointed commissioner in 2019.

© 2021 Bloomberg

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Why would a young person with skills that are wanted elsewhere stay here? The weather? No way. Family and friends..maybe. But otherwise security, health, education, job prospects if your pigmentation is incorrect, property rights, social security,travel opportunities etc is way better in decent countries.

I am far too old to flee the failed state but if I was young or rich( USD5m plus paid for home offshore) I would also flee!

…very good points but the ANC do not care if minorities leave

They believe even during apartheid…they were the revisionists who just happened to be the “outcome” behind the development and erection of the infrastructure landscape of motorways, airports, ports, power generation etc

Changing history to escape from their responsibility is the path most visionary to them

“It is usually futile to try to talk facts and analysis to people who are enjoying a sense of moral superiority in their ignorance.”
-Thomas Sowell

“The small tax base is a symptom of South Africa’s extreme inequality, a legacy of the apartheid system of racial discrimination that disadvantaged the Black majority and ended in 1994.”
Janee still Apartheid’s fault after 26 years of misrule, lack of proper education, punitive taxation and everything else in the textbook of How to Screw with an Economy. The blame-Apartheid narrative’s legitimacy is diminishing with each passing year and it’s time to lay the lack of meaningful broad-based wealth creation at the door of the ANC.

Agreed.

Its simple. Inequality these days exist between the political elite and the people that vote for them. Some say their plight is well deserved.

The rest will abandon this sinking anc bucket and the ones that cant will be turned into paupers.

Whatever they do. It will be the wrong thing and they will be non the wiser.

Yup just before that the basis for the argument was credible, after that it just became opinion and drama based.

I agree MOK. A vast driver of this inequality is the SERIOUSLY low level of desire to lift themselves up by their bootstraps in the vast majority of our population. Not sure what index there is to measure that but we’re def No 1 in the world. Vietnam, Germany, China, Japan, Poland, Cambodia, Rwanda, Ethiopia to name a few places devastated by geopolitical tsunamis and yet there they are, flying high. Our locals have consciously or subconsciously chosen their lot

Agreed, that sentence was complete nonsense. The tax base grew by leaps and bounds after 1994, especially when NITS was introduced.

But then the ANC discovered it was easier to buy votes with social grants than to put in the hard yards needed to create further economic activity (and tax revenue) once the low-hanging tax fruit had been picked.

Go look at almost any industrial area – they are wastelands of closed factories, all resulting from lack of policy implementation and the ANC’s hostility to business. THAT is the reason the tax base is in the shape it’s in.

The ANC has been muting the media through political manipulation.

What you read in the media doesn’t even cover a fraction of the crime and corruption really going on in South Africa.

Sadly, the ANC has been the biggest disaster that this country has ever known with its badly thought out policies that exist only to enrich the ANC MPs themselves.

I will be leaving the country of my birth in coming months. I actively encourage everyone, with the skills and resources to leave, to do so.

Unfortunately South Africa in years to come will simply be another African basket case run by a self-serving government of morons with clangers running around on the ground causing riots and enacting violence.

Before you comment on this and preach glass-half-fullness, take a look around you at the reality that is kept very quiet.

Why do you suppose that during lockdown, most shopping centres and commercial buildings have put up “clear view” fencing around their perimeters? Very hush-hush, but these are anti-riot measures.

The despair in your writing is palpable. May you find peace wherever you are going.

It is not nearly as nice overseas as you think. Every country has issues. I suggest you first go live overseas before telling other people to do it.

It’s actually much better overseas if you pick the right spot. I left 6 years ago. First few years were tough, couldn’t be happier for the last few years though. If ever I doubt my critical thinking and decision making skills I jump on Money Web to have a read and validate myself again.

Well I think it depends. If in SA you have a cushy government / Eskom / municipal job where you get all sorts of perks (legal and not so much) and do not need to do much work then going to a 1st world country is not pleasant at all. However if you are a hard worker, well qualified and experienced, believing in security of property and self, real non-racism and want a good healthcare education and policing then overseas might just suit you. Very, very few people I know yearn to be back in crime racism and corruption.

Why would able minority persons subject their children to endless racial discrimination by the thieving ANC government ? Why pay exorbitant taxes and get nothing in return ? Why pay for a predominantly dysfunctional government ” service ” ? Why subject your family to a life in a failed state ?

Both Piet Retief and I fully agree with your views, all gained from bitter experience with the current regime and their forefathers. With a white skin we are definitely not part of cyril’s “our people”.
Cry the beloved country.

@Pelz-ebub. Totally true.

And yes, now you know WHY many have left before us.

“The small tax base is a symptom of South Africa’s extreme inequality, a legacy of the apartheid system of racial discrimination that disadvantaged the Black majority and ended in 1994. Today, chief executives and top lawyers make as much as R20 million a year while the official minimum wage is just over R20 an hour.”

More communist propaganda that fails to understand how wealth is created and the policy environment that is needed in order to foster new wealth creation for all.

I am now in my 40s and went onto Facebook to check out where everyone is…90% overseas (NZ, Australia, EU, Canada, UK etc).

Our Matric reunion only 3 people pitched from my class – everyone went overseas and this was a long time ago. Imagine the compounding effect of all of those people who left and also had children who no longer pay taxes in SA!

But this is the african nationalist way of thinking. Bleed it until it dies

Very true, bobsmith! My previous 30th Matric reunion in 2017….same phenomenon….more than half our class must be abroad (..and with their families).

Massive drain on skills. No wonder nothing much constructive happens in SA or at slow pace (…crime & corruption excluded)

lol…bosasa,steinhoff,guypthas directors left doing dodgy deals

End of comments.

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