An annual wealth tax on the net worth of South Africa’s richest people could raise as much as R160 billion ($10.7 billion) and would narrow inequality in a nation where the most affluent 1% of the population own 55% of personal wealth, a study showed.
The study, carried out by groups including the World Inequality Lab of which Thomas Piketty is co-director, assessed personal wealth in South Africa and proposed a range of taxes on net wealth of above R3.82 million, or the top 1% of the population.
South Africa is one of the world’s most unequal nations, a legacy of the apartheid system of racial discrimination that disadvantaged the Black majority and ended in 1994. The concentration of wealth is more extreme than in France, the US, the UK, Russia, China or India, and has not decreased since 1993, according to the study published Wednesday.
Under the moderate tax scenario, about 350 000 individuals would be subject to the tax, with the level ranging from 3% to 7% depending on affluence. The top rate would apply to people with a net worth of above R146.89 million and would only be levied on wealth above that level. Raising R160 billion in tax would be equivalent to 3.5% of gross domestic product, the study said.
“A progressive wealth tax concentrated on those most capable to pay would be a significant policy tool to finance debt reduction,” it said. It would spare the “most vulnerable households, thus placing South Africa in a better position for an economic rebound.”
South Africa’s economy is estimated by the government to have contracted by the most in nine decades because of the coronavirus pandemic.
The study was authored by Amory Gethin of the World Inequality Lab, which is linked to the Paris School of Economics, together with Aroop Chatterjee of Johannesburg’s University of The Witwatersrand’s Southern Centre for Inequality Studies and Leo Czajka of the Universite Catholique de Louvain in Belgium.
A wealth tax would face challenges, the authors said.
Some rich South Africans would leave and others would find ways to circumvent it, and the amount of personal wealth targeted by such a tax could fall 30%, Czajka said in an interview. Still, the tax revenues would be considerable, he said.
South Africa is a good candidate for a wealth tax because its income disparity means that relatively few people would be affected and the quality of data collection by the tax authority is superior to some high-income nations, Chatterjee said in the same interview.