You are currently viewing our desktop site, do you want to download our app instead?
Moneyweb Android App Moneyweb iOS App Moneyweb Mobile Web App
Join our mailing list to receive top business news every weekday morning.

Wealth tax should not be an option

Could result in ‘tax migration.’
All eyes will be on Tito Mboweni when he delivers his mid-term budget policy statement on Wednesday. Image: Kopano Tlape GCIS

If Finance Minister Tito Mboweni is indeed thinking of imposing a so-called wealth tax as a way to close the government’s ballooning deficit, he should reconsider.

A wealth tax, which is generally defined as a tax on someone’s assets, was under consideration according to a report by Bloomberg, which says that National Treasury discussed the possibility of a wealth tax earlier this year.

Talk of a new tax comes as the minister is under pressure to find new tax revenue streams, as the Covid-19 crisis is expected to result in a revenue shortfall of R300 billion and see the deficit reach R761.7 billion, equating to 15.7% of GDP in 2020/21.

Citadel Fiduciary MD Hilary Dudley warns that if the state were to push ahead with some kind of wealth tax, it will see South Africa’s already stretched tax base come under more pressure and lead people to examine their options.

“We are at the top of the Laffer curve [a measure of the tax rate against the tax revenue collected], and taxing those who already pay the most more is not necessarily the solution. They are more mobile, have other options, and are likely to tax migrate.”

Independent economist Mike Schüssler echoes Dudley’s concern that South Africans are carrying too much of a tax burden as it is, noting that SA already has the 10th highest personal tax rate and seventh highest corporate tax rate in the world.

The idea of a wealth tax is a much-debated and contentious issue. A working paper by Wits University’s Southern Centre for Inequality Studies together with the World Inequality Lab says a wealth tax on the richest 354 000 individuals in SA could not only raise as at lease R143 billion, the revenue raised from it could be used to address income inequality in the country, which is the highest in the world.

Read: Coronavirus: Why South Africa needs a wealth tax now

Citadel portfolio manager Mike van Der Westhuizen disputes this figure: “The R143 billion figure is not realistic over a shorter time frame. It is more realistic that it could be collected over a number of years. Assuming that the tax can be properly administered.”

Difficult to administer

The matter of how to administer a new tax is also something that could lead to it underperforming, as it requires the South African Revenue Service (Sars) to come up with a very precise definition of what constitutes wealth.

“It will be very challenging given that there is no certainty on basic principles such as what constitutes wealth, how to value wealth, and how this tax will be levied. It will also come at an administrative cost for both Sars and the taxpayer, as they learn how to correctly implement the new tax,” says Dudley.

“It would be more efficient to focus on better implementation and the collection of the existing capital taxes.”

Up across the board

Even if the government pushes ahead with a wealth tax, Schüssler warns that it will not be enough to cover the tax revenue shortfall. He says he would not be surprised if the state increases the carbon and fuel taxes, as well as the Vat rate. “It’s going to be a mixture.”

Another possible target could be tax-exempt pension funds.

Dudley notes that the Davis Tax Committee (DTC), which was established under then finance minister Pravin Gordhan to assess the tax policy framework, had eyed the R2.2 trillion pension pot as a possible tax revenue stream.

“The DTC was of the view that concessions given to retirement funds, particularly the exemption from dividends tax, are possibly overgenerous in the context of the economic challenges facing the country. This is concerning for obvious reasons.”

She says this move looks unlikely as the DTC also said that taxing pension funds would be detrimental to low-income earners, who have a major portion of their wealth in them.

Another option

Rather than a wealth or pension tax, Dudley proposes a scheme mooted by Citadel where people can get a discount for paying capital gains tax (CGT) early.

“Owners of capital assets could elect to pay some capital gains tax on their as yet unrealised gains and rebase the base cost of the asset. This would work on a voluntary basis, and would allow those who have the liquidity to do so to prepay some CGT before they actually dispose of the asset and trigger the capital gain.”

Allowing this would not only provide the government with revenue collection and liquidity but also give it access to revenue without having to wait for taxpayers to dispose of the asset.

AUTHOR PROFILE

COMMENTS   33

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

GO FY Mboweni !!

Yet again, those who pay taxes do not vote ANC, and the unemployed masses keep them in power! And they talk about inequality?

Yet they do what they want with our money paying social grants and funding an over inflated wage bill, the test is looted

The cracks are starting to show. Those responsible for the liquidity are slowly but surely migrating their funds elsewhere, perhaps off shore

It’s evident with the crisis facing the ANC that the tax base is under pressure

Taxing the wealthy? Who, when where, when sooner or later there won’t be such a thing as a wealthy citizen when the communists are done destroying the goose that lays the golden egg

I am unfortunately stuck in this country – like the frog in the warm water!
My cents worth….
If I am taxed one cent more, then its a no brainer for me. I just terminate the domestic and the garden dudes services, who both earn due to my kindness. I can cope quite well without any help. And yes, I am fortunate to be able to afford them, but self preservation takes priority!
I’ll save a good amount, and just toooooo bad if I contribute to unemployment. They will at least know why I terminate their services.

Some of the highest tax rates in the world and yet the highest wealth inequality. That in itself proves that the ANC is making the money disappear.
Productive people are fed up and the ANC’s constituency can carry the can for voting thieves, dotarts and generally immoral people into government. We’re done paying for stupidity.

Where the stupid burglar uses a crowbar, the clever burglar uses the law. The ANC uses the law as a crowbar to steal our hard-earned savings. The fact that it is legal, does not make it moral. This immoral state cannot expect tax morality. They plundered the criminal justice system itself. Now they use “morality” as leverage to extort contributions from anaemic taxpayers. The toll fees tax revolt showed us what the public is unwilling to support the ANC’s looting spree.

Bottom line is that they can steal all that they want.

People are leaving the country because of them. (Matter of fact, literally not a single one of the white families that I know are considering staying.)

Even if they block the migration of money, they wont stop the exodus of the people generating that money and what is left behind will soon dry up.

There isn’t a way that they can turn the tide of that exodus without stopping their stealing and reducing the tax burden.

People need money to start businesses. If they take that money away, it’s impossible.

Add to that that the people who happen to have the money AND knowledge AND experience to start businesses in South Africa have been written out of the economy for 20 years through the disaster that is BEE.

What else does this moronic ANC expect?

When people say that SA has the biggest income inequality in the world… they a optimizing the wrong end. No point on making everyone poor for the sake of equality; you need a growing and competitive job market of which government has only it self to blame.

It would be far easier and more moral to introduce a solidarity salary cut for all public alleged servants and SOE employees. 30% across the board, for 3 years, with no increases, and then limited to 1% annually thereafter, in solidarity with their private sector compatriots.

By the way, if you think this would be impossible, it happened in Greece. The IMF abolished all bonuses for Greek public servants, cut salaries and cut the number of SOEs by 2/3rds. The streets burned, but the IMF did not care. Coming to an African country south of the Limpopo soon.

This is a likely scenario if/when the IMF has to bailout South Africa. I expect public sector pensioners will also have to take a large pension cut. As the GEPF will have been completely looted long before SA goes begging to the IMF. However the Greek protests will pale in comparison to what will happen here especially if grant payments are also reduced. For this reason I think the ANC will try to avoid the IMF at all costs, they would rather print money devaluing the Rand. This will make it easier to repay rand denominated debt and pay salaries/grants. Unfortunately this will hurt most South Africans as inflation and interest rates will increase rapidly like in the 1980’s, but if you have good direct foreign exposure you will be ok. Personally I would prefer a IMF bailout as would come with strict conditions but politically this seems unlikely.

While the R100 billion taxi-industry gets a free ride on taxes. Nice.

And pay no toll fees … or anything else for that matter.

There is this thing of the Law of Large Numbers

Let’s imagine for a moment that our Big 4 (rupert, oppenheimer, motsepe, burger) do not have their R250b sewn up in structures.

So let’s tax them 50% or R125b!

That is R2,200 per person for the other 54,999,996 people in the country. Or about three weeks of minimum wage. Lekker pasella bonus.

Now we take the next 40 on the list and tax them 50% again. Lekker, another three weeks of minimum wage.

Now we take the next 400 on the list and repeat, then the next 4556 to cover the top 5000 and maybe we have redistributed (which is what a wealth tax is), the equivalent of a covid holiday pay period in minimum wage.

See peoples : we can fix our gini problem very easily. Sure, those 5000 people will not be employing the 5 million they currently do, but hey – had a nice five months of minimum wage but at least we will get off that list of the most unequal country in the world.

One of the governments goals was to promote and increase the rate of saving in SA. No one is going to save an invest ones savings if the more one saves and invests the more one is taxed. Everything will be spent or moved offshore in some or other covert manner.

“Inequality Lab says a wealth tax on the richest 354 000 individuals in SA could not only raise as at lease R143 billion, the revenue raised from it could be used to address income inequality in the country”

Assume SARS raises R143,000,000,000
Assume that this money is invested at 5%:
143,000,000,000 x 5% = 7,150,000,000 income per year
Guess that thirty million Saffers are poor
7,150,000,000 ÷ 30,000,000 = R238, say 240 per head per year.
That’s R20 per month.

Even assuming 5 in a household, that’s R100 per month.

These figures are slightly conservative, but give an approximate order of magnitude. A more realistic way of reducing income inequality is needed.

Assume that at least half of the collected monies will be stolen by the ANC worthies…

The ANC track record is to pick the worst, stupidist option possible.

No reason for the leopard to change its spots

The ANC’s problem has been making it less attractive for wealthier citizens to stay here. They vote with their feet the past 30 years. And to compensate, the ANC ups the tax on the dwindling remaining.

Tax base erosion.

Cadres, how about REVERSING THE TREND?

The more attractive a country for business, the wealthier it gets. The bigger its tax base.

What is so difficult?

MAURITIUS had exceptional growth the past decade or more. Probably something to do with their 15% flat tax for Individuals & Companies (and ZERO wealth tax like CGT & zero Estate Duty)

(or I could be wrong, and their growth could be as a result of their imaginary mining-sector…)

Perhaps we can look at the one possible upside. All the looted wealth might eventually become taxed in that process? But then again the law applies mainly to the masses and those who are not part of our people, so even that might be missed – specially the fat balances sitting in banks in Dubai.

All the looted wealth was spent at Exclusive car dealerships and high end shopping centres, so a lot has already flowed back to SARS.

Unless your surname is Agrizzi – all out of the RSA and in Italy.

So we are left with only the option to increase VAT – Luxury items to 30% or more?

Another sobering thought. If taxing the rich will only bring in a whopping R143 billion, how in God’s name do you think we are ever going to pay off Eskom’s R500 billion in bad debt?!

they are going to print the money. Watch. In 26 years of “freedom” the ruling party invariably goes for the least intelligent, the least sustainable, the least obvious option. You can bet on it.

Inequality is not the problem. If someone achieves more wealth than others it doesn’t matter. What does matter is the poverty that stops the poor from having a reasonable life, and having a reasonable life means that you buy food, roof over your head, goods etc. You go from being poor to being the most important person in the world. It’s what we call a customer. For that to happen, this customer creature must earn some money, just taking from the top earners is not sustainable, when they have been robbed of everything it all stops, nothing to share, then what?

You hit the hammer on the nail. Giving out grants is not sustainable. Government should not create jobs; private business must. Job creation and low business tax is possibly the way to go.

Now see this from the ANCs perspective. A wealth tax means:
1. The EFF competition loses some of its teeth.
2. The unions love the idea so more point scoring with ANC voters
3. Say what you like-the majority effected by it will:
a) be white
b) few and,
c) non ANC voters
4. Other countries have it-Switzerland, Holland, Italy etc.
5. Because a few people effected it requires minimal resources to implement
6. The ANC is seen to be doing something against WMC.

The fact that the rich and skilled are fleeing in droves(with many more to go post Covid) taking their wealth and skills with them will not concern the frog boiler and his cabal of self enriching henchmen-for now.

But lets be real-long term planning is not part of this continents historical success stories!

A year or so ago SARS made the admission that 95% of ALL tax was paid by FEWER THAN 3 MILLION SOUTH AFRICANS. Note – that is ALL taxes: income tax, VAT, corporate tax and all the other hundreds of stealth taxes that the ANC imposes. There are around 57 million people in SA, but 19 million on social grants. We have ‘free’ education, ‘free’ public healthcare, ‘free’ water for the poor, ‘free’ electricity etc. All utterly dependent on ‘fewer than 3 million people.’ Now impose a wealth tax, and it will incentivise a considerable number of that tiny percentage of taxpayers to head for more tax-friendly climes; many are already doing so. Result: no salaries for our bloated Public Service, massively reduced social grants etc etc. The ‘fewer than 3 million’ wield enormous power Mboweni. You mess with them at your peril.

I’ve heard anecdotally via a real estate agent, that in an upmarket Cape Town suburb, the majority of houses sold are by people emigrating.I agree with writers here that the solution is not to tax people even more, but to encourage skills/money/business-people to remain here instead.When the ‘pull’ factor exceeds the ‘push’ factor this will happen.In the meantime, if I had young children, I’d keep a plan B option warm. Even at this gloomy stage, I’d still hedge my bets regarding SA.

Talk about redistribution of wealth. The 143 billion will be a transfer mainly from those who have earned money fairly (and already paid taxes) to those that have looted the state.

Before the government can even think about imposing such a tax they need to have corruption under control, and it needs to be seen to be under control. They have not even begun to convince South Africa that they have even scratched the surface.

There already are TWO wealth taxes – CGT and Estate Duty

The simplest approach is to impose extra taxes on civil servants. Their earnings are way above the private sector in “like-for-like” positions (apart from being a lot less efficient). Such a tax could indeed be called a wealth tax because those excessive earnings are a form of unearned wealth. Take that back through taxes. And it would be fair tax and not affect productivity.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: