South Africa’s loss of skilled, high-income workers could limit room for maneuver to raise income taxes as the Treasury seeks to close a budget deficit above war levels.
A First National Bank survey of realtors in the fourth quarter of FirstRand Ltd. shows that more than a fifth of all homes valued at 2.6 million rand ($ 176,939) or more that came on the market late last year were due to people planning to move to the ‘foreign.
This could further erode the tax base in a country where less than 14 million people out of a working age population of 39 million are registered taxpayers and those who earn more than R1 million a year pay 40.2% of all. personal income deductions.
For every wealthy person who emigrates, an average of R12 million in income tax is lost from the system and the expenses, value added tax and economic activity they generate are also lost, said Bernard Sacks, partner at Mazars LLP. in Cape Town.
The low 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, managing directors and top lawyers earn up to R20 million per year, while the official minimum wage is just over R20 per hour.
“The growing number of high-income emigrants has eroded South Africa’s tax base. The latest tax changes may help slow the decline, but they are unlikely to stem the exit completely, posing lingering risks for the taxman, said Boingotlo Gasealahwe, Bloomberg economist.
High-income South Africans find accommodation abroad through residency and citizenship programs.
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 of the popular Caribbean island nation of Grenada right now, said Nadia Read Thaele, Founder and Managing Director of LIO Global, a residency and citizenship consultancy.
The statistics office stopped collecting data on self-reported emigrants in 2004.
Finance Minister Tito Mboweni will present the 2021-2022 budget on February 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 foreign income exemption threshold to prevent people from moving their tax residence abroad.
A wealth tax has been mentioned several times over the past two and a half decades to improve the standard of living of the country’s poor. Last year, an advisory committee appointed by President Cyril Ramaphosa said that a three-year “solidarity tax” that would increase the income tax of top earners should be considered.
While a World Inequality Lab study shows that a wealth tax on the net worth of South Africa’s richest could bring in up to R60 billion per year, it could push more high-income earners from.
The Treasury said in October that recent tax increases have generated less income than expected and evidence suggests they may have significant negative effects on economic growth.
“Their choices are limited and this indicates the possibility of borrowing more and unfortunately this borrowing would occur as the size of our economy shrinks,” said Siphamandla Mkhwanazi, an economist at FNB.
Instead, the government should enforce laws to strengthen tax compliance and invest in rebuilding the capacity of the South African Revenue Service, according to Nazrien Kader, tax officer at Old Mutual Ltd.
A commission found that the body had suffered a “massive failure of governance and integrity” under former chief Tom Moyane from 2014.
Edward Kieswetter, former managing director of the country’s largest insurance and pension fund adviser Alexander TBEN, was appointed commissioner in 2019.
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