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Cape Town - With Finance Minister Pravin Gordhan’s upcoming National Budget address around the corner (February 26), one has to wonder whether he will consider instituting a wealth tax in an attempt to increase revenue collection.
The conditions for the implementation of a wealth tax are optimal, and the minister faces severe pressure to curb government spending and increase revenue.
As South Africa’s economy is being affected by the ongoing global economic climate and inflation continues to rise, the country is hard pressed to raise revenue to meet service delivery demands.
One way for the minister to swell the Treasury coffers would be to further tax the wealthy. They are defined as those with an annual income in excess of R1m.
At Mazars, however, see more potential harm than good in this approach.
South Africa’s fiscal base is made up of just over 14 million individual taxpayers, of which 7.7 million fall below the tax threshold.
This means that only 6.3 million income taxpayers are subsidising the rest of the country.
Statistics South Africa places South Africa’s total population (as at 2011) in excess of 51 million people.
The situation is exacerbated by South Africa’s rate of unemployment which currently exceeds 25% and more than 16 million people qualify for social grants.
A wealth tax would be counterproductive. By taxing wealthy individuals further the minister risks alienating this demographic.
Wealthy individuals will almost certainly consider leaving South Africa to escape a harsh tax regime and seek out softer havens where their income will be worth more.
According to the 2013 Budget Review, 8.4% of taxpayers - those earning in excess of R500 00 per annum - contribute 54.4% of all tax revenue.
Of this group, 2.3% - the wealthy individuals as defined earlier - contribute 30.9% of tax revenues.
South Africa’s tax liability is among the highest in the world and a number of wealthy, high net worth individuals have already left our shores to escape paying high taxes.
It is, therefore, in the best interests of the country not to interfere with the tax rates for high net worth individuals.
* Mike Teuchert is the director and head of tax at professional services firm Mazars in Cape Town. Views expressed are his own.
The conditions for the implementation of a wealth tax are optimal, and the minister faces severe pressure to curb government spending and increase revenue.
As South Africa’s economy is being affected by the ongoing global economic climate and inflation continues to rise, the country is hard pressed to raise revenue to meet service delivery demands.
One way for the minister to swell the Treasury coffers would be to further tax the wealthy. They are defined as those with an annual income in excess of R1m.
At Mazars, however, see more potential harm than good in this approach.
South Africa’s fiscal base is made up of just over 14 million individual taxpayers, of which 7.7 million fall below the tax threshold.
This means that only 6.3 million income taxpayers are subsidising the rest of the country.
Statistics South Africa places South Africa’s total population (as at 2011) in excess of 51 million people.
The situation is exacerbated by South Africa’s rate of unemployment which currently exceeds 25% and more than 16 million people qualify for social grants.
A wealth tax would be counterproductive. By taxing wealthy individuals further the minister risks alienating this demographic.
Wealthy individuals will almost certainly consider leaving South Africa to escape a harsh tax regime and seek out softer havens where their income will be worth more.
According to the 2013 Budget Review, 8.4% of taxpayers - those earning in excess of R500 00 per annum - contribute 54.4% of all tax revenue.
Of this group, 2.3% - the wealthy individuals as defined earlier - contribute 30.9% of tax revenues.
South Africa’s tax liability is among the highest in the world and a number of wealthy, high net worth individuals have already left our shores to escape paying high taxes.
It is, therefore, in the best interests of the country not to interfere with the tax rates for high net worth individuals.
* Mike Teuchert is the director and head of tax at professional services firm Mazars in Cape Town. Views expressed are his own.
