A wealth tax could be a means to reduce the government’s budget deficit, but it can also create a much bigger hole
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Johannesburg – With all the taxes that South Africans must bear with, there might be one more to deal with. A new wealth tax from the South African Revenue Services (SARS) is predicted to be announced.
According to Jashwin Baijoo, a tax expert, the discussion to create this new wealth tax has been going on for some time. While many are concerned about a new tax being introduced, the new wealth tax will look at those whose assets and liabilities are equal to or greater than R50 million, but that threshold can change.
“The revenue authority is at liberty to say, ‘Okay you know not enough people are in this bracket. Let’s drop it to forty and then let’s drop it to thirty [million]. Let’s drop it to twenty million’. Currently, in terms of the proposal and without the wealth tax being concretely implemented or implemented to any extent, the provisional threshold is set at R50 million. That is your specified assets and liabilities and for the purposes of the 2023 tax year returns but that can change at any time. There could be a new proposal that comes in the midterm budget speech that says we’re reducing that to assets over 30 million and you’ve got to declare specified assets and liabilities.”
The new tax law will have far-reaching consequences. Not only will it impact those living abroad, who are South African citizens, but it will also impact those who have an interest in South African companies.
“Because of the clamp down, not just being SARS, but also Treasury and the NPA (National Prosecuting Authority) this knock-on effect is not just limited to high-net-worth individuals within South Africa. It extends to high-net-worth individuals who have some sort of interest in South Africa such as a rental property or a company in which they hold shares etc and whether they’re in South Africa or they’re offshore.”
Although there has been an increase in ultra-high net worth people in other countries, Baijoo noted that South Africa has seen “a seven percent decrease of ultra-high net worth in South Africa,” since the high-net-worth individual unit was introduced in last year’s budget speech.
For those who want to escape this new tax by not disclosing properties and investments overseas, Baijoo warns it is of no use and they should take this opportunity to “come clean and voluntarily become compliant”.
“SARS has an automatic exchange of information with various other revenue authorities which means SARS are already aware of it [your properties] and they’re just waiting for you to disclose or not. It is a very smart move strategically on the part of the revenue authority as their strategic objective is to obtain voluntary compliance from taxpayers,” says Baijoo, “And where there is no voluntary compliance is very much where SARS steps in and together with whichever revenue authority it may be, they are empowered to conduct a joint audit of a taxpayer. It can be any taxpayer really. Not necessarily limited to high-net-worth individuals and that is how SARS will gain access to all this information.”
For those who voluntarily comply will not be penalised, said Baijoo. Those who remain non-compliant will find that SARS, after the due process, is at liberty to take their moveable property in lieu of them not paying their fine.
“The liability is accrued and is confirmed by issuance of an assessment by SARS. They will then give you until the date provided on the statement, which is typically until the end of the following month, to make payment in full of the liability as per the statement balance. Should you fail to do this you will get a gentle reminder, a sms or a call. Should you still fail to adhere to this you will get a final letter of demand. The final letter of demand permits the taxpayer only ten business days in which to respond to SARS. Should those ten business days lapse without any action from the taxpayer, SARS may then implement collection measures.”
There are several different judgments that can be taken, explained Baijoo.
“Possible blacklisting on all credit bureaus in South Africa and at this stage with the free flow exchange of information there could be international ramifications … SARS may then attach movable property and immovable property and by virtue of a third-party appointment to the taxpayer’s bank, they can delve directly into the taxpayer’s bank account and syphon any funds from there, in settlement of the debt.”
Trust funds too are not safe. Baijoo has experienced cases where trust funds were dragged into legal matters to pay off debts.
“SARS can even go to the extent of piercing the corporate veil and including those trusts in any legal proceedings that may be implemented against the taxpayer depending on the structure of the trust and the taxpayer being a trustee or beneficiary.”
The new wealth tax, should it be introduced, will be a means to reduce the deficit that the government has incurred over the past two years because of Covid but it can also create a much bigger hole, explained Baijoo.
“There has been a budget deficit from a collection perspective for the last two or three years … which may be why this proposal has now been given legs to an extent … We’ve already seen high net worths leaving just on the basis of the proposal. Should implementation come into play, we’re going to see a mass exodus of high-net-worth individuals … With these high-net-worth individuals leaving … the knock-on effect is our tax base is going to be even further reduced from and that’s going to put the government and the fiscal in an even deeper hole.”
With these high-net-worth people leaving the country, those who have shops and farms are highly likely to leave those that work for them unemployed which will further increase unemployment, worsen the situation we are in and hamper the recovery the economy is trying to make.
Julie Alli spoke with Jashwin Baijoo. Listen to the interview here:
