Johannesburg – Wealthy South Africans are leaving the country taking with them the valuable tax they pay. It is becoming more common for wealthy people to leave the country in search of greener and safer pastures.
There are different reasons for the mass exodus of wealthy people. Dr. Dick Forslund, Senior Economist, attributed this to talks of creating a new wealth tax and concerns amongst the rich about how safe the country is.
“Remember there was starting to be a debate in South Africa about the wealth tax. It was a report from Wits University who spoke about having a wealth tax for people having financial wealth over R1.5 million and up. It would be able to generate R140 billion for the fiscus. Maybe being so rich also creates a lot of fear that something bad is going to happen to you.”
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The introduction of an abolished tax law could chase the wealthy away
A tax law that was abolished at the turn of the new millennium but has been reintroduced has the wealthy paying more money to the government. This reintroduced tax law could also be a reason the wealthy are looking to leave and why others have left the country, said Forslund. However, it seems that those who have stayed have managed to avoid paying this tax.
“It was reintroduced some two years ago. You can look in the tax registers and you can see that in the report you have over 39 000 so-called high net worth individuals in South Africa. They have financial possessions or financial wealth of over R50 million or $1 million but in the income, tax registers you only have about 7200 such individuals earning over R5 million per year registered … as you can see from the tax statistics in South Africa, a majority of the so-called high net worth individuals seem to be able to avoid being taxed.”
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Government must turn to the middle class to fill the wealth gap
There are consequences of having the high-net-worth individuals not paying tax. The only way for government to sustain the public sector with the wealthy leaving or not paying tax, is to turn to the middle class to fill that gap, said Forslund. Either they turn to the middle class or help to uplift the people in the country.
“You have to, in some way, have a sustainable public sector. I think that you have to have a political debate and try to convince the upper middle class that they have to contribute according to their ability to pay taxes. I don’t know if it’s possible to win that political debate with the super-rich in this country. It’s a historical fact that very rich people don’t like that you touch their fortunes. The one way to compensate for the rich leaving is to lift up the whole population. That is of course about addressing unemployment and addressing the notoriously low worker wages in South Africa.”
It is not only the rich that are moving away. The upper middle class are also starting to leave the country with what they have. Should this continue, it won’t be long until the country is unable to sustain itself from the taxes it receives. Government could introduce even harsher tax laws to make up for the losses.
