The new tax needs to be implemented properly to avoid losing taxpayers and making the middle class pay Photo Pexels
South Africa – At the recent African National Congress (ANC) Policy Conference, the wealth tax was brought up once again. Certain party members believe it is still necessary to implement the tax to generate much needed revenue and reduce the inequality in the country.
According to the World Bank, South Africa is the most economically unequal country in the world. The wealth tax is not an indication the super wealthy don’t get taxed enough. Jashwin Baijoo, Tax expert explained it is just to further tax the super wealthy.
“They’re being taxed at the upper echelon of the bracket system which is 45%. What this wealth tax seeks to do is to then impose a further tax. The reason for this was mentioned by the committee chair is that the majority of the wealth in this country is in the hands of 5% of the population … The wealth tax is not necessarily to say the wealthy are not being taxed. It is to then impose a further tax on the wealthy.”
The revenue that could be generated by the wealth tax
South Africa has a small tax base. Although the country has a sizable population, not everyone pays taxes. Baijoo explained numerous studies have been done on the wealth tax and how much it could generate for the country. All studies show that a significant amount of money can be generated.
“There’s been a couple studies conducted. The most recent one by the University of Witwatersrand. They’ve speculated that a wealth tax being imposed on only the richest 354 000 South Africans could raise at least R143 billion in additional revenue. You must remember that this is only about 29% of the R500 billion that’s required to fund the basic income grant.”
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The consequences of imposing it
A wealth tax only works if there are people to tax. There is a fear amongst experts that implementing such would result in the super wealthy emigrating. However, it needs to be implemented in a way that keeps taxpayers in the country while also generating more income from them.
Currently, there is an exodus of South Africans leaving the country. Baijoo confirmed this by explaining the financial emigration department is doing very well. This is because “there are a large number of South Africans who are heading out”. However, there is some hope even though South Africans are leaving. There is a large amount of foreign investment coming into the country.
“When we talk about wealth tax, all studies and all considerations are based on individual taxpayers. They have not taken into consideration the corporate taxpayer, the multinational taxpayer or the offshore investors that have now invested into the country. There is some wealth there to be spread.”
For the wealth tax to be beneficial, it must be sustainable for a long time. To do this the government needs to tweak the bracket system as well as define the qualifying criteria, explained Baijoon. For now, the super wealthy should not be concerned, assured Baijoon. There is still much discussion to be had before the government can implement the wealth tax.
