South Africa Debates Wealth Tax

September 26, 2011 Taxation in South Africa

Wealth Tax in South AfricaPRETORIA – Talks of a new wealth taxes have been growing in South Africa, but local tax experts are now vehemently standing up and arguing against the idea.

Throughout last week debates have arisen in South Africa over the potential to instate a new tax on the country’s wealthiest citizens. The issue of wealth taxes arose after US president Barack Obama suggested that such a measure should be instated in the USA. However, tax experts in South Africa are arguing that their national situation is different to the USA, and a wealth tax would not be a productive idea.

According to Eustace Davie, council member of the Free Market Foundation, if a wealth tax was instated in South Africa it would only serve to drive skilled workers and high net worth individuals out of the country. His comments were supported by Ernie Lai King, director and head of tax at the multinational legal practice Norton Rose in South Africa, who said that skilled workers were scarce in South Africa, and extra tax burdens would encourage them to move to a different country. Ernie Lai King did concede that wealth tax measures may look like a good solution for alleviating national poverty, but he claimed that instating the tax is short sighted, ultimately slowing the country’s economic development. He summarized his points, saying, “… one cannot make a poor man rich by making a rich man poor. Poverty cannot be solved by continually increasing taxes.”

The argument against a wealth tax also received support from Vedika Andhee, tax director at Ernst & Young, who said that the situation in the US is different to that in South Africa, and imposing heavier taxes on local millionaires would not benefit the country as it would in America. Instead, Vedika Andhee suggested that the government investigates means to cut down budgetary spending and improve the national welfare system.

According to data made available by the South African Revenue Service, there are approximately only 2000 taxpayers in South Africa who are considered to be high net worth individuals. Currently the top personal tax rate in South Africa stands at 40 percent, which is considered to be unusually high for an emerging economy.

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