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szdaily -> World Economy -> 
South African high earners’ exodus to limit room for tax hikes
    2021-02-22  08:53    Shenzhen Daily

SOUTH AFRICA’S loss of skilled and high earners could limit room to raise income taxes as the Treasury seeks to plug a budget shortfall that’s above wartime levels.

A fourth-quarter estate agent survey by FirstRand Ltd.’s First National Bank shows more than a fifth of all houses valued at 2.6 million rand (US$176,939) or more that were put on the market by the end of last year was because people planned to move abroad.

This could further erode the tax base in a country where fewer than 14 million individuals in a working-age population of 39 million are registered taxpayers and where those earning more than 1 million rand a year pay 40.2 percent of all personal income levies.

For every high net worth person who emigrates, an average of 1.2 million rand in income taxes disappears from the system and the spending, value-added tax and economic activity they generate is also lost, said Bernard Sacks, a partner at Mazars LLP in Cape Town.

The small tax base is a symptom of South Africa’s inequality. Today, chief executives and top lawyers make as much as 20 million rand a year while the official minimum wage is just over 20 rand an hour.

“The increasing number of high-earning emigrants has eroded South Africa’s tax base. The latest tax amendments may help to slow the decline, but it is unlikely to completely stem the outflow, posing persistent risks to the fiscus,” said Bloomberg economist Boingotlo Gasealahwe.

High-income South Africans are finding homes abroad through residency and citizenship programs. A family of four must donate US$200,000 or invest YS$320,000, including administration fees, in a government approved real estate project to qualify to become citizens in the Caribbean island nation of Grenada, which is very popular at the moment, said Nadia Read Thaele, founder and managing director of LIO Global, a residency and citizenship consultancy.

The statistics office stopped collecting data on self-declared emigrants in 2004.

Finance Minister Tito Mboweni will present the 2021-2022 budget Wednesday and emigration could complicate plans to raise an additional 40 billion rand in revenue over the next four years. In last year’s budget, the Treasury increased the exemption threshold on foreign income in a bid to prevent people from moving their tax residency abroad.

A wealth tax has been mooted several times in the past 2 1/2 decades to boost the standard of living of the country’s poor. Last year, an advisory panel appointed by President Cyril Ramaphosa said a three-year “solidarity tax” that would raise income tax for higher earners should be considered.(SD-Agencies)

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