Wealth taxes: are they coming to South Africa?

There’s been a lot of talk recently about wealth taxes possibly coming to South Africa. But what exactly are they, and how do they work? This article breaks it down in simple terms, looking at what wealth taxes are, how they’re used in other countries, and what they could mean for South Africa.

What is a wealth tax?

A wealth tax is essentially a tax based on the total value of a person’s assets. This could include things like property, cars, and investments. Unlike other taxes that are triggered by specific events—like selling a house or inheriting money—a wealth tax is usually charged every year based on the value of these assets and is a deemed tax.
 

Which countries have wealth taxes?

Many countries have tried implementing wealth taxes, but most have scrapped them because they can be expensive to manage and don’t bring in much revenue. For example, countries like Norway, Spain, and Switzerland still have wealth taxes. France and Italy have limited wealth taxes, focusing only on certain assets like real estate.

Interestingly, India, which is also a BRICS country like South Africa, used to have a wealth tax but it was so ineffective even the tax collectors were trying to avoid it, so they got rid of it in 2015.
 

Why all the fuss?

Wealth taxes are often used by politicians as the “Robin Hood” of taxes which take money from the rich and give it to the poor. However, the reality is often different, and this has been proven time and time again.

In South Africa, it’s widely accepted that a small group of people owns the vast majority of the wealth. There is a massive “missing” middle class, with implications for tax policy. As noted by Prof Deborah Tickle in an article in TaxTalk in 2019:

In “The Missing Middle” in the 20 June 2019 edition of the Financial Mail, Prof Haroon Bhorat (professor of Economics and director at the Development Policy Research Unit at the University of Cape Town) concludes: “The missing middle in wage distribution is the new form of inequality in the country. It is representative of a failed schooling system, a sectoral growth path not creating enough medium-skilled jobs, and one that remains threatened by the onset of the fourth industrial revolution. Engendering a growth strategy that creates a large number of jobs for workers in the middle of the distribution through, for example, labour-intensive manufacturing remains at the heart of SA’s long-run economic development.”

Professor Bhorat makes no mention of a wealth tax as part of the solution, probably because … such a tax will simply add administrative strain to an already strained tax administration, collect little additional revenue, and add little to addressing inequality, anyway. 

Prof Tickle added that, according to the South Africa Wealth Report 2019 published by The AfrAsia Bank, private wealth in South Africa totalled US$649 billion. Just under 40,000 people had net assets worth more than US$1 million, with just over 2,000 people worth more than US$10 million.

This highlights the fact that the focus should be on creating this “missing middle” by creating jobs and stimulating the economy rather than introducing a wealth tax, which might not help much anyway. There is simply not enough wealth in South Africa to tax. This is further exacerbated by the fact that a wealth tax is notoriously complicated and expensive to administer. The juice likely isn’t worth the squeeze.
 

Does South Africa have any form of wealth tax?

Interestingly, South Africa already has several taxes that act like wealth taxes, often referred to by Prof Tickle as “stealth wealth taxes.” These include:

• Luxury Car Tax: Introduced in 2011.
• Capital Gains Tax: This tax has been around since the early 2000s and was adjusted in 2016.
• Transfer Duty: Charged on properties valued above a certain amount.
• Municipal Rates: Based on the value of property.
• Dividend Tax: Currently set at 20%, which is higher than the global average of 15%.
• Estate Duty and Donations Tax: Currently at 20 or 25% with the estate duty exemption remaining unchanged since 2007.
• Securities Transfer Tax: Tax on the transfer of securities.

The Davis Tax Committee Report has acknowledged that these existing taxes are sufficient, although they also note that better administration of these taxes is needed.

Arguably, SARS should continue to focus on tax compliance rather than implementing new taxes. We have seen this trend over the last three budgets.
 

What are the unintended consequences of a wealth tax?

Whether it’s rugby or tax, there are always unintended consequences when new laws or regulations are introduced. The (inevitable) unintended consequences of a wealth tax will depend on how the government implements it.

Wealthy individuals, who have the means, might choose to move their assets or even relocate to countries without such taxes. If the tax is applied to specific assets, people might start shifting their investments to avoid the tax, which could distort financial decisions.

For our entrepreneurs, cash flow is king and wealth taxes could be problematic for them as it is a tax on an asset value, not on income. Many entrepreneurs are “cash hungry”, needing to access facilities to meet their monthly costs while they wait for revenue to come in. A wealth tax would thus be a further burden on their cash flows, impacting their growth and the economy as a whole.

For our entrepreneurs, cash flow is king and wealth taxes could be problematic for them as it is a tax on an asset value, not on income.

A recent OECD report on wealth taxes stated that these kinds of taxes often act as an incentive to hide assets, leading to a decline in tax morality. The OECD report acknowledged that wealth taxes disincentivise entrepreneurship, harming innovation and long-term growth.
 

What are the alternatives?

There is no silver bullet (or tax on the value of the silver bullet) to solve South Africa’s government revenue problems. We need to see continued improvement and discipline across the many areas, including:

• Lower government expenditure and debt.
• Resourcing SARS: the government should continue to improve the existing infrastructure at SARS. There needs to be better administration of taxes, not new ones.
• Keep focusing on compliance and data: SARS has increased access to data received from the Common Reporting Standard, and they need to leverage this. They also need to ensure they don’t treat taxpayers who are “playing ball” as if they are not. They need to focus on the taxpayers they don’t know about.
• Continued relaxation of exchange controls: This encourages foreign investment in South Africa.
• More taxpayers: Most importantly, we need more taxpayers and thus need policies that grow the economy and the tax base. This is the only sustainable solution.

The sentiment within the Investec group and across our clients, both locally and internationally, is cautiously optimistic about South Africa’s economic future. Our clients are more pro-SA than previously. Government should think twice before adopting wealth taxes, which are unlikely to achieve what they are set out to achieve.

This article was updated on 14 March 2025