Budget 2025: Is wealth tax coming for South Africa’s rich?

With the Budget 2025 speech only a few days away and a tax collection shortfall expected to be in the region of R22 billion, the minister of finance will be looking for ways to boost tax collection without slowing down the economy and negatively affecting South African households. Will he come for the rich with a wealth tax? 

According to the latest tax statistics for 2024, personal income tax made up 37.4% of the total tax revenue collected. Although this was down from 39% in the 2020 fiscal year, personal income tax remains the largest contributor to the tax revenue, Zohra de Villiers, partner for Global Mobility Services and Employment Tax Advisory at KPMG South Africa.

Approximately 7.5million individual taxpayers contribute to the personal income tax revenue in the country. De Villiers points out that a further analysis reflects the glaring fact that only about 500 000 individuals contribute 50% of these taxes.

“This small group comprises taxpayers with taxable income in excess of R1 million per year and it includes foreign nationals seconded to South Africa to work here for a limited period.” 

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Very few individuals in SA to pay a wealth tax

She says a wealth tax will therefore only be applicable to a small number of high-income earners. South Africa’s maximum marginal tax rate of 45% is higher than the global and even Africa’s average, which are both in the lower 30s.

Therefore, De Villiers says, there is no room for the minister to increase our personal income tax rates without making South Africa unattractive as a home. “The introduction of such a punitive tax could lead to wealthy individuals leaving the country to move to more tax-friendly jurisdictions.”

The South African Revenue Services (Sars) indicated in its latest tax statistics that about 38 000 taxpayers ceased their South African tax residency between 2017 and 2023. Although this trend has slowed down since, it has not completely stopped and individuals continue to change their tax status from resident to non-resident, De Villiers says.

“A change in tax residency status may result from an individual no longer being ordinarily resident in South Africa or by virtue of the application of a double tax treaty between South Africa and another country.

“Either way, with individuals ceasing to be South African tax residents, the country is losing out on tax revenue. To stop this exodus, South Africa must remain competitive and have some compelling reasons apart from our beautiful beaches and sunny weather for individuals to stay.”

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Existing taxes on transfer of wealth not contributing much

She says it is also noteworthy that South Africa has existing taxes on the transfer of wealth in the form of transfer duty, estate duty and donations tax. “However, these taxes contribute small amounts of tax revenue to the state’s coffers.

“Consideration should also be given to the work done by the Davis Tax Committee on the feasibility of a wealth tax in South Africa. The committee’s report stated that while a recurrent net wealth tax may be an admirable and desirable form of wealth tax, more work is needed to ensure that the tax is well designed and will yield more revenue than it costs to administer.” 

Sars established the High Wealth Individual unit in 2021 and in 2023 required individuals with assets valued at R50 million or more to declare their wealth in their income tax returns, with the aim of consolidating information on wealthy taxpayers.

National Treasury recently indicated that they were analysing the data, which will give them a better picture of wealth within the country. It is, therefore, not unlikely that a wealth tax is on the cards in this year’s budget, De Villiers says.

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SA needs increased economic activity, not wealth tax

“As was the case before, South Africa is in dire need of increased economic activity to reduce unemployment and grow the tax base. However, a wealth tax on the low number of high-net-worth individuals may not yield the required tax revenues the country needs and could in fact have adverse social and economic implications.”

De Villiers says it seems like the minister would need to look elsewhere for additional taxes, perhaps increasing tax compliance and/or tapping into the informal sector, instead of targeting the already highly taxed and compliant taxpayers.