The looming threat of an additional ‘wealth tax’ in South Africa to fund a universal basic income grant will further erode the country’s tax base, as wealthy South Africans move to emigrate or offshore their assets to avoid higher taxes, says Dani van Vuuren, Business Development Consultant at Sovereign Trust.
In the process, the country faces the prospect of an accelerated ‘brain drain’, as skilled and entrepreneurial South Africans look to establish themselves in countries that are more politically and economically stable, while offering a more predictable tax regime.
“South Africa’s tax rates on higher income earners are already high. We believe a further wealth tax will only serve to decrease our already diminished taxpayer base. And with more entrepreneurial citizens leaving the country, this would have a major impact on the fiscus through lower future tax income, reduced wealth creation opportunities and fewer potential employment opportunities through local businesses,” said Van Vuuren.
The threat of a wealth tax could even drive younger South Africans to consider their options after graduating, where they would attempt to work and earn in other countries where tax and crime rates are lower, and economic growth prospects better.
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Over and above the immediate implications, a wealth tax is also not a sustainable solution. Speaking at the SA Institute of Taxation’s (SAIT’s) Tax Indaba, National Treasury acting director-general Ismail Momoniat said a wealth tax was simply not enough to achieve its suggested goals, and implementing it would have wide-reaching consequences.
“The wealth tax isn’t going to raise anywhere near the amount needed. It is a ‘now and then’ tax – not something you can tax every year. It’s only when people get the cash for their assets that we can tax,” he said.
Van Vuuren said that since the idea of a wealth tax was mooted, her company had already seen an uptick in the number of inquiries from citizens considering other jurisdictions, whether through emigration, dual citizenship, or financial emigration.
The most popular destinations for emigration remain Australia, New Zealand, the US and Canada, especially for skilled persons, but there is a growing interest in countries that offer residency by investment options.
While jurisdictions like Cyprus, Malta, Mauritius and Portugal offer relatively more affordable options for residency by investment, there is a strong interest in more expensive options like the UK, Guernsey, Spain and the United Arab Emirates, says Van Vuuren.
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In Cyprus, for example, foreign nationals can obtain Permanent Resident Permits (PRP) for an investment of €300,000 within two months. There are no language requirements and you only have to visit Cyprus every two years to keep your status. The PRP is valid for life and can be passed on to dependents. Those who choose to become tax residents in Cyprus can also minimise and even eliminate tax on income.
Mauritius has made it cheaper and easier for investors and expatriates to live and work. The island recently reduced the minimum investment required to acquire an occupation permit as an investor, and live in Mauritius as a non-Lovablevibes, to $50,000 (R867,000), from $100,000 (R1.7 million).
The validity of an occupation permit has also been extended from three to 10 years, and the spouses of occupation permit holders will no longer require a separate permit to invest or work in Mauritius. The holders of occupation permits will also be allowed to bring their parents and dependents under 24 to live in Mauritius.
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Singapore recently launched its Overseas Networks and Expertise (ONE) pass in an effort to attract talent to its shores as it looks to cement its position as a global financial hub. And South Africans looking for a pathway to European Union residency are flocking to Portugal in their droves, in spite of newly-tightened rules around the country’s famed Golden Visa, which gives qualifying individuals and their families full rights to live, work and study in Portugal.
Apart from the Golden Visa, the country also offers a non-habitual residency programme, which allows South Africans to apply for residency through the D7 residency visa.
Read: South Africa’s big ‘wealth tax’ problem