A wealth tax could be the quickest solution to plug the holes in authorities funds, but it surely’s dangerously unsustainable, in line with Hannes Van Den Berg, CEO of Momentum Consult.
Last week noticed the arrival of the primary Covid-19 vaccines on our shores. They are the primary batch of a whole of 500,000 which might be being offered by Johnson & Johnson (J&J) to South Africa free of cost.
But the following lot that we’ve procured (one other 9 million doses from J&J) will should be paid for. Against a backdrop of dire financial progress, report unemployment and low tax income, the apparent question is: how are we going to pay for them? It’s extensively speculated that the Minister of Finance could unveil a “wealth tax” in his Budget Speech on 24 February 2021.
What is a wealth tax?
A wealth tax is levied on folks whose web value is above a sure threshold.
A current research by the World Inequality Lab advised a vary of taxes that may very well be levied on South Africans with a web value over R3.8 million and that these may increase as much as R160 billion for presidency coffers. At a time when the World Bank has estimated that 100 million folks have been pushed into poverty in 2020 alone, it’s simple to see how this may be a lovely possibility. But does it make sense in a South African context?
Hannes Van Den Berg, CEO of Momentum Consult, cautions that this may appear to be a fast repair but it surely carries harmful long-term penalties. “A wealth tax is a short-term tool to fix a long-term problem. It’s a fast way to fill the holes that have been left by the mismanagement of public funds, but it’s not a lasting solution”, he says.
A wealth tax isn’t with out its dangers
“South Africa has a relatively well-developed tax regime which resembles those in first world countries”, he continues. “The problem is our dwindling individual taxpayer base”.
That taxpayer base is already paying a host of direct and oblique taxes. Capital Gains Tax, Transfer responsibility, property tax, donations tax…the record goes on. Burdening the wealthier phase additional dangers driving them away, whether or not that is down the trail of tax resistance or emigration. “The level of tax is so high that people are either looking for other, often riskier, ways to mitigate their tax burden or they avoid paying tax altogether”, he says.
He additionally factors out that in a capitalist system, these prepared to threat their capital for the nation’s progress would fairly count on some return. “However, if they are taxed to the point of no return, they can easily lift their roots and find their successes in another country”, he says. The “Brain Drain” is a very actual menace, he provides. Prohibitively excessive ranges of tax is quick turning into a main cause folks go away the nation. This is obvious within the rising quantity of questions on offshore buildings and tax havens advisers that Momentum Consult is receiving. Neither tax avoidance nor emigration are useful for financial progress. And with job creation going through an uphill battle, the quantity of people who might be taxed can be unfold even thinner.
“You simply cannot tax a country into prosperity”, he says. “It’s like Winston Churchill once said: ‘…for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle’”.
Where to seek out assist
If you’re involved about how a wealth tax could influence you if applied, he recommends talking to a skilled monetary adviser. “The value of advice is essential here. The level of tax is so high people simply don’t want to, or can’t, comply. They are intentionally avoiding tax or looking to options like e-Currency to circumvent tax measures. And as we’ve seen, these come with many risks to well-meaning people who panic and move their money into risky ventures, often paying a high price.”
“A trained professional can help you reconsider your current investments and the various tax vehicles available, advise on the relevance and structure of your trusts in a South African and international context and make sure you understand all the elements involved in financial emigration. Whichever path you choose, make sure you don’t go at it alone”, he says.