Wealthy taxpayers flooding out of South Africa

[Nat Quinn]

South African taxpayers are leaving the country in their thousands, shrinking its already small tax base and threatening the government’s future revenue.

This is feedback from BDO tax specialists Beatrie Gouws and David Warneke, who analysed the implications of the Finance Minister’s Budget Speech for taxpayers over the next few years.

Historically, high-earning taxpayers have borne the brunt of tax hikes and policy changes to redistribute wealth and bolster social programs.

However, in recent years, there has been growing discontent among high-income earners, who argue that excessive taxation stifles entrepreneurship and undermines economic growth.

This has resulted in a number of top-tier earners who are simply choosing to emigrate due to increasingly high taxes, among other reasons.

For example, the 2024 BRICS Wealth Report highlighted that South Africa was home to 37,400 US dollar millionaires (including 102 centi-millionaires and five billionaires) at the end of 2023 – a 20% decline from 2013.

This means South Africa has lost approximately 9,350 US-dollar millionaires over the past ten years.

Data provided by SARS shows that over 32,000 people ended their tax residency in South Africa between 2017 and 2021.

Of those individuals, approximately 2,700 earned more than R500,000 annually and 1,100 earned more than R1 million annually.

If an increasing number of South Africa’s richest people leave the country, the country will lose taxpayers who contribute greatly to the government’s revenue and, thus, the provision of services.

The impact is exacerbated by South Africa’s highly concentrated tax base, which results in a tiny number of wealthy people paying the vast majority of the country’s taxes.

Personal income tax as a proportion of total revenue collected will increase by 2% in 2024 compared to 2023, with only 5% of the population paying around 92% of PIT.

This shows the precarious position of the country’s tax base, with more and more revenue being squeezed from fewer people.

South Africa’s Finance Minister, Enoch Godongwana

National Treasury’s estimates of individuals and taxable income for 2023/24 clearly illustrate a problem.

They show that South Africa has 7.1 million individual taxpayers, down from 7.4 million a year ago. The country’s registered taxpayers are declining, while government expenditures are increasing.

The impact may be even more severe on salaried professionals, small business owners, and aspiring entrepreneurs who are confronted with some of the world’s heaviest personal income tax burdens.

These kinds of people make up what Gouws and Warneke term middle-tier taxpayers.

Unlike top-tier earners, they typically lack a savings safety net and the resources to structure their affairs in the most tax-efficient manner, leaving them much more susceptible to the direct impacts of budgetary decisions.

While top-tier taxpayers are not as negatively affected by bracket creep on a percentage basis, middle- and lower-tier taxpayers may be hit hard.

Individuals are expected to pay R16 billion more in tax during the 2024/25 fiscal year and a further R17.3 billion in 2025/2026 and R18.6 billion in 2026/2027.

This is due to a phenomenon known as ‘bracket creep’. This happens when tax tables and tax deduction limits are not adjusted for inflation, making taxpayers pay more and thus resulting in greater revenue without hiking rates.

Traditionally, the government adjusts tax thresholds annually to counteract the effects of inflation. However, for 2024, these thresholds will stay the same.

Thus, if an inflation-related raise is given, earners may be pushed into a new tax bracket and pay relatively more in tax.

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