On 22 February, South Africa’s finance minister Pravin Gordhan is expected to unveil across-the-board tax hikes to the marginal rate of income tax, where the top rate may reach as high as 45%, up from 41%.
It is also predicted he will increase estate duty and tax on donations between spouses to increase tax collection on intergenerational wealth transfers.
“These changes will definitely affect British expats living and working in South Africa,” Dieter Schulze, regional managing partner of RSM South Africa, told International Adviser.
“South Africa is going through significant upheaval around wealth taxes specifically. We’ve got treatment of trusts, we’ve got a tax committee which is reviewing every aspect of tax in South Africa so it’s in a state of turmoil.”
Economic pressures
Gordhan is under pressure to target the wealthy in South Africa as Africa’s most industrialised economy faces a ‘perfect storm’ of low commodity prices, sluggish global demand and the worst drought in more than a century.
The finance minister has been locked in political infighting with the nation’s president Jacob Zuma since Gordhan’s appointment in December 2015 and has previously said that the Treasury would need to raise R28bn (£16.8m, $21.2m, €19.6m) to balance the books.
Wealth tax
In the mini budget last October, it was widely reported that the Davis Tax Committee (DTC), which reviews and makes recommendations on South Africa’s tax system, was considering imposing a levy or surcharge tax on wealthy individuals with earnings or turnover above a set threshold.
Schulze believes it is unlikely that this will come to fruition despite calls to address South Africa’s rampant income inequality, considered one of the highest in the world after a recent study found that 10% of the population own up to 95% of all assets in South Africa.
“As for the introduction of a separate wealth tax, I think that’s unlikely to come in, but the government are desperate and they don’t want to upset the anti-rich populists,” said Schulze.
Estate duty
Schulze adds that South Africa already has a wealth tax in the form of the estate duty or CGT, which he predicts will be raised later this month.
Currently, the estate duty applies to estates with a net value in excess of ZAR3.5m, including all worldwide assets, are subject to a 20% levy.
Schulze revealed estate duty rates have “increased dramatically” in recent years with the last hike taking place in March last year, which saw a 20% increase to rates affecting some taxpayers.
Tax changes on trusts
Another tax policy set to be overhauled is the treatment of trusts, which the DTC promulgated on 19 January after lengthy consultations.
In April, the committee issued a report urging the country’s revenue service to investigate the taxation of offshore retirement funds prompting fears they would no longer be exempt from wealth and donations tax.
