Wealth tax won’t hit South Africa’s middle-class: expert

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Judge Dennis Davis has again given his support to lifestyle audits for wealthy South Africans as a means of clamping down on tax avoidance.

While the government has previously mooted the introduction of a wealth tax, Davis said that this was ‘laughable’ as the South African Revenue Service (SARS) does not have the requisite information on wealthy individuals in the country.

“I want to predict with confidence that South Africa will not impose a wealth tax in the near future and, if it does, that it will definitely not affect the large middle class,” he said in a Nedbank webinar last week.

Davis added that a clear definition of ‘wealth’ needed to be established and that lifestyle audits would help with collecting information on the assets of the wealthy.

Highlighting the importance of lifestyle audits, Davis said that the tax committee recently did a study on a group of people “with very fancy Ferraris parked outside a hotel”.

The person he was working with at SARS took down the registration numbers of the 26 Ferraris and looked at how much tax they pay.

What it revealed was that not one of the owners returned a taxable income of more than R400,000 per year, or R34,000 per month.

Davis highlighted that it is not possible to fund a lavish lifestyle, like driving an expensive Ferrari, on an income of only R400,000 per year.

He said SARS’ data shows that only 5,000 South Africans report taxable income of R5 million or more.

“That makes no sense to me. I invite people to drive in Sandton, Bryanston, Camps Bay, and Bishopscourt – you have to be earning significant amounts to afford houses in these areas,” he said.

He said the country is losing more than R100 billion each year – around 10% of South Africa’s total tax income – from people and businesses dodging tax.

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In a January interview with 702, Davis said the tax tables show that only around 5,000 – 6,000 South Africans report taxable income of more than R5 million, and that lifestyle audits on wealthy individuals could help make up this shortfall.

“Drive around Clifton, Camps Bay, Bishop’s Court, Bryanston and Sandton and count how many houses there are that have to have that level of income for the upkeep.

“That is apart from all of the luxury motor cars you see on our roads. So if you take R5 million (as the top bracket), there are a lot of rich people who probably have a lot more than that and are not disclosing it.”

While no ‘solidarity tax’ was announced by Finance minister Tito Mboweni in his 2021 Budget Speech, National Treasury has indicated that it will assess the viability of a future wealth tax as it collects more data in the coming months.

“Following the recommendations of the Davis Tax Committee, SARS will focus on consolidating wealth data for taxpayers through third-party information,” Treasury said in its 2021 budget review.

“This will assist in broadening the tax base, improving tax compliance and assessing the feasibility of a wealth tax.”

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