Are you ready for a South African Wealth Tax? You've likely never seen anything like this before…

by , 18 May 2017
Are you ready for a South African Wealth Tax? You've likely never seen anything like this before…
The Davis Tax Committee (DTC) has issued an invitation for submission, by the public, on a proposed South African wealth tax. You are likely familiar with taxes on income (PAYE) or even spending (VAT), but you have likely never encountered a true wealth tax.

A wealth tax, as the name suggests, is a tax on your wealth.

There are three basic forms discussed in South Africa. The first two, deal with land, namely a tax on land holdings over a certain size and another one on property value. Since land is the ultimate immovable asset, the impact of these will be to reduce the price of land, but otherwise it will have limited effect on the rest of the economy.

The final proposed tax, is a tax on overall wealth. And the implication of this could be very far reaching indeed.

Let's take a step back…

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There is an overall South African wealth tax already in place

 
It’s called “estate duty”. Even though it’s only paid once (when you die) it already has a significant impact on how people manage their assets. If it were charged on an annual basis, as it's being proposed, the effect would be far reaching!
 
To understand the possible effect, let’s look at what can be done to reduce your exposure to the tax.
 
One method would be to put your wealth into assets that are difficult to value.
 
Unfortunately, productive assets, i.e. assets which generate an income such as a business, are very easy to value. Non-productive assets, such as artwork or collectibles, on the other hand are quite difficult to price.
 
A shift from productive to non-productive investment would be incredibly negative for economic growth and employment. However, given the current political situation, policies resulting in negative economic growth and higher unemployment are unlikely to stop the government increasing taxes.
 
The other possible route investors have to protect their assets, would be to move wealth out of the country.
 
Such an act would make it more difficult for SARS to find and thus tax your funds.
 
Additionally, should you one day tire of SA and decide to make a permanent move offshore, you and your money would both be out of reach of the taxman. 
 
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How a wealth tax will affect your offshore allocation


Currently you can take R11 million per a year out of SA. A married couple can do R22 Million. This is a very high number and only the very wealthiest would find this level restrictive. As such I can confidently predict that should a wealth tax be implemented, exchange controls will almost certainly be tightened. 
 
Given the fact that there seems to be political pressure in favour of a wealth tax, if you want to get money out of SA you should try and act reasonably soon.
 
If you need advice on the best solution feel free to contact me on support@randswiss.com or call our desk on +27 781 4454.
 
P.S. If you’re interested in learning more about structured products, I’ve written a fantastic piece in this month’s issue of the South African Investor. Click here to find out more about gaining access to this exclusive publication. 



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