The impending threat of an additional wealth tax in South Africa to pay for a universal basic income grant will further erode the nation's tax base as wealthy South Africans move to emigrate or offshore their assets to avoid higher taxes.
According to Dani van Vuuren, Business Development Consultant at Sovereign Trust, the country risks experiencing an increased brain drain as talented and entrepreneurial South Africans choose to settle in nations with more stable political and economic systems and predictable tax structures.
The tax rates in South Africa on individuals with higher incomes are already high. Analysts believe that adding another wealth tax will simply help to erode the size of the already shrinking tax base. The fiscus would be significantly impacted by lower future tax revenue, fewer prospects for wealth creation, and fewer prospective employment opportunities through local firms if more enterprising people left the country.
Younger South Africans may even think about leaving their country after graduation to work and earn money in other nations with greater economic growth prospects and lower tax and crime rates as a result of the threat of a wealth tax.
Ismail Momoniat, acting director-general of the National Treasury, stated at the SA Institute of Taxation's (SAIT's) Tax Indaba that a wealth tax was simply insufficient to accomplish its intended purposes and that enacting it would have far-reaching effects.
"The wealth tax won't generate anywhere close to the required amount. It is a one-time tax that cannot be assessed annually. We can only tax them once they receive money in exchange for their possessions, "he added
Van Vuuren stated that her business had already noticed an increase in inquiries from residents considering moving abroad, whether through emigration, dual citizenship, or financial emigration, since the concept of a wealth tax had been raised.
Australia, New Zealand, the United States, and Canada remain the most popular emigration destinations, particularly for talented individuals; however, there is growing interest in countries that offer opportunities for residency through investment.
According to Van Vuuren, there is a lot of interest in more expensive choices like the UK, Guernsey, Spain, and the United Arab Emirates, even if countries like Cyprus, Malta, Mauritius, and Portugal provide relatively more affordable possibilities for residency by investment.
For instance, foreign nationals in Cyprus can get Permanent Resident Permits (PRP) with a €300,000 investment in just two months. They simply need to visit Cyprus once every two years to maintain their status, and there are no language requirements. The PRP is transferable to dependents and is valid for life. Tax on income can also be reduced or even completely eliminated for those who decide to become tax residents in Cyprus.
Investors and foreign nationals now find it more affordable and convenient to live and work in Mauritius. Recently, the island lowered the amount needed to obtain an occupation visa as an investor and live in Mauritius as a non-citizen from $100,000 to $50,000.
The validity of an occupation permit in Mauritius has been increased from three to ten years. Additionally, individuals with occupation permits are permitted to bring their parents and other dependents who are under 24 to live in Mauritius.
In an effort to entice talent to its borders as it seeks to solidify its status as a global financial centre, Singapore has unveiled its Overseas Networks and Expertise (ONE) pass.
In addition, South Africans seeking a route to residency in the European Union are pouring into Portugal in large numbers using Portugal's legendary Golden Visa, which grants qualifying individuals and their families full rights to live, work, and study there. Portugal also provides a non-habitual residency scheme, which enables South Africans to apply for residency through the D7 residency visa, in addition to the Golden Visa.