- Treasury Department predicts a decline in the number of top taxpayers
- Pandemic raises concerns about crime and the economy
- Country with increasing debt obligations
JOHANNESBURG, Aug 10 (Reuters) – Cape Town restaurateur Adrian Hochman has watched friends pack their bags and emigrate over the years, but argued that power outages, the threat of crime and an uncertain future are simply part of doing business in South Africa close.
That was before a global pandemic took its toll on Africa’s most industrialized economy. Next year he’s going to Canada.
“That definitely broke the camel’s back,” Hochman told Reuters.
The flight of top taxpayers has long been a thorn in the side of the South African treasury. But the coronavirus crisis could prove to be a turning point.
With South Africans still calculating the cost of the worst unrest in nearly three decades after violence erupted amid a third wave of infections last month, perhaps even more pondered their future. Continue reading
For the first time since the current tax brackets were introduced six years ago, the number of top earners in Africa’s most developed economy will decline this fiscal year.
Revenue from the top three categories will decrease by 8%, or roughly 22.6 billion rand ($ 1.58 billion), according to previously unreported forecasts by the Treasury Department.
These are streams of income that South Africa can hardly afford when it is staring at a growing mountain of debt.
South Africans have long cited security concerns, corruption and economic stagnation as reasons for moving.
However, Hochman points out the pandemic.
Having already borrowed to buy a generator in the face of blackouts, he took out a second loan to pay salaries and avoid layoffs when the pandemic broke out and government barriers closed bars and restaurants .
His hopes for a speedy recovery soon faded, in part due to the slow vaccination rate.
“In the midst of COVID, we decided to finally move,” he said. “There is a better life and more options and better management of the entire coronavirus situation.”
He is not alone.
The number of taxpayers earning R.1.5 million or more is projected to shrink 9.6% in fiscal year 2021-22.
It is expected that the Rand 1 million to Rand 1.5 million group will shrink by 13% and the Rand 750,000 to Rand 1 million group by 1.1%.
The extent to which the decline is due to emigration is difficult to assess, experts say. Data on emigrating South Africans are not collected separately by the Treasury.
“Because our estimates are based on continuously updated data sources, the effects of net immigration and emigration are already included in the data – even if we cannot isolate them,” she told Reuters.
But immigration advisors, real estate companies and bankers told Reuters they are seeing signs of increased flight of the well-heeled.
South Africa lost 1,900 high net worth individuals – those with assets of $ 1 million or more – in 2020, its lowest level in 13 years, according to New World Wealth, which studies wealth in emerging markets.
She pointed to falling margins and emigration as contributing factors.
Siphamandla Mkhwanazi, an economist at First National Bank, which publishes a survey of real estate agents, recently noted an increase in home sales related to emigration at the high end of the market.
Abigail Stevens, head of UK immigration adviser Think Global Recruitment, said inquiries from South Africans had been received last year, although applications from other countries had fallen.
“These would be people with higher wealth,” she said.
Some seem to take their business with them. Over 9,200 companies voluntarily opted out last year, up 10% from 2019. Many have simply failed, with bankruptcy protection filings sustaining 2019 recession highs.
However, Nicholas Avramis, owner of Beaver Immigration, which specializes in emigrating to Canada, said South African companies have increasingly looked for relocation over the past year.
“They (have) applied to buy new businesses in Canada, or they are applying through what is known as a start-up visa program designed to attract entrepreneurs,” he said, adding that the recent unrest has led to “massive” There would have been an increase in inquiries from companies willing to emigrate.
“We’re losing it all”
The national debt of South Africa already exceeds 80% of the gross domestic product and is expected to increase further.
The government spends more to pay interest on this debt than it does on basic education or health. Former Finance Minister Tito Mboweni, who was replaced on Thursday, said last month that a fifth of tax revenue is now being used to service debt.
Income tax accounts for 38% of total tax revenues, which far dwarfs corporate tax revenues, and those in the top three categories account for a third of the total income tax base.
For every wealthy expatriate, South Africa loses nearly 1.2 million rand in income taxes, said Bernard Sacks, tax attorney with the law firm Mazars.
“We’re losing that person’s expense, fuel tax expense, excise tax expense. We’re losing all of that,” he said.
In Cape Town, Hochman sold his house and was wondering what to do with his restaurant. But he still has mixed feelings.
“I love South Africa. I think South Africa is a beautiful country,” he said. “I just had the feeling that we had to get out.”
($ 1 = 14.3200 rand)
Reporting by Promit Mukherjee; Editing by Joe Bavier and Mike Harrison
Our Standards: The Thomson Reuters Trust Principles.