Finance minister Enoch Godongwana has cautioned against the introduction of a wealth tax, stating that it could lead to capital flight and reduced tax revenue from high-net-worth individuals.

He was responding to a parliamentary question from MK Party MP Sanele Mwali, who asked whether the government had considered a wealth tax instead of increasing VAT, and whether other progressive tax measures had been explored.

According to preliminary data from the South African Revenue Service (SARS), there are 2,850 individuals in South Africa with net assets exceeding R50 million. These individuals collectively hold R245 billion in domestic assets and R150 billion in foreign assets.

Godongwana noted that this group contributes R7 billion in personal income tax. He warned: “This group pays R7 billion in personal income tax (which is also on returns from foreign assets), and that revenue would be put at risk if they decided to change tax residency.”

He further explained that this group plays a role in local investment and employment through their business activities. A decision to relocate could negatively affect capital flows and economic growth.

South Africa currently taxes wealth through several mechanisms, including estate duty, donations tax, securities transfer tax, and transfer duty. Local property is also subject to municipal rates.

Combined, the national wealth taxes generated between R19.4 billion and R22.6 billion annually in recent years, equating to about 1.15% of total tax revenue—more than double the OECD average for similar taxes.

Godongwana pointed out that many countries have phased out wealth taxes due to inefficiencies. Reasons cited for their removal include high administrative costs, complexity, limited revenue yield, and the risk of capital flight. Only four countries currently have formal wealth taxes.

He argued that South Africa’s existing tax system is more effective in targeting high earners. “Income tax is the most effective way to tax the wealthy, and it generates multiple times more revenue for the fiscus in a more efficient and cost-effective manner,” he said.

The minister referred to OECD research that supports comprehensive income tax systems—including capital gains tax—as more effective than net wealth taxes in raising revenue and redistributing income. South Africa’s personal income tax is progressive, with a top marginal rate of 45%. Capital gains tax, dividends tax, and tax on interest income further broaden the tax net.

Godongwana also warned that introducing new taxes on wealth could reduce domestic savings. With a gross savings rate of just 13.7%, he said additional taxes may encourage consumption or the offshoring of capital, harming the country’s investment potential.

While the corporate income tax (CIT) rate was also raised as a potential tool for redistribution, Godongwana said increasing the rate could discourage investment and reduce long-term tax revenue. Instead, efforts are being made to broaden the tax base and improve corporate tax compliance, including implementation of the global minimum tax from 2026/27.