South Africa Faces $160 Million Tax Loss as Wealthy Citizens Move Abroad

KEY POINTS

• South Africa loses $160 million from emigrating taxpayers in 2024.
• Tax-to-GDP ratio remains Africa’s highest at 27.1%.
• SARS struggles to retain wealthy taxpayers amid emigration trends.

South Africa’s tax system faces mounting pressure as the South African Revenue Service (SARS) reports a potential revenue loss of R3 billion ($160 million) in 2024 due to the emigration of approximately 38,000 taxpayers. 

This financial strain underscores the growing challenge of retaining high-income earners and maintaining a stable tax base in the face of rising expatriation.

Exodus of high-income earners

BusinessInsider reveals that individuals formally ending their tax residency have contributed significantly to the revenue gap, with a decade-long analysis of their taxable income revealing the scale of the fiscal impact. 

Tax revenues, which fund essential public services and infrastructure, are critical for South Africa’s economic growth and social stability. The outflow of wealthy taxpayers further jeopardizes SARS’s ability to meet its revenue targets.

Strong tax collection framework faces pressure

According to the OECD, South Africa’s tax-to-GDP ratio, a key indicator of tax efficiency, stood at 27.1% in 2022, significantly outperforming the African average of 16.0% for 36 countries. Over the past decade, the ratio has risen from 24.8% in 2013, reflecting the government’s robust tax collection efforts.

Despite this efficiency, personal income tax (PIT), which accounts for the largest share of tax revenue, is particularly vulnerable to the loss of high-income earners. SARS Commissioner Edward Kieswetter highlighted in 2023 that over 6,000 individuals formally emigrated, signaling a troubling trend in tax residency shifts.

Tax residency and emigration impacts

Tax residency, distinct from citizenship or permanent residence, determines an individual’s tax obligations. While South Africans who change their tax residency may still owe taxes on local assets, their absence from the country’s tax base creates a permanent revenue gap. SARS data from 2024 shows an increase in taxpayers ending their tax residency, although the emigration rate appears to be slowing.

An analysis of SARS figures illustrates the broader implications. In 2014, 44,693 taxpayers declared taxable income of R21.6 billion ($1.1 billion), contributing R6.2 billion ($330 million) in taxes. By 2023, the number of taxpayers had declined by 15.9% to 37,584, with taxable income dropping to R9.9 billion ($528 million) and tax payable falling by 49.3% to R3.2 billion ($171 million).

Strategic focus for SARS

The emigration of wealthy individuals and middle-class taxpayers continues to pose challenges for SARS. As the agency seeks to protect its tax base, the South African government urgently needs policy interventions to stem the outflow of high-income earners and mitigate the fiscal impact of tax expatriation.

With revenue losses escalating, the future stability of South Africa’s economy will depend on the government’s ability to retain its tax base, adapt domestic policies, and address the broader socio-economic factors driving emigration.