The South African Revenue Service (SARS) has released a report indicating that 38 000 tax payers ended their tax residency in South Africa (SA) in 2023.
The impact of this on tax collection in the country is a loss of R3 billion in personal tax, and excludes additional tax contribution such as Value Added Tax on purchases.
Included in those who ended their tax residency in South Africa were 1700 millionaires who represented almost R5 billion in taxable income and R2 billion in assessed tax.
Emigration has become the new Normal in SA
Statistics SA data shows that the number of South African citizens living abroad has increased from around 1,5 million in 2001 to almost 2,5 million in 2024.
The people leaving are predominantly those with higher education qualifications and professionals with higher income and greater employment opportunities elsewhere.
Key factors that have influenced their departure are cited as better income or economic opportunity, better security, due to SA’s extremely high crime rates, and better education possibilities for their children.
Dissatisfaction with high levels of corruption and inefficient government has also been a key factor.
Financial Emigration vs Permanent Emigration
Financial emigration and the ending of tax residency in South Africa is the process of ending ties with the country most often associated with gaining of permanent residency or citizenship in another country.
A taxpayer may remain a South African citizen while being a tax resident in another country or multiple countries with many South Africans who emigrate and leave assets behind may still have tax obligations back home.
However, whether emigrating permanently or simply changing tax residency, the end result is a loss of taxable income for the country.
In essence, many high income earners see that there is little hope of a better future in the country and have decided to take their earnings and skills elsewhere where they believe that they can find a better quality of life for themselves.
Skills Shortages set to Continue
The ongoing pattern of emigration, also leaves a significant skills gap over and above the taxation gap in the country that is often difficult to fill, due to global shortages of skilled people in key sectors such as health and Information Technology as well as Engineering and Science.
As it stands, South Africa already has a huge deficit in qualified medical staff that is likely to only grow with the new National Health Insurance bill being signed into law late last year.
The nett effect of this is that the country becomes poorer in monies and skills and leaves the country in a position where it is less able to compete in the global market.
What can Reverse the Trend
Numbers of returning South African citizens have also dropped indicating that the situation in the country is not perceived to be improving and this is a major hurdle to overcome.
The major improvements required is to settle in people’s minds that the high tax level experience in the country is met with an equal value or benefit and this has been a particular sticking point for many of those who have left.
The government needs to take concerted effort in reversing corruption, which is draining resources badly needed to combat crime and address critical infrastructure repairs and maintenance such as the ports, railways and roads, as well as addressing concerns about unemployment and stimulating business investments.
Much more needs to be done to move the country from a welfare state, where a small number of tax payers (around 3 Million) are currently providing the bulk of the taxes that support over 18 million state grant recipients and people need to have more opportunity to have jobs rather than grants.
Policies are also providing the fuel that is driving the increase in emigration and these need urgent attention if the trend is to be reversed.