Pandemic spurs high-earning flights out of responsible South Africa

Cape Town restaurant owner Adrian Hockman will take a picture in front of his home in Cape Town, South Africa on August 6, 2021. Reuters / Sherrie Christian

August 10, 2021

From Promit Mukherjee

Johannesburg (Reuters) – Cape Town restaurant owner Adrian Hockman has watched his friends refuel and move for years, but South Africa is experiencing power outages, criminal threats and an uncertain future. Optimized as just part of the business of.

It was before the pandemic hit Africa’s most industrialized economy. Next year he will leave for Canada.

“It definitely broke the camel’s back,” Hockman told Reuters.

The flight of top taxpayers has long been a thorn in the side of the South African treasury. However, the corona crisis can be a turning point.

More and more people are wondering where their future lies as South Africans are still calculating the cost of the worst fear almost 30 years after the violence erupted amid a third wave of infections last month. You may be wondering if there is one.

For the first time since the current tax system was introduced six years ago, the top earners in Africa’s most developed economy will fall this year.

Revenues in the top three categories are down 8%, or about ZAR 22.6 billion ($ 1.58 billion), according to previously unpublished financial projections.

It is a source of income that South Africa cannot lose as it overlooks the growing mountain of debt.

South Africans have long cited security concerns, corruption and economic stagnation as reasons for moving.

However, Hockman points to a pandemic.

It was already rented to buy a generator in the face of a power outage and paid a second loan to avoid staff being laid off as bars and restaurants closed due to a pandemic and government blockade. I’ve assembled.

Expectations for a quick recovery soon faded, in part due to the slow pace of vaccination.

“In the midst of COVID, we finally decided to move,” he said. “There is a better life and more options and better management of the entire coronavirus situation.”

He is not alone.

It is projected to reduce the number of taxpayers earning more than R11.5 million by 9.6% in fiscal 2021-22.

The brackets are expected to shrink 13% from Rand 1 million to Rand 1.5 million, and the brackets are expected to shrink 1.1% from Rand 750,000 to Rand 1 million.

Existing business

According to experts, it is difficult to estimate the extent of the decline caused by immigrants. The Treasury Department does not track individual data on South African migration.

“Our estimates are based on continuously updated data sources, so the impact of net migrants and migrants is already included in the data, even if they cannot be separated,” Reuters told Reuters. ..

But immigration advisors, real estate firms and bankers told Reuters there were signs of an increase in flights by wealthy people.

South Africa lost 1,900 HNWIs (people with assets over $ 1 million) in 2020, and that number has dropped to its lowest level in 13 years, according to New World Wealth, which studies emerging market wealth. Rice field.

Land decline and immigration were named as factors.

First National Bank economist Siphamandla Mkhwanazi, who published a survey of real estate agents, pointed to the recent surge in immigration-related home sales at the forefront of the market.

Inquiries from South Africa increased over the past year, despite fewer applications from other countries, said Abigail Stevens, director of Think Global Recruitment, a UK-based immigration consultant.

“These will be people with higher net worth,” she said.

Some people seem to take their business away. In the past year, more than 9,200 companies voluntarily deregistered, 10% more than in 2019. Many companies simply failed because the bankruptcy filings in 2019 remained at their highest recession level.

However, Nicholas Avramis, owner of Beaver Immigrants, who specialize in immigrating to Canada, said South African companies have been increasingly considering relocating over the past year.

“They applied to buy a new business in Canada or through something called a startup visa program designed to attract entrepreneurs,” he said. Inquiries from companies considering migrating added that this resulted in a “scale” spike.

“We’re losing it all”

South Africa’s national debt has already exceeded 80% of GDP and is expected to continue to rise.

The state spends more on paying interest on its debts than it does on basic education and health. Former Finance Minister Tito Muboweni, who was replaced on Thursday, said last month that one fifth of tax revenue is currently being used to repay debt.

Income tax makes up 38% of total tax revenue, well above corporate tax revenue, and taxes in the top three brackets make up one third of total income tax base.

South Africa has lost nearly rand 12 million in income taxes for all wealthy immigrants, says Bernard Sacks, tax attorney at Mazars law firm, that taxes are only part of the holes immigrants leave behind. I added.

“We’re losing that person’s expense, fuel tax expense, excise tax expense. We’re losing all of that, ”he said.

In Cape Town, Hockman sells his house and thinks about 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. “We had the feeling we had to get out.”

($ 1 = 14.3200 rand)

(Report by Promit Mukherjee; edited by Joe Bavier and Mike Harrison)