Investment plays a crucial role in creating wealth, jobs, and economic growth. However, South African investors are burdened by excessive taxes and regulatory hurdles, which undermine this potential. From capital gains tax to dividend withholding, the tax system discourages investment, causing capital to flow overseas. To prosper as a nation, South Africa must simplify taxation, reduce bureaucracy, and encourage investment through deregulation, fostering growth, job creation, and long-term prosperity.
Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.
The seventh BizNews Conference, BNC#7, is to be held in Hermanus from March 11 to 13, 2025. The 2025 BizNews Conference is designed to provide an excellent opportunity for members of the BizNews community to interact directly with the keynote speakers, old (and new) friends from previous BNC events – and to interact with members of the BizNews team. Register for BNC#7 here.
By Nicholas Woode-Smith*
Investment is of tantamount importance to the creation of wealth, jobs and the betterment of not only the economy, but of South African society. Taxing investors and imposing increased regulatory hurdles on people who, for the most part, are just trying to save for their retirement, doesn’t help our country. The former hinders the latter.
Already, South African investors are faced with multiple taxes on their investments. On top of simple income tax, investors are liable to pay capital gains tax (up to 18%), a Dividend Withholding tax (20%), tax on interest (up to 45%), securities transfer tax (0.25%), VAT on the purchase of financial services, estate duty in the case of inheritance, and rental income tax on rental investments.
Why? Why should investors be paying all these arbitrary different taxes? Income tax, a percentage cut of an individual’s overall income, should suffice. This includes any profit they make from their investments, or dividends. This mishmash of additional types of taxes and fees only supports a bureaucratic quagmire that encourages avoidance and enables corruption and regulatory bloat.
These stacked expenses sap money from investors – who aren’t some smartly dressed Patrick Bateman impersonators, but in practice are normal hard-working South Africans. They are people saving for retirement, for their children’s education, for a new home. Investment distributes money to where it can be used not just to benefit the investor, but the economy. When an investor purchases a share, they aren’t just gambling for a quick buck. They are participating in a market that distributes funding to deserving businesses so that they can grow, create jobs, and produce wealth.
The more friendly the investment environment, the wealthier the country. Yet, despite this undeniable truth, the government is wanting to make South Africa even more unfriendly to investors.
The Treasury has proposed a change to the way that unit trusts are taxed. The government effectively wants to treat the gains of a unit trust as taxable income, rather than savings. Doubtless this will cause a severe drop in people investing in local unit trusts, and see drive overseas large amounts of capital . The local economy will suffer as a result.
South Africa’s savings rate stands at a meagre 13.6% of GDP (according to 2023 World Bank development indicators). For comparison, other developing countries like Cambodia and Algeria have 57% and 41% respectively. Singapore and Norway, renowned for their development and fiscal prudence, sit at 41% and 43%, respectively.
The more savings in a country, the more money is floating around to be used for development projects and to grow the economy. More should be done to encourage South Africans with excess capital to invest that money in local businesses. But as taxes and regulatory hurdles stifle local investment, we can’t blame investors for fleeing the JSE.
If we want to prosper as a country, we need to encourage investment – not punish it. Taxation on investments needs to be simplified. No more swathes of fees and taxes on investments. If an investor profits from an investment, in the same way a business or worker does, then the amount they make will be taxable per income tax. This will include any amount made from dividends or capital gains. It is foolish to treat these sources of income as different, when it is all money at the end of the day.
On top of this, there needs to be mass deregulation and market liberalisation across the board in South Africa. If we want to solve unemployment and encourage local and foreign investment, we need to make it easier to conduct business. This means making it easier to start a business, scrapping bureaucratic nightmares like business licensing, and most importantly deregulating the labour market to make it easier to hire and fire workers.
Investors ensure that capital is utilised as effectively as possible to benefit and grow the economy, while helping countless individuals achieve financial freedom. They should not be punished for this but encouraged.
Read also:
- Nicholas Woode-Smith: How SARS can raise tax revenue
- What to look out for when considering a 12B tax deductible investment?
- Wealth tax: A drain on South Africa’s economy – Ivo Vegter
*Nicholas Woode-Smith is an economic historian, political analyst and author of over twenty books. He is a senior associate of the Free Market Foundation and writes in his personal capacity.
