“We owe a lot of people a lot of money.”

That blunt, ominous statement by finance minister Tito Mboweni in his 2021 budget speech shows the deep financial hole the South African economy is really in – and warning lights are starting to flicker for South Africa’s wealthy taxpayers.

This is according to Tim Mertens, chairman of Sovereign Trust SA, who said that a key takeaway from the budget was the staggering R213 billion under-collection of tax in 2021 compared to 2020.

This is the largest collection shortfall on record, and comes against a backdrop of a debt burden of R5.2 trillion by 2023/2024.

As a result, there is a renewed focus on the wealthier taxpayer base, who are being singled out for scrutiny amidst calls for a ‘wealth tax’ on high net-worth and ultra-high net-worth individuals, said Mertens.

“Tax compliance, proper professional planning and the appropriate use of annual allowances are key to navigate any aggressive changes in tax legislation that may be necessary sooner rather than later,” he said.

Going forward, this could lead to a greater number of taxpayers looking beyond South Africa’s borders for retirement and tax planning purposes.

SA-based retirement annuities (RAs) are limited in many respects, with the biggest disadvantage being the prescribed investment limitations contained in regulation 28 under the Pension Funds Act.

“Our message to people looking at RAs is that there are potentially better offshore options out there, such as using their annual discretionary allowance to set up an international retirement plan (IRP).

“IRPs are excellent alternatives for those wanting to invest beyond traditional onshore retirement plans, and have some key benefits that simply cannot be ignored,” said Mertens.

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