Finance Minister Enoch Godongwana of South Africa has joined forces with international counterparts in a concerted effort to effectively tax the world’s wealthiest individuals. This collaboration is underscored by the G20 Ministerial Declaration on International Tax Cooperation, a significant step towards progressive taxation aimed at reducing inequalities and bolstering fiscal sustainability.

The declaration, endorsed by finance ministers from the USA, UK, EU, China, and other G20 nations, emphasizes that progressive taxation is essential for addressing domestic inequalities, fostering growth, and achieving Sustainable Development Goals. It stresses that international tax cooperation is vital for enhancing domestic tax administration capabilities.

The G20 countries, including South Africa, are committed to ensuring that ultra-high-net-worth individuals—those with assets exceeding $30 million (approximately R550 million)—are effectively taxed. This cooperation may involve sharing best practices, debating tax principles, and developing anti-avoidance mechanisms to address harmful tax practices.

‍“Wealth and income inequalities are undermining economic growth and social cohesion, exacerbating social vulnerabilities,” the declaration states. “Many countries struggle to implement effective progressive tax policies to address these issues. Furthermore, the international mobility of ultra-high-net-worth individuals complicates ensuring adequate taxation for this group, impacting tax progressivity. We look forward to continuing these discussions in the G20 and other relevant forums, with technical input from international organizations, academia, and experts,” the declaration states.

Oxfam South Africa has welcomed Godongwana’s endorsement of the declaration, noting the stark income inequality in the country. South Africa, with the highest Gini Coefficient at 0.67, is the most unequal country globally in terms of income distribution. The vast majority of tax in South Africa is paid by only a tiny sliver of the population, while over half the population is dependent of government grants and free services.

And South Africa has already passed its optimum taxation rate. Our Laffer Curve maximum, expressed as government revenue to GDP was last calculated to be around 18%. South Africa is currently at 27%. This optimum is described through a concept known as the Laffer Curve - taxing too little accrues too little revenue, taxing too much crushes economic growth - and the Laffer Curve maximum is the sweet spot where the maximum amount of tax can be extracted. To raise this optimum level, governments are hoping to prevent tax avoidance by instituting a global unified tax regime.

This comes as most Western nations face increasing debt burdens and unsustainable finances, but remain unwilling to cancel lucrative public-private partnerships which benefit embedded elite interests. Much like late-stage Zimbabwe, the seizure of additional private capital will be necessary to secure an ever-increasing expansion of government expenditure, which has been growing massively over the past century, and can no longer be sustained through the use of quantitative easing, due to the disruptive effects that the resultant inflation has had on the consumer markets.

Meanwhile, the South African Revenue Service (SARS) has intensified its focus on high-wealth individuals and multinational enterprises. Jashwin Baijoo of Tax Consulting SA stated that SARS aims to be a “catalyst for a more efficient and effective economy” by targeting major taxpayers. Non-compliance among the wealthy can lead to significant revenue losses, and SARS is determined to follow the money to ensure compliance and recover billions of rands potentially lost to tax evasion.

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