The wealthy get richer even when governments ‘clamp' down

The global tax system decided on a minimum level of corporate tax. This won’t address the creation of rampant wealth.

- Maarten Mittner

Markets have shown little fear in reaction to renewed revelations of vast personal wealth accumulation among the wealthy over the past decade. The Nasdaq has risen to an all-time high, Facebook hit a market cap of $1tr and Apple remains comfortably above the $2tr level.

A new minimum global tax level of 15% for companies has been agreed to by 130 countries. This is lower than the 22% which has been calculated to offset any tax arbitrage, whereby a tax rate of 28% is levied in one country, say South Africa, as compared to 11% in another, say Ireland. And obviously, the country with the lower tax rate is preferred. Therefore, a rate of 15% may not be as effective as hoped.

The reality is that the global tax system continues to favour the wealthy, and their companies. Low-tax havens may not become a thing of the past. Yet. But how do the wealthy actually pay less tax?

Globally, as in SA, the creation of wealth is not taxed. Only income, and to a lesser extent capital gains. Theoretically, the wealthy face hefty capital gains tax on the selling of shares. But that rarely happens. Why? Mainly because capital gains taxes are linked to residency requirements. If a person is not a resident of a particular country, no tax is payable in that country, unless it is from a local source. As it relates to ownership of a house, for example, or immovable property in tax jargon.