The Stealth Tax
Why South African Capital Gains are Often an Inflationary Illusion
Written By: Charl Heydenrych
For two decades, the South African Revenue Service (SARS) has framed Capital Gains Tax (CGT) as a vital tool for economic equity. It is seen as a way to ensure that those building wealth through assets contribute their fair share alongside those earning a monthly salary. But as the Rand continues its long-term slide against global benchmarks, a troubling reality emerges: the government isn’t merely taxing wealth. It is taxing the destruction of our currency’s purchasing power.
When a South African investor sells an asset for more than they paid for it, the “gain” is the target. However, our tax code fundamentally ignores the eroding value of the Rand. If you bought a modest sectional title property for R1 million fifteen years ago and sell it for R2 million today, the taxman sees a R1 million profit. Yet, if the price of a loaf of bread, a litre of petrol, and a kilowatt-hour of electricity has doubled or tripled in that same timeframe, the investor hasn’t actually gained “wealth.” They have merely treaded water. By taxing that nominal increase, the state is effectively confiscating a portion of the original capital.
The Tax on Inflation
When you take the South African Reserve Bank’s relatively high inflation targets (and actual inflation) into the account, the burden feels increasingly extortionary. Inflation is an expansion of the money supply that devalues the money you have. It is a hidden tax because it transfers purchasing power from the citizen to the state as if by sleight of hand. When the government then taxes the “gains” that result solely from this state-managed inflation, it is taxing the citizen twice for the what is its own economic failure!
Gold: The Only Honest Yardstick
To understand the true nature of value in a volatile market, one must look toward gold. For over a century, South Africa’s identity was tied to the yellow metal. Gold remains “real money” because, unlike the rand, it cannot be devalued by fiscal mismanagement or the “printing press“. It represents a stable store of value against which the volatility of fiat currencies can be measured.
If we measured capital gains against the price of gold rather than the nominal rand value, the “gains” of the last decade would vanish for many. In many instances, what looks like a massive profit in rand terms is a net loss when priced in gold.
By using the rand as the yardstick, the tax system ignores the “debasement premium.” If an asset’s value increase does not outpace the increase in the price of gold, no real wealth has been created. Therefore, charging a tax on that “gain” is not a tax on profit—it is a wealth heist.
A Path Toward Reform
If the goal of the tax system is truly to tax “gains”, the solution is straightforward: indexation. The original purchase price of an asset (the basis) should be adjusted for inflation using a reliable metric (be it the Consumer Price Index or, more accurately, the price of gold) before the tax is calculated.
Without indexation, the Capital Gains Tax remains a predatory mechanism that thrives on currency depreciation. It creates a perverse incentive for the government to allow inflation to run hot, as it leads to higher nominal asset prices and, subsequently, higher tax revenues.
It is time to recognize that gold is the ultimate arbiter of value. Until our tax code acknowledges the difference between real wealth creation and the weakening of the value of currency, the Capital Gains Tax will just be another tool of economic extortion by the state.
Charl Heydenrych is a retired human resources practitioner and a libertarian.