Eswatini could strengthen its revenue collection and reduce fiscal volatility by establishing a dedicated tax unit for high-net-worth individuals (HNWIs).
This recommendation is highlighted in the Eswatini Public Finance Review (PFR): Leveraging Fiscal Adjustment for Better Development Outcomes launched last week by the World Bank in partnership with the Ministry of Finance.
According to the South African Revenue Service, a HNWI Unit prioritizes individuals with complex financial arrangements and substantial wealth, often derived from multiple sources.
The HNWI’s Unit mandate is to:
- Provide personalized services tailored to the complex tax affairs of HWIs.
- Build professional partnerships with HWI taxpayers.
- Resolve tax queries efficiently.
SARS classifies a High Net Wealth Individual (HNWI) as a person with gross assets worth R75 million or more.
Launched in 2021, the HNWI Unit in South Africa provides clarity and certainty to HNWI taxpayers and makes it easy for them to comply with their tax regulations by offering a specialized service. The focus is to promote voluntary compliance, enhance revenue collection, and foster a fair tax environment.
The PFR by the World Bank underscores the need for improved tax administration as part of broader fiscal reforms to stabilize the country’s revenue base and support long-term economic growth.
The PFR notes that Eswatini’s fiscal landscape remains heavily reliant on volatile Southern African Customs Union (SACU) Receipts, which exposes the economy to unpredictable revenue fluctuations.
Despite relatively high tax rates compared to regional peers, domestic revenue mobilization remains low, signaling inefficiencies in tax administration.
The PFR proposes the creation of a specialized unit within the Eswatini Revenue Service (ERS) to ensure that wealthy individuals meet their tax obligations.
The PFR notes that this approach has been successfully implemented in countries like South Africa, Kenya, Uganda, and Malaysia, where dedicated tax units have improved compliance and increased revenue collections.
As highlighted by Marko Kwaramba, Senior Country Economist at the World Bank, a key concern in Eswatini’s tax system is the growing tax gap—the difference between potential and actual tax revenue.
Kwaramba noted that tax expenditures, including exemptions and incentives, accounted for over 10% of GDP in 2023. Additionally, underreporting by firms and individuals remains a challenge, reducing corporate and personal income tax productivity.
Kwaramba noted that strengthening tax administration is more effective than raising tax rates. “There is a lot to be done on tax administration to increase domestic revenue while promoting market accountability. These are some of the policy recommendations that we have proposed. The idea is to introduce also a high net individual unit in the expertise revenue services,” he said.
Beyond targeting HNWIs, the report emphasizes the importance of improving financial management in state-owned enterprises (SOEs), many of which struggle with sustainability and tax arrears. Enhancing SOE governance could ensure these entities fulfill their tax obligations, further broadening the country’s revenue base.
The establishment of a Revenue Stabilization Fund in 2023 was a step toward managing SACU revenue fluctuations, but long-term fiscal sustainability requires a diversified domestic tax base. Ensuring that high-income earners contribute proportionally could ease the financial burden on lower-income groups and create a more equitable tax system.