New recommendations for a stronger wealth tax in South Africa

After nearly five years of reviewing South Africa’s tax system and how it could be used in the promotion of inclusive economic growth, employment creation, development and fiscal sustainability – the Davis Tax Committee (DTC) has announced the completion of its work.

In a statement released on Thursday (12 April), the DTC said that it had faced many challenges over its tenure.

“These include political uncertainty due to the comings and goings of six ministers of finance, a breakdown in relations with the SARS commissioner after a widely publicised spat in early 2017, limited resources, attrition, a small secretariat, and the DTC’s members having to work on a part-time basis in addition to their full-time professions,” the DTC said.

“Despite these challenges, the DTC was able to deliver on its elaborate terms of reference (and more) with 25 reports that were submitted to the minister of finance,” it said.

Wealth Tax

One of the four final reports published on Thursday dealt with the possible introduction of a Wealth Tax.

South Africa has existing ‘wealth taxes’ – in the forms of Transfer Duty, Estate Duty and Donations Tax – however the DTC noted that these currently raise very small amounts of tax revenue.

“Wealth inequality in South Africa is extremely high and poses a threat to social stability and inclusive growth. It is timely for South Africa to consider a range of ways in which wealth inequality can be reduced,” it said.

Despite concerns surrounding this growing inequality, the DTC ultimately found that the introduction of a Wealth Tax was not feasible in the short-term.

“The DTC recognises that while a recurrent net wealth tax may be an admirable and desirable form of wealth tax, more work is needed to ensure that the tax is well designed and will yield more revenue than it costs to administer,” it said.

Instead, as a first step the DTC proposed that all personal income taxpayers above the filing threshold be required to submit a statement of all assets and liabilities from the 2020 tax year onwards.

“This will not be used (at this stage) to calculate a liability for a wealth tax but will provide much needed information to inform a future decision about a wealth tax and allow SARS and National Treasury the opportunity to iron out definitional issues with regard to the proposed tax base,” it said.

“Importantly, this information on assets and liabilities will also provide useful information which SARS can use in verifying declared income under the Personal Income Tax system.”

The DTC added that while the design and implementation of a Wealth Tax will take some time, as an immediate action the DTC strongly encourages government to heed the recommendations of the First and Second Estate Duty Reports.

In these reports the DTC had previously suggested a variety of reforms that would enhance fairness and increase revenue.

Notably these include the possibility of increasing other current ‘wealth taxes’ in the interim – including estate duties.


Read: This is why you are now taxed R265 when you fill up at the petrol station

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New recommendations for a stronger wealth tax in South Africa