Another wealth tax for South Africa
24 April 2018
Written by: Dr Ferdie Schneider, Head of Tax at BDO South Africa
The Davis Tax Committee (DTC) today (12 April 2018) released its Final Wealth Tax Report.
Several countries have abolished net wealth taxation over the last two decades. These include a number of developed countries such as Denmark, Germany, Finland, Sweden, and Spain (partly reintroduced in 2011). The main reasons include the rising costs of classification and measurement of net assets, restructuring of the tax collection system, and accounting for global assets.
South Africa's wealth inequality is very high, which undermines social, economic and democratic values. Various instruments can be used to redress these inequalities, such as wealth taxation, land reform, increasing the reach of high quality health and education and the provision of infrastructure, and of course creating real GDP growth. South Africa already has wealth taxes and introducing additional wealth taxes can create difficulties and have unintended consequences that would need to be addressed before implementation. The DTC believes that Transfer Duty is second best to a properly functioning national property tax.
The DTC acknowledges that a net wealth tax may be desirable, but recommends that more work be done to ensure an optimal design and base, and that the revenue generated exceeds the costs to administer. 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. This will provide data that can be used to assess the desirability to implement a net wealth tax and assist with the determination of the base of such tax. Current taxable income declared can then also be referenced to the underlying assets declared.
It seems that another Wealth Tax for South Africa will not be implemented in the near future, and that government (if they follow the Davis recommendations) will consider adoption and implementation by following a more scientific approach.
For further information in this regard contact BDO Tax team
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