FISA submission to the Davis Tax Committee on possible forms of wealth tax

August 1st, 2017

By Kgomotso Ramotsho

The Fiduciary Institute of Southern Africa (FISA), made a submission to the Davis Tax Committee (DTC), on the desirability and feasibility of possible forms of wealth tax, namely –

  • a land tax;
  • a national tax on the value of property (over and above municipal rates); and
  • an annual wealth tax.

This was after the DTC released a media statement calling on stakeholders to send written submissions on possible wealth taxes for South Africa (SA). According to the statement, SA currently has three forms of wealth taxation, namely, estate duty, transfer duty and donation tax, which brings in an approximate 1% of tax revenue. The DTC states that Capital Gains Tax (CGT) is considered, by some, to be a form of wealth tax. ‘The DTC has taken the view that CGT is a form of income tax and previously considered CGT in its estate duty reports so it will not be considered further during inquiry,’ the statement said. The statement states that the DTC said it had adopted an approach that is participatory and consultative, which will provide for wide engagement with stakeholders. The DTC said that special dialogues would be arranged on an ongoing basis to take into account a diversity of interest and opinions.

FISA Chief Executive Officer, Louis van Vuren, submitted the following points on behalf of the FISA Council on 31 May. In its submission, FISA stated that, it cannot be assumed that all private owners of land are wealthy individuals. He said land tax aimed at reducing inequality should take cognisance of this and a threshold value will have to be used, as ownership of land is not a very reliable proxy for wealth at a level that should be visited with a wealth tax.

FISA submitted that as a result of a need to discriminate between ‘wealthy’ and ‘not-so-wealthy’ land owners, a land tax will have to be so complex that it is doubtful whether it will be an efficient source of fiscal revenue. With regard to national tax on the value of property, over and above, municipal rates will suffer some of the same shortcomings as an annual land tax. The organisation pointed out that thresholds will have to be used again, with the result that ownership of residential property again will not be discreet enough as proxy for wealth. A very wealthy individual may own several pieces of property, which will all fall under the threshold.

On the third point of an annual wealth tax, FISA submitted that annual wealth tax will have to be extremely complex in order to target true wealth. The required level of complexity raises serious questions about the compliance and enforcement cost, as well as the ability to enforce. ‘The existing taxes in South Africa are already highly progressive with 3,5% of taxpayers paying 38,5% of all personal income tax, while thresholds for estate duty, donations tax, transfer duty and CGT ensure that less affluent individuals are not affected by these taxes,’ FISA said.

In the submission, FISA concluded that while it is understandable that a country such as SA cannot afford a perception that the tax system fails to tax the rich adequately on their wealth, great care should be taken to avoid hurting the middle class and future high nett worth individuals. ‘It seems that, attractive as the idea may be to tax the wealthy on their wealth, any of the mentioned options are bound to be extremely complex taxes to introduce and administer,’ FISA said in their submission.

FISA submitted that much research will have to be done to determine whether any tax such as one of those proposed will be efficient in terms of compliance and enforcement cost, compared to yield, and the existing taxes in SA are already highly progressive.

FISA stated that just in terms of income tax, those taxpayers with a taxable income in excess of R 1 million make up only 3,5% of the total number of taxpayers, while contributing 38,5% of the income tax revenue. ‘The poor do not pay any estate duty, donations tax, transfer duty, capital gains tax or income tax, and in fact, it is submitted that the high level of inequality is not due to a lack of redistribution through the tax system, but more the result of lack of economic growth and the failure of the education system in South Africa to produce entrepreneurs and employable individuals,’ FISA submitted.

 Kgomotso Ramotsho Cert Journ (Boston) Cert Photography (Vega) is the news reporter at De Rebus.

This article was first published in De Rebus in 2017 (Aug) DR 9.