Since 1994 South African fiscal policy has placed little emphasis on wealth taxes, save for recent increases in the rates of transfer duty and estate duty. Given the disturbing levels of wealth inequality in South Africa, a taxation system that would ignore such disparities of wealth will lack the important requirement of legitimacy in the tax system.
The process of creating a wealth tax in South Africa as a means to redress South Africa’s levels of inequality would need to start with the consideration of a very simple form of an annual net wealth tax.
The decision on whether to implement an annual net wealth tax cannot be made without the following:
Consideration as to the appropriate tax base
The most important single question is whether retirement funds should fall within the scope of the tax. This is a controversial and complex issue which requires intensive engagement from Treasury, SARS and the relevant stakeholders, including the retirement industry and trade unions.
Comprehensive data on the pattern of wealth ownership
The DTC recommends that all taxpayers and beneficial owners of wealth (which includes control of trusts as well as beneficiaries thereof) that are required to submit an income tax return must be required to include the market value of all readily ascertainable wealth in a revised tax return for the 2020 year of assessment.
An evaluation as to the cost effectiveness of implementing a wealth tax
It is apparent from these recommendations that the introduction of a wealth tax cannot be implemented in the short term. Given the DTC’s findings on the extent of wealth inequality and the importance of the legitimacy of the tax system there are interim measures that could be implemented to promote these objectives. For this reason, the DTC recommends that the focus should initially be on increasing estate duty collections given that the necessary administrative capacity already exists.
Finally, most of the wealth tax submissions received by the DTC point to the fact that progress could be made in reducing South Africa’s levels of inequality by eradicating wasteful/corrupt government expenditure and curbing the levels of tax evasion that currently exist.