“While it is understandable that a country like South Africa 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 net worth individuals,” Louis van Vuren, CEO of Fisa, notes.
In light of the unequal distribution of wealth in South Africa, the DTC in April called for submissions on the desirability and feasibly of three forms of wealth taxes – a land tax, a national tax on the value of property (over and above municipal rates) and an annual wealth tax. Stakeholders had until May 31 to make submissions, but Moneyweb understands that a number of parties has received an extension to June 30.
The idea of a wealth tax re-emerged after French economist Thomas Piketty mooted it during a visit to the country, but some tax practitioners have expressed concern that the compliance cost and market distortions associated with the tax may exceed the benefits.
Van Vuren says much research will have to be done to determine whether any of the taxes proposed will be efficient in terms of compliance and enforcement cost, compared to yield.
“The existing taxes in South Africa are already highly progressive. Just in terms of income tax those taxpayers with a taxable income in excess of R1 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. 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’s submission notes that all private owners of land are not necessarily wealthy individuals and suggests that a land tax aimed at reducing inequality should take cognisance of this, which means that a threshold value will have to be used.
“Ownership of land is not a very reliable proxy for wealth at a level that should be visited with a wealth tax.
“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.”
