Possible wealth tax in pipeline for SA

POLOKWANE –  Glen Steyn, independent consulting economist from Glen Steyn and Associates, said the opportunity to comment on the desirability and feasibility of an annual wealth tax in South Africa should be welcomed and used.

DTC was established in 2013 by the minister of finance and is open for submissions on land tax, a national tax on the value of property over and above municipal rates and an annual wealth tax as possible forms of wealth tax until 31 May.

“Taxation is a complex issue that is based on considerable technical analysis, but also on strong emotional forces that are triggered by different views on justice and on behaviour,” Steyn said.

Some of the technical issues, which are generally referred to by economists as public finance, include the capital and operational costs that have to be funded in order to improve the level of development and competitiveness of a country. “Technical issues also include the size of the tax base, which indicates the number of tax payers in relation to the number of recipients of tax benefits. Thirdly, it includes an analysis of how efficiently tax revenue is being spent. Requests for additional tax to pay for projects that are widely supported, while available tax revenue is prudently managed by government authorities, are likely to be favourably considered if it can be afforded. Proposed projects that are not widely supported, especially under conditions where available tax revenue is not used efficiently, however, may not get a favourable response when a call is made for additional tax,” he explained.

“A fourth important technical consideration is medium and longer-term fiscal sustainability. When public expenditure is projected to rise at a faster rate in future than the projected rise in tax income, then a crisis could be forming. Timeous fiscal policy interventions that keep tax revenue and public expenditure in balance are essential to avoid fiscal crises from developing.”

Steyn said among the emotional issues related to tax, there was always the risk that widely opposing views and widely different behaviour among groups in a society could lead to polarisation and tension, rather than social cohesion and co-operation.

“Authentic leadership is essential to find common ground between groups and to form teams that can build on and expand the common ground for the benefit of everybody.”

He added the conversation about a wealth tax is therefore a complex issue. “It can be an effective instrument if it is appropriately designed and efficiently managed. If not, it could cause further polarisation and fiscal damage without generating any benefits for those who need it most.”

The distribution of wealth in South Africa is described as being highly unequal, with recent empirical evidence suggesting that the Gini coefficient for wealth is about 0,95 (in comparison with the Gini coefficient for income of 0,67). It is well established that economic inequality inhibits economic growth and undermines social, economic and political stability.

Currently, South Africa has three forms of wealth taxation, namely estate duty, transfer duty, and donations tax which together bring in about 1% of tax revenue.

In light of the above, the DTC invites submissions by 31 May on the desirability and feasibility of possible forms of wealth tax. Based on the written submissions received, this will be followed by a workshop for oral submissions during June.

Written submissions can be sent via e-mail to [email protected], indicate if an oral submission will be necessary to support the written submission.

Questions relating to this issue can be directed to the Secretariat for the DTC using the e-mail address provided above.

[email protected]

Nelie Erasmus

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