No hasty decisions on wealth tax, says Ramaphosa's economic advisor Trudi Makhaya

Trudi Makhaya
Trudi Makhaya

Pretoria - Government must digest the entire body of work coming out of the Davis Tax Committee before making decisions about a possible wealth tax, says President Cyril Ramaphosa's economic advisor Trudi Makhaya.

In an interview with Fin24 at the Union Buildings in Pretoria last week, Makhaya said there were many separate discussions about tax being held and the recommendations by the Davis Tax Committee should be considered holistically.

Makhaya said the increase of the Value Added tax (VAT) rate to 15% in April had sparked fears that South Africa was moving away from a "progressive tax system" where wealthier segments of society subsidise the public provisions of services.

"There’s a [VAT] panel that’s been put in place to deal with some of the concerns that I and many others had around this idea," Makhaya said.

She admitted that increasing VAT "didn’t seem to be the best idea" to ensure that tax didn't affect the poor disproportionately, adding that if SA were a middle-class society, there would be less concern about raising the costs of most goods and services.

In what was seen as a concession to calls for higher taxes on wealthier individuals, the February budget review raised estate duties from 20% to 25% for estates worth R30m and higher.

The Davis Tax Committee, headed up by Judge Dennis Davis, was appointed in 2013 by then Finance Minister Pravin Gordhan to assess that country’s tax policies.

First steps

In a report in April, the Committee acknowledged the high levels of wealth and income inequality in SA and the existing forms of wealth taxes in the forms of Transfer Duty, Estate Duty and Donations Tax only raise very small amounts of revenue.

The report advised that as a first step, the South African Revenue Services (SARS) should ask taxpayers who are required to file income tax returns, to declare their assets and liabilities in the 2019/2020 fiscal year in order for government to gain a clearer picture of the wealth in the country and decide how to tax it. 

The Davis Tax Committee concluded that more work is needed to ensure that the introduction of a wealth tax is "well designed and will yield more revenue than it costs to administer".

Several countries, such as Denmark and India, have dropped a wealth tax due to the high costs of administration and high numbers of the very wealthy shifting their money out of the country to avoid paying their increased obligations.

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