As the screws tighten on the South African economy, the finance ministry is setting the wheels in motion for an annual wealth tax to boost government coffers. The Davis Tax Committee is also looking at ways to generate more income for the fiscus by squeezing the rich. The super-rich are unlikely to be affected because they tend to keep their wealth at arm’s length, through various entities. It will be the next tier, the hard-working high-income salary earners and people who have been methodically growing assets over the years, who are likely to feel the pinch of wealth redistribution. Those pushing for an annual wealth tax argue that it is necessary in order to improve the standard of living experienced by the majority of South Africans. – Jackie Cameron
By Gordon Bell and Mike Cohen
South Africa’s finance ministry has asked for a study into the introduction of an annual wealth tax as the government seeks to boost the standard of living of the black majority.
The Davis Tax Committee, which makes recommendations to the National Treasury, also requested submissions from the public on the feasibility of a land tax and a national tax on the value of property in addition to existing charges, it said in an emailed statement on Tuesday. It will take comments until May 31 before holding hearings.
The move comes two months after the government increased the top income tax bracket by 4 percentage points to 45 percent and as President Jacob Zuma called for “radical economic transformation” in his final year as leader of the ruling party. The African National Congress says the white minority still dominates ownership of the economy more than two decades after the end of apartheid.
“The distribution of wealth in South Africa is highly unequal,” the committee, led by Judge Dennis Davis, said. “It is well established that economic inequality inhibits economic growth and undermines social, economic and political stability.”
South Africa currently has estate duty, transfer duty and a donations tax, while capital gains tax is viewed as a tax on income rather than wealth, the committee said. The study was requested by now ex-finance minister Pravin Gordhan, Davis said by text message.
The Treasury is struggling to meet its revenue targets amid sluggish economic growth and unemployment that was 26.5 percent in the fourth quarter of last year. The tax agency fell 30 billion rand ($2.3 billion) short of its projection in the past fiscal year, the biggest gap in seven years. The government has pledged to cut the fiscal deficit to 2.6 percent of gross domestic product in two years from 3.1 percent.
“The only way we can look at how we can address income inequality is to create more wealth and more jobs,” said Mike Schussler, chief economist at Johannesburg-based research group Economists.co.za. “In an era where there is competition between tax jurisdictions, they are going to struggle to collect more revenue. People are going to spend more time hiding their wealth.”