Judge Dennis Davis. Picture: FILE PICTURE
Judge Dennis Davis. Picture: FILE PICTURE

SA will not have a wealth tax for the foreseeable future if the government listens to the Davis tax committee.

The committee has concluded that SA is not ready for a new wealth tax at the moment, though it said that the tax system needed to address the “disturbing levels of wealth inequality” in the country.

In a report on the feasibility of a wealth tax released on Thursday, the committee says that further research is needed before the government can decide whether to impose a new wealth tax. This should not be used as a “quick fix” for current revenue needs, it says.

Wealth taxes — estate duty, donations tax, securities transfer tax and transfer duties — raise a very small proportion of total taxes (1.4% in 2016-17) in a country where the wealthiest 10% of the population owns more than 90% of the wealth.

As an initial, interim measure the committee has recommended increasing estate duty collections as the administrative capacity already exists for this. This was recommended in one of its previous reports.

Cosatu and the South African Federation of Trade Unions (Saftu) were “extremely disappointed” by the committee’s conclusion. Both federations support the introduction of a wealth tax to address stark inequality and to redress the wrongs of apartheid.

Saftu general secretary Zwelinzima Vavi said the committee’s view was regrettable in the context of the spate of regressive tax increases, which would further widen the gap between the rich and the poor.

He said a wealth tax was needed as a statement of solidarity to redress the wrongs of the past and address the service delivery backlogs.

Business Unity SA CEO Tanya Cohen said that the organisation did not support a wealth tax because it was a “very blunt and inefficient mechanism for collecting tax and would have counter-growth effects”.

A wealth tax, she said, was likely to push investments elsewhere or encourage noncompliance and was not the best instrument to address wealth inequality.

DA deputy finance spokesman Alf Lees welcomed the news that the committee had decided to put the wealth tax proposal on hold until a thorough analysis had been done.

“Because we [the DA] don’t think South African taxpayers can tolerate any additional increases in taxes without this having a major impact on economic growth,” Lees said.

The EFF supports a higher corporate tax rate and dividend-withholding tax.

The Davis tax committee said a wealth tax could not be introduced in the short term, but a tax system that failed to address wealth inequality would “lack the important requirement of legitimacy”.

More work was needed to ensure that a wealth tax, if decided on, was well designed and yielded more revenue than it cost to administer.

To improve the collection of data ob wealth ownership, the committee recommended that all taxpayers and beneficial owners of wealth — which includes control of trusts as well as their beneficiaries — should be required to submit information in their income-tax returns on the market value of all readily ascertainable wealth.

This should be included in a revised tax return for the 2020 year of assessment. Substantial penalties should be imposed on taxpayers who failed to disclose their wealth, it said.