Wealth tax hassle

Taxpayers may have to submit a statement of all their assets and liabilities from 2020 to inform a future decision about a wealth tax in South Africa.

The Davis Tax Committee published its final reports last week. It didn’t recommend the introduction of a wealth tax, saying more work is needed to ensure a “recurrent net wealth tax” is well designed to at least generate more revenue than the costs of administering it.

Patricia Williams at Bowmans says the reporting of assets at market value will place a burden on taxpayers. The committee also suggested “substantial penalties” should be charged on incorrect reporting. “This process would be potentially costly, either for the time and effort necessary for accurate valuations, or for the potential penalties if broad brush estimations of market value are used.

“Costly or time-consuming valuations do not appear to be good uses of taxpayer resources. There would need to be clear guidelines on easier alternatives that would be considered acceptable to Sars.”

The committee says transfer duty is currently the principal wealth tax. It says recurring taxes on immovable property (and particularly a land tax) are attractive, as it’s considered as “the least distortive of all taxes and thus the least harmful to economic growth”.

The committee recognises several practical considerations need attention when considering recurrent taxation of immovable property. “The first is liquidity and the ability to pay.

“The property or land tax needs to be paid from income.”

The committee acknowledges that farmers and retired people with limited incomes would be affected.

Williams adds: “It’s a relief that the committee has recognised some of the real problems with land tax, and recommended no land tax in the near future, with an initial period of data gathering and further consideration of potential wealth taxes.”