SA needs more funds
These are bad times. The government is promising capital before it has managed to raise it, the SA Revenue Service (Sars) is struggling and the economy is in lockdown. Additional funds are desperately needed.
Placing the wealthy – the apparent 10% – in the spotlight is a tried and tested tactic to divert attention away from unsolvable issues.
Sadly, there are no research papers on the untaxed illegal earnings of the tobacco smugglers, the money launderers, the criminals who benefitted from state capture and the rest of the motley crew of helpers.
Therefore, unsurprisingly, the wealth tax has resurfaced.
One research paper I looked at did mention the capitalisation of income streams in the calculation of wealth. An acceptable equation for wealth is that it equals the sum of the value all assets, including intangibles, less debt.
But how is value defined? At a point in time? The increase from one point to another? What about a decrease? Historical cost, fair value or market value? How does one place a market/fair value on a house in an illiquid market? How does one ascertain the market/ fair value of a share in a privately held company? (It may not be possible to sell the share and there is no right to a dividend).
The valuation of assets becomes more complicated when an intangible asset is included. There is no agreed methodology for the valuation of an intangible asset.
Sars will no doubt grapple with unpacking basic wealth structures, never mind the valuation of intellectual property, and locating wealth that has been ferreted away in blind trusts and shell companies around the world.
It was for good reason that Sars introduced the successful special dispensation for the declaration of offshore assets – the voluntary disclosure programme – in 2012, to persuade residents to declare their offshore assets and income.
Offshore assets add further complexity. How would the calculation of wealth at a point in time deal with foreign exchange rates? At the spot rate, at the hedged rate? And how would the “growth” in “offshore wealth” be calculated?