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What are the chances the finance minister will introduce a new wealth tax?

by , 20 October 2015

Tomorrow, the finance minister Nhlanhla Nene will give his medium-term budget.

With the government's coffers feeling the strain of slowing economic growth, Nene is under pressure to introduce new ways of increasing tax revenue. But how is he going to do it?

Since Thomas Piketty, a French economist, suggested introducing a new ‘wealth' tax in SA, could this happen?

Let's take a closer look…


Do we already have a wealth tax in SA?


As it stands, there is already a wealth tax in South Africa, points out Fin24. This is “in the form of capital gains tax, estate duty and donations tax”. So wealth tax is nothing new.

Interestingly, the Davis Tax Committee doesn’t see capital gains tax as a wealth tax, notes MoneyWeb. Instead it views it “as an income tax on capital income”.

In a bid to increase tax revenue, this year, those falling into the top marginal rate of income tax saw the rate they pay “lifted to 41%,” adds Fin24. But as Nazrien Kader, the head of tax at Deloitte Africa, explains, “there are… concerns as to how effective this is in raising additional tax revenue”.


Odds are, Nene wouldn’t introduce a new wealth tax tomorrow


The chances of Nene introducing a new wealth tax at the medium-term budget tomorrow are very slim, says MoneyWeb. As the deputy CEO of the South African Institute of Tax Professionals, Keith Engel, points out, it’s unlikely this would happen.

The introduction of any new tax or changes to tax would most likely happen in the next budget in February, adds MoneyWeb. The Davis Committee conclude that the introduction of a wealth tax wouldn’t “be a cost-effective way of collecting the additional tax the fiscus needs”.

Yet the idea of a wealth tax is “morally appealing,” says IOL.


But are the wealthy in SA not already paying more than their fair share in tax?


Looking at SA, personal income tax generates around “34% of total tax revenue compared with 24% for OECD (the Organisation for Economic Cooperation and Development) members,” Kader tells Fin24.

Arguably, in comparison to many members of the OECD, South Africa faces more poverty and challenges than the likes of the UK and Australia who are also members.

Time will tell what Nene reveals tomorrow in his medium-term budget address. But with the government coffers in need of more valuable tax revenue, it will be interesting if Nene divulges any new tax changes.

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