The implications of wealth transfer taxation in the absence of estate duty
National treasury is currently considering the abolishment of estate duty in South Africa. Tax experts have long been calling for the repeal of estate duty as a result of various issues which include the following: - The perceived double taxation at death of an individual if capital gains tax is considered, - With estate duty being classified as a "wealth tax", the wealthy are more inclined to avoid these taxes by setting up trusts and paying for elaborate estate planning advice than any average tax payer. - There are inconsistencies and very little compatibility between wealth taxes in South Africa - Lastly the issue of efficiency, specifically the efficient collection of taxes versus the amount of administration required to accomplish this goal. Since the budget speeches of 2010 and 2011 where former Finance Minister Pravin Gordhan announced the review of taxes upon death, National Treasury as well as the Davis Commission have been appointed to investigate the issues sur rounding death taxes, and in particular estate duty in South Africa. The main purpose of the study is to establish whether the abolishment of estate duty is a realistic consideration in light of lessons learned from other countries such as Canada, Ireland, The United Kingdom and Australia. If not, what possible alternatives are available to policy makers with regard to international trends? Should South Africa move to a recipient based system such as the system used in Ireland, or rather adapt the current estate duty act to such a degree that it is similar to a system used in the UK? Certain similarities were drawn between estate duty in South Africa and similar taxes in other countries. It may be concluded that Treasury's rationale behind the review and possible abolishment of estate duty is not a unique concept in global comparisons, as wealth taxes remain unpopular worldwide. An interesting observation was also that in many cases the driving force behind the abolishment in countries such as Australia was political reasoning. With the rate at which unemployment and the population is growing in South Africa, it is clear that the current contribution estate duty makes to the fiscus, should have a heavy bearing on the factors to be considered before repealing such a tax permanently. It would be impossible to implement a replacement tax which would have to be paid by all South Africans, especially with South Africa's delicate Union situation being close to boiling point. Another wealth tax will have to be considered, a tax which will be applicable only to the rich, thereby not affecting the middle and lower class earners. As global trends are at the moment, the rich are getting richer and poor are getting poorer. There is no better example of this than in South Africa. Therefore Treasury will find it very difficult to justify why a "wealth tax" was repealed in favour of a tax which is levied on all classes of taxpayers. It seems as though revenue collected from a specific tax would not economically justify the repeal of any tax currently. With politicians striving to increase personal wealth rather than focus on growing the economy, one can only hope that economic welfare will prevail over political agendas.
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