Davis Tax Committee Estate Duty report for comment

Africa Money

Estate Duty report follows VAT proposals….

JudgeDennisDavisThe Davis Tax Committee (DTC), formed by previous Minister of Finance, Pravin Gordhan, in 2013 to assess South Africa’s tax policy, has released the Second Interim Report on Estate Duty for comment by 30 September 2015.

This follows the release of an earlier interim report on Value Added Tax during the first part of July.

In issuing the most recent report, the Estate Duty Sub-Committee said it had “consulted widely and took into account seven submissions from the public as a result of the invitation being made at the beginning of June”.

Wide coverage

The areas covered include avoidance; the formation of trusts; interposal requests; donations tax; capital gains tax; abatements and retirement funds. As a result of the submissions and further submission, the results for further comment are to be found on the government website.

The Value-Added Tax Interim Report, published a few weeks ago by the DTC, has a submission final datenene 2 also of 30 September and in this case 23 submissions were considered – finance Minister Nhlanhla Nene having seen the results already.

Looks like 1%

This report covered taxpayer compliance and the tax gap; structural features such as zero-rating; dual rates; exemptions; place of supply rules and e-commerce; and the macroeconomic impact of a hike in VAT.    The media has so far made extensive comment on VAT and a figure of 1% increase has been debated in public. No official confirmation of this at parliamentary level can be found.

In presenting to Parliament, the DTC recommended that raising VAT would be a more efficient way of boosting revenue than increasing direct tax. The DTC recognised that a VAT increase would also hurt the poor but, in contrast, by increasing personal or corporate tax rates such would cause less inflationary pressure.

The DTC said “It is thus clear that from a purely macroeconomic standpoint, an increase in VAT causes less distortion than an increase in direct taxes”. The Standing Committee on Finance were told, upon the release of the first interim report, that government may have to consider compensatory mechanisms, such as increasing social grants, to help shield the poor if the VAT rate was raised. No opposition to such measures were recorded at the time.

Zero food ratings misplaced

foodThe committee, headed by Judge Dennis Davis as usual, strongly recommended that no further zero-rated food categories be considered, noting there was clear evidence that zero rating certain foods – such as fruit and milk – benefited richer households more.

In general terms, experts on the subject have noted that the DTC recommended that the introduction of a capital transfer tax should be postponed pending further research on its suitability in the South African context.

They say the DTC also would like to see foreign trust distributions to be taxed as income; a review of criminal offences under the Tax Administration Act and inter-spouse exemptions and “roll-overs” and the all procedures involved either to be dropped or limited.

Basic tax rates maybe stay

Africa MoneyA call was made for the primary abatement be increased to R6m per taxpayer and that the current flat rate of 20% should not be increased. Comment by the DTC on these latter issues is awaited.

In all likelihood, these issues will finally reach Parliament in the form of Money Bills tabled by Minister Nene.  As such, this would mean that Parliament may hold hearings, debate the Bills and even call for submissions but any recommendations by Parliament would have to be referred back to the Minister who retains the final say as to what is submitted for vote. Final assent remains with the President.

This current period of public participation is therefore the most critical in terms of contributions to be made.

Other articles in this category or as background
SARS understaffed to deal with transfer pricing – ParlyReportSA
Transport ministry studies taxi, e-tolls and rail – ParlyReportSA
Treasury’s plan for carbon tax – ParlyReportSA
Treasury calls for “Twin Peak System” with two financial bills – ParlyReportSA

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