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After five years of looking into how to improve South Africa’s tax revenues, the Davis Tax Committee (DTC) issued its closing report on 12 April 2018. For those of us who have been observing this process, the uncertainty around which of the recommendations the DTC has made during its tenure, and how they will be implemented by National Treasury, still lingers.


As an interim measure to its final recommendations on wealth tax, the DTC has recommended a focus on increasing estate duty collections given that the administrative capacity already exists. It has also put a spotlight on trust taxation. New tax laws around trusts have been widely heralded as the death knell for trusts. However, we have emphasised our view that trusts remain good tools if they are formed for not only their tax benefits. Trusts can be excellent vehicles for asset protection, legacy creation, professional oversight of the family’s finances and providing continuity.

Even with these interim recommendations, we do believe that the prolonged uncertainty around any form of wealth taxation cannot be good for the economy as a whole.  


When it comes to wealth inequality, the DTC is of the view that capital gains tax (CGT) is a tax on capital income and not on wealth and so it is not included in this category, which includes estate duty, donations tax, securities transfer tax and transfer duties. There has been significant underperformance in the collection of these two taxes and there is, in the view of the DTC, scope to increase performance in this regard.

The DTC also relies heavily on the view of French economist, Thomas Piketty regarding patrimonial capitalism and the view that inherited wealth is likely to grow much faster than output and income. The argument is that inherited wealth will exceed the wealth accumulated from a lifetime of labour, and the concentration of capital will reach much higher levels.

However, the DTC emphasises that a wealth tax is not the only, or necessarily the best, tool to address wealth and income inequalities and it is worth noting that the report stresses that there are other avenues beyond the remit of the DTC available to address inequality. Its suggestions include land reform, increased access to quality healthcare and education, infrastructure provision, curbing tax evasion and efficient government. 


The DTC has highlighted some of the challenges when it comes to designing a wealth tax. These include tax efficiency, administrative costs including the costs and difficulties of valuing certain forms of wealth, and that tax reform losers may repatriate capital, migrate their tax residence or change asset classes. It is important to note that when looking at various international case studies on wealth taxes, the report concludes that some taxes may not be efficient but rather symbolic, when comparing revenue collected with collection costs.


The starting point is the consideration of a very simple form of an annual net wealth tax. However, a decision to implement this is not a short term one as it cannot be made without:

  • further consideration as to the appropriate tax base, and in particular whether to include retirement funds,
  • comprehensive data on the pattern of wealth ownership, and
  • an evaluation as to whether the revenue generated would exceed the administrative and economic burden on taxpayers and SARS.


A lion’s share of South Africa’s wealth is held in retirement funds, R2.2 trillion according to the DTC report. Given the enormity of this number, the question raised is whether any form of wealth taxation will be effective if retirement funds are exempt.

Retirement funds currently enjoy the following tax benefits:

  • CGT exemption since their inception in 2001;
  • Tax on retirement funds was withdrawn in 2007;
  • Retirement fund death benefits were exempted from estate duty in 2009;
  • In April 2012 retirement funds were given a blanket exemption from dividends tax;
  • From 1 March 2016, the retirement fund contribution limits were established at 27.5% of taxable income, although limited to R350,000 per annum;
  • Provisions relating to retirement age have largely been deleted from the Income Tax Act.

The DTC is of the view that concessions given to retirement funds, particularly the exemption from dividends tax, are possibly over generous in the context of the economic challenges facing the country.

However, the committee remarks that the imposition of a wealth tax on retirement funds is enormously complex from an administrative perspective and that having a simple, flat rate on gross assets would make no distinction between rich and poor fund members. The DTC also concluded that retirement funds are the major portion of wealth of lower income earners, given that of the
6.79 million people with retirement savings, five million are below the Unemployment Insurance Fund (UIF) ceiling, and three million fall below the current income tax threshold. 


Regarding the improvement of data on the pattern of wealth ownership, the DTC recommends that “all taxpayers and beneficial owners of wealth (which includes control of trusts, as well as beneficiaries thereof) who are required to submit an income tax return must be required to include the market value of all readily ascertainable wealth in a revised tax return for the 2020 year of assessment”. Disclosure of other forms of wealth, the value of which is not easily ascertainable, should also be required. This would include membership of defined benefit funds, shares of private companies, intellectual property, personal assets above a basic threshold, and so on. It would seem then that trustees would also need to submit a statement of assets with the 2020 tax return.


The DTC further recommended that the non-disclosure provisions of the Tax Administration Act be revised to provide for substantial penalties for failure to disclose existence of wealth.

We will be closely monitoring developments around the implementation of these suggested requirements.

Written by Hilary Dudley, Citadel Fiduciary Managing Director