Crossing the Rubicon of wealth tax and land reform: A nation at peril

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– By Charles Castle (Manager: AfriBussiness)

The recent announcement of a possible wealth tax to be investigated by the Davis Tax Committee, of which Judge Dennis Davis is the Chairperson, has come as a shock to the public, although expected by some economists. AfriBusiness is drafting submissions on why South Africans cannot afford to pay higher taxes, let alone a wealth tax.

“Governments’ view of the economy could be summed up in a few short phrases: If it moves, tax it; if it keeps moving, regulate it and if it stops moving, subsidise it,” Ronald Reagan.

Government spending is out of hand, as South Africa’s debt is at 48% of the Gross Domestic Product (GDP).

There are currently 13,4 million registered tax payers. Of the registered tax payers, approximately only 6,8 million pay personal income tax. The shocking reality is that only about 13% of all citizens are paying taxes. The most recent changes in South African tax came with the 2017/2018 budget speech of Pravin Gordhan, the now-axed Minister of Finance, who also made the statement that Government debt will stabilise at 48% of the GDP.

The recent tax changes include the following:

  1. An increase in taxable thresholds. The estimated income for government is R12,1 billion.
  2. An income tax increase of 45% on income above R1,5 million per annum. The estimated income for government is R4,4 billion.
  3. A 5% increase from 15% to 20% on dividends tax. The estimated income for government is R6,8 billion.
  4. An increase of 39c on fuel levies. The estimated income for government is R3,2 billion.
  5. An increase of excise duties on alcohol and tobacco. The estimated income for government is R1,9 billion.
  6. Citizens are already paying capital gains tax (a wealth tax), tax on savings, estate duty tax, 45% tax on trusts and property rates and taxes, notwithstanding the value-added tax (VAT) being paid by all.

There are suggestions that a wealth tax should be instituted over: land and/or unused land; the extremely wealthy; or an annual wealth tax and/or a national tax on the value of property over and above the municipal rates and taxes payable. This is cause for grave concern, as most South Africans cannot afford to pay more than they are currently paying.

Under instruction of Pravin Gordhan, the Davis Committee was tasked to investigate the possibility of a wealth tax to make up for the extremely high debt of the South African Government. The Davis Committee recently announced their intentions to go ahead with the investigation into a possible wealth tax, now under the leadership of the newly appointed Minister of Finance, Malusi Gigaba. All citizens are urged to partake in this process and submit submissions to the committee as the closing date for submissions is 31 May 2017. Oral submissions will be heard by the committee in June (date to be announced).

With the recent proposed Regulation of Agricultural Land Holdings Bill and the introduction of a private members’ bill by Member of Parliament (MP) PJ Mnguni (ANC) for The Restitution of Land Rights Amendment Bill, the property rights of all property owners are under fire. If a land tax is implemented, the committee will need to consider that a large portion of agricultural land have already been claimed and transferred to black communities who can hardly afford the normal running costs. Will these communities now also be taxed and will this not contribute to more farming projects failing? Or, will the Government pay these taxes on behalf of the farming communities?

From the previous round of land claims under the Restitution of Land Rights Act (Act 22 of 1994), 7 500 land claims still need to be finalised. In 2014, another approximately 164 000 claims were instituted after the reopening of the now unconstitutional Restitution of Land Rights Amendment Bill of 2014. Will all these successful claimants after the transfer of land be liable to pay these taxes, or will certain communities or groups be exempt from paying these wealth taxes? If the latter is the case, it will only cause more disparity and discontent between communities and will also amount to unconstitutional provisions, as people may then be taxed based on class or colour.

If a land tax will be levied on all land and/or unused land, the investments in land and agriculture will decline at an even faster pace, leading to greater poverty and job losses, in turn having both a direct and indirect impact on the South African economy. South Africa’s unemployment rate is currently at 27% and this will only worsen – especially in the rural areas. Is this yet another political stunt by the current regime to ensure the expropriation of land with regards to the ANC’s radical economic transformation policy?

The reasons for not increasing value-added tax (VAT) is purely political, as the current ruling party cannot afford to lose more votes before the 2019 elections. This increase may also cause upheaval and unrest within communities across the country. Professor Jannie Rossouw, Head at the School of Economic and Business Sciences at the University of Witwatersrand (Wits), recently made the startling statement at a business lunch that the ANC’s cabinet of 35 Ministers and 37 Deputy Ministers cost South African tax payers around R720 million per year, as per the Economic Freedom Fighters’ calculations.

The ANC is on a self-destructive path. Taxing the 6,8 million tax payers to death will not solve any of the problems the ANC government is facing politically, socially or economically. If the ANC government cannot distance themselves from their ideological rhetoric, detrimental fiscal policies and racial rhetoric to try and stay in power, the country’s future looks grim, to say the least.

AfriBusiness will strive for the abolition of any discriminatory or race-motivated legislation and will fight the proposed “death” taxes the corrupt ANC government would want to impose on all South Africans. These so-called initiatives will only line the pockets of the ‘Zupta monarchy’ and relieve no poverty nor make any impact on government debt or social challenges millions of South Africans are facing. Communities should realise that reliance on the state to solve all their problems, is not feasible.

South Africa does not need higher taxes; it needs a responsible government with less government spending.

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