Strike a deal to scrap estate tax

Of all the taxes, estate duty and capital gains tax (CGT) seem to get most taxpayers irate. But few stop to think how much these taxes actually collect.

Estate duty and donations tax are estimated to bring in only R1.3-billion out of total forecast tax collections for 2012/13 of R826-billion. For all but the wealthiest individuals, estate duty can be easily and legally avoided by the simple use of an inter-spouse bequest.

By the time mom and dad both join the choir invisible, there is seldom enough left to exceed the combined estate duty threshold of R7-million.

CGT caused much distress when implemented on October 1 2001. But, to date, it has not collected much. Between 2001 and 2007 CGT collected only R5-billion. The brunt of the damage was absorbed by our ridiculously over-inflated valuations at October 1 2001 and the time-apportionment formula.

But, as time goes by, CGT collections are increasing. By 2011 they had risen to R9-billion a year, split R7-billion paid by companies and R2-billion by individuals. And, with the inclusion rates having increased to 66.6 % for companies and trusts, and 33.3% for individuals, one can hazard a guess that CGT collections will top R15-billion for 2012/13. That could buy seven presidential jets!

Hang on. Personal tax collections for 2012/13 are budgeted at R286-billion, or R33-billion up on last year. So personal CGT collections are only around 2% – 3% of total personal tax collections and less than 1% of total tax collections. Surely there are finer targets to raise in anger?

Why did we abandon the shopping malls? It wasn’t increases in interest rates. Probably the biggest causes were the increases in petrol and electricity prices. The effect over three years is frightening: R100, increased with the consumer price index, is now around R120. But fuel worth R100 three years ago will cost R137 today. The amount of electricity you could buy for R100 would cost around R183 now. That’s worth a protest march.

This is all before we get anywhere near implementation of carbon emission tax. Apparently that could collect R80-billion a year.

SA could get rid of the estate duty debate with a simple trade-off. The taxpayer abandons the old CGT valuations and time-apportionment formula and, in return, estate duty is abolished.

Originally published in the Sunday Times Tax Talk column.

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