Considering estate duty as a source of wealth tax in South Africa: an African analysis

Abstract

Taxation has been employed across the world to generate government revenue, which in turn is spent on public goods and services. Income taxes, consumption taxes and taxes on assets (wealth) make up total tax revenue. A wealth tax has been implemented in various countries through different means. Advocates for wealth taxes argue that its implementation would assist in bringing balance to societies with income and wealth inequalities. Income inequality is abnormally high in South Africa. Wealth tax is imposed in different forms: estate duty, donations tax, transfer duty and securities transfer tax. Studies have been conducted on the implementation of a wealth tax in South Africa; however, it is not considered practical. This research report focuses on revenue collected from estate duty as an existing type of wealth tax. It is considered whether the amount of tax revenue collected can be increased through improvements in the estate duty regime, as opposed to introducing a separate wealth tax. This is determined by comparing the estate duty regime of South Africa to that of selected African countries, namely Angola, Botswana, Cameroon, Equatorial Guinea, Malawi, Morocco, Mozambique, Senegal and Zimbabwe. These African countries were selected because of their similar levels of income inequality. Only Malawi and Zimbabwe employ estate duty, while the other selected countries employ an inheritance tax, gift tax or transfer tax. The observed trend in the death tax regimes of the chosen countries was the relationship between the deceased and receiver of the estate/assets playing a role in the determination of the tax rate levied. South Africa’s estate duty regime does not consider this relationship. A potential adoption from the African death tax regimes would be to simplify the estate administration process.