Abstract
In recent years, there has been an increasing focus on new sources of taxation, including wealth tax. In South Africa, two phenomena have driven the focus on wealth tax. Firstly, the need for additional tax revenue to fund an ongoing and growing budget deficit, exacerbated by a prolonged period of low economic growth, rising government debt and a very small base of individual taxpayers. Secondly, the fact that South Africa has one of the most unequal societies in the world. The dual demands of increased tax revenue and economic inequality have converged around wealth tax as a possible panacea to both problems. Although South Africa has a long history of wealth transfer tax in the form of estate duty and donations tax, there has never been a tax on the net wealth holdings of individuals during their lifetime. Internationally, numerous countries have used wealth tax in various forms, including inheritance tax, gift tax, recurrent wealth tax and non-recurrent wealth tax. This study examines some of the international experiences with these three categories of wealth tax, seeking lessons and experiences that can inform the debate around the viability of a new wealth tax in South Africa.
Highlights
Tax exists as a means of generating revenue to fund government expenditure
South Africa faces a dual challenge of continuing budget deficits in the face of very low economic growth, placing pressure on sustainable growth in tax revenue, and high inequality, with a Gini coefficient of 65 which places it at the forefront of the most unequal societies in the world (World Bank 2014)
France is the only country among the 40 OECD and BRICS countries that has used a recurrent wealth tax on a sustained basis as a fundamental part of its economic policy (Ristea & Trandafir 2010)
Summary
Tax exists as a means of generating revenue to fund government expenditure. As tax has become more prevalent over the last century, it has been used increasingly as a policy tool to address economic deficiencies and influence human behaviour. This article provides a cross-country synopsis of the international experience of levying wealth tax on individuals with the objective of finding lessons that may be learnt from those experiences and which may inform the debate around whether or not to introduce a new wealth tax in South Africa.
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