OPINION: #Budget2018 coming down harder on wealthy

Phia van der Spuy

Phia van der Spuy

Published Feb 26, 2018


JOHANNESBURG - If you didn’t have the chance to listen to the Budget speech, the news is that this year you can in fact be glad you have a trust. The change in the VAT rate is from 14percent to 15percent.

It is apparent that the government started coming down harder on the wealthy during the last number of years, as illustrated in the table shown.

Trevor Manuel, in his 2009 Budget speech, alluded to the fact that trusts are often used to avoid paying estate duty. Since 2014, the Davis Tax Committee (DTC) began taking a closer look into attacking trusts through more punitive tax measures.

Since July 2015 the DTC recommended removing the conduit principle, which is a huge benefit of a trust. In August 2016 the DTC, for the first time, recommended a change to estate duty/donations tax measures:

Increase estate duty abatement from R3.5million to R15m.

Increase estate duty from 20percent to 25percent for estates in excess of R30m (introducing a progressive system, similar to income tax system).

Repeal capital gains tax rollover and replace with increased exemption at death from R300 000 to R1m.

Repeal inter-spouse donations tax exemption, except for reasonable maintenance.

First introduction of wealth tax.

In the Budget speech Minister Malusi Gigaba made the following interesting comments:

“In developing these tax proposals, government reviewed the potential contributions from the three major tax instruments, which raise over 80percent of our revenue - personal and corporate income tax, and VAT. We have increased personal income tax significantly in recent years, particularly at the higher income bands, and our corporate tax is high by international standards.”

In the 2017 Budget speech, the country’s top 100000 income earners were targeted and had to carry an effective R11.2billion of the additional tax burden through an increase from 41percent to 45percent in the top marginal tax rate for individuals, as well as trusts, and from 15percent to 20percent in dividend-withholding tax.

There has been much speculation about the introduction of a wealth tax (potentially a land tax or annual net wealth tax). It was not introduced in Gigaba’s Budget speech. However, he will be taking away from the wealthy through an increased excise duty rate on luxury goods from 7percent to 9percent (effective from April 1, 2018), as it is levied on “goods that are consumed mainly by wealthier households (such as cosmetics, electronics and golf balls)”.

There was speculation during the past year whether the estate duty/donations tax measures proposed by the DTC in August 2016 (referred to above) would be introduced in this year’s Budget speech. The only estate duty/donations tax measure introduced was the estate duty increase from 20percent to 25percent for estates of R30m or more (effective from March 1).

When one considers that the Treasury expects the increase in estate duty to contribute “only” R150m in additional revenue, it appears more of a cosmetic change to soften the blow of the VAT hikes.

Only one of the estate duty/donations tax recommendations will be implemented this year. There was also no mention of the removal of the conduit principle. It may be worth your while to consider not blindly moving your assets out of your trust, or to register a trust to protect and preserve your wealth.

Phia van der Spuy is the founder of Trusteeze.

The views expressed here are not necessarily those of Independent Media.


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