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Davis Tax Committee – Estate Duty needs modernisation, seeks public comment

Tuesday, 14 July 2015   (0 Comments)
Posted by: Author: Matthew Lester
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Author: Matthew Lester (Biznews)

In this piece Matthew Lester takes a look at the Davis Tax Committee’s interim report on estate duty. The proposal shows that the estate duty and donations tax systems should be retained, but quite a bit of modernisation is needed.

If, two years ago, you had asked me the question ‘what is the future of estate duty in South Africa?’ I would have replied ‘Ctrl-Alt-Del! Estate duty is a very old system of taxation that may have worked when the rich died young, but today large estates are absorbed by a lethal cocktail of longevity, medical expenses and extended family commitments.’

But that was all ‘PP.’ That’s Pre-Picketty and his international best seller ‘Capitalism in the 21st century.’ While some commentators the world over bend over backwards to dispute Picketty’s arguments regarding inequality and economics others are burning the midnight oil to write it all in another version.

The end result is that Picketty’s views regarding inequality have gained much traction. Yes, it is perhaps naïve for Picketty to suggest that we will ever see a global wealth tax or that it would make a difference. But it is equally naïve to suggest that wealth taxes will decline into obscurity in the Post-Picketty era.

The Davis Tax Committee has now released its first interim report on estate duty in South Africa. Obviously the prediction that the entire system be hit to leg did not get very far. Just imagine the chaos if RSA was to increase personal tax for millions of taxpayers, or even impose new forms of taxation and then repeal estate duty that will never effect more than a few thousand of the wealthiest South Africans.

After all there are only some 60,000 US $ millionaires in RSA out of the 54 million population.

The RSA estate duty system is not in dire need of attention. Presently the estate duty is almost a voluntary tax. Some never bother to file return. Others conceal assets, usufruct and bare dominium arrangements. And most of the remainder simply use the inter spouse bequest to delay taxation until the entire estate has evaporated through means fair and foul. The really rich have a variety of trust and other estate planning arrangements that reduce estate duty collections to negligible proportions.

Some say ‘only a fool would pay estate duty in RSA’. And they would not be far wrong.

The Katz Commission of Enquiry briefly addressed estate duty back in 1997. The panacea suggested was the implementation of capital transfer tax at the time. But it never happened. CTT is just far to complex for RSA.

The DTC has proposed that the estate duty and donations tax systems be retained, but quite a bit of modernisation is needed, in particular:

  • CTT is not the answer.
  • The current estate duty and donations tax rate of 20 percent is considered acceptable
  • The current estate duty threshold of R3.5 million is in dire need of updating for the effects of inflation
  • The possibility of capping the inter-spouse abatement should be considered
  • The conduit system applied in the taxation of income accruing to trusts should be repealed as it has evolved from being an anti-avoidance mechanism into one that encourages avoidance on a grand scale
  • Retirement fund benefits should remain exempt from estate duty subject to certain limits in contributions
  • Transfer pricing provisions should not be extended to domestic trust arrangements
  • The taxation of beneficiaries of foreign trust arrangements should be revisited.

The report is available on

Public comment has been requested by the DTC. 

This article first appeared on



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