DESPITE promises in the 2010 budget that estate duty would be reviewed, South African taxpayers are being taxed at a combined effective tax rate of 30.65% on death — the highest it has been in more than a decade, Ernest Mazansky, head of tax at law firm Werksmans, said on Monday.
He is calling for the abolishment of estate duty, currently at 20%.
Both estate duty and capital gains tax were payable upon death, which was perceived as giving rise to double taxation, Finance Minister Pravin Gordhan said in his 2010 budget’s tax proposals.
He conceded that estate duty raised limited revenue and was cumbersome to administer.
"Moreover, its efficacy is questionable as many wealthy individuals escape estate duty liability through trusts and other means," he said.
The South African Revenue Service (SARS) is expected to collect R1.2bn in estate duties in 2012-13, SARS spokesman Adrian Lackay said on Monday.
In contrast, SARS is expected to collect R285.9bn income tax from individuals and R167.8bn profit tax from companies, Mr Lackay said.
Mr Gordhan is scheduled to present his 2013 budget to Parliament on February 27.
Mr Mazansky said allocating resources to collect a "peanuts tax" was inefficient. "Those resources used to collect a low-yielding tax could be redeployed to get more bang for their buck by more frequent audits on companies, high net-worth individuals and their trusts."
He said prior to capital gains tax being introduced in 2001 at an effective rate of 10%, the estate duty rate was 25%. Estate duty was subsequently reduced to 20%, recognising that two taxes were triggered upon death, but the combined effective rate came to 28%. This represented an effective increase of 3% over what it was before capital gains tax was introduced and estate duty was reduced.
Mr Mazansky said the capital gains tax rate was increased to 13.3% in last year’s budget, which meant the combined effective rate on death was now 30.64%. He said the practical and economical answer would be to abolish estate duty, but realised it would be politically difficult to do. "If we can not abolish it, at least take us back to the effective combined rates we had earlier."
If not abolished, Mr Mazansky also suggested a sharp increase in the R3.5m exemption from estate duty so it would only be levied on the "super rich" and the rest of the taxpayers would only pay CGT on death. Another suggestion was for the Treasury to reduce the estate duty rate to 15% or less to restore the balance.