In his recent budget speech, Finance Minister Pravin Gordhan confirmed that a 'wealth tax' was under consideration through the Davis Committee.
Now, this shouldn't come as a surprise, as the idea has been thrown around for several months already, with much debate to accompany it.
Now that Mr. Gordhan has reared up the issue once again, you may be wondering a few things, such as 'what is it?', 'why wealth tax?', 'why the interest now?', 'how could it affect me?'.
Well, today I've got the answers for you...
Why wealth tax? Why the interest now?
It appears that the matter of wealth tax has been seriously taken into light after a recent visit by French economist, Thomas Piketty.
On his visit, he recommended a wealth tax framework which South Africa should implement in order to balance out what he sees as gross inequality throughout the country.
This proposed model would see the wealthy having to declare all of their assets, after which they will be levied annually.
If this taxation was to be implemented, how would it affect you?
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According to financial analyst, Stuart Theobald, in an interview with the Daily Maverick,
'If you have a business that owns a few petrol stations, say collectively worth R10-million, you will be subject to a tax on the value of that business. It doesn't matter if your business actually made a loss in that particular tax year – the tax will be levied irrespective. So if you do not have cash on hand, you will be required to either borrow against the value of your business or sell some of your business in order to settle the tax liability. Depending on how leveraged you are already, and if your business has had a bad year, you may well have no choice but to sell some of your business.'
In other words, even if your business is doing terribly in a year, you'll still be taxed, which could lead you into debt from borrowing to keep yourself afloat.
And if you can't even do that because you are in debt already, then you'll have no choice but to start sacrificing parts of your business.
In a nutshell, it could be very hard on you and your business…
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Many argue that the idea is nothing new, in that South Africa already has a 'wealth tax' in the form of capital gains tax
, donations tax and estate duty.
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