First interim report of The Davis Tax Committee

The Davis Tax Committee (DTC), chaired by Judge Dennis Davis, was requested by the Minister of Finance to enquire into the progressivity of the tax system and the role and continued relevance of estate duty in South Africa, with a view to supporting a more equitable and progressive tax system.

The DTC submitted its first interim report to the Minister in January 2015 and the report was subsequently approved to be released to the public for comment on 13 July 2015.

Some of the recommendations may come as a surprise to many taxpayers, but the majority of these recommendations have been expected in the tax industry, as the Minister has hinted at them in previous budget speeches. The intensive focus on trusts by the South African Revenue Service (SARS) has also reinforced our opinion that Government intends to increase its tax collections from estates and trusts to assist in reducing not only the budget deficit, but also the disparity between rich and poor in South Africa.

The following are some of the key recommendations made by the DTC in its report:

• The flat tax rate for trusts (2016: 41%) should be maintained;
• The flat tax rate for donations tax and estate duty (2016: 20% each) should be maintained;
• The anti-avoidance provisions (Sections 7 and 25B of the Income Tax Act) should be repealed to the extent of SA tax residents;
• Trusts should be taxed as separate taxpayers;
• Increase compliance with estate duty legislation by appointing and training additional SARS auditors/compliance staff and reviewing the criminal offence provisions of the Tax Administration Act, 2011 (thereby adding separate criminal charges to taxpayers who fail to disclose their direct or indirect interest in trusts);
• The exemptions for inter-spouse bequests and donations to be withdrawn or made subject to limitations;
• Increase the estate duty abatement from R3.5 million to R6 million (retaining the roll-over relief to remaining spouse, also to be increased to R6 million); and
• Various exemptions relating to donations tax to be withdrawn or subjected to limitations.

For the full interim report, as published on the website of the Davis Tax Committee, please click here.

The report is open for public comment until 30 September 2015. We will keep you abreast of any further developments as and when they become available, so keep an eye on our Newsletter in the following months.

Should you have any questions with regard to the contents of this article, you are welcome to contact Jaco van Straaten
at jaco@asl.co.za or 021 840 1600.