In its present form, estate duty is far too easy to avoid, says Katz Commission chairman Michael Katz.
In a presentation to parliament's finance committee in Cape Town this week, Katz warned that it was time to tighten up legislation to make estate duty harder to dodge.
"Estate duty has been to a great extent a voluntary tax in South Africa," he said. "It is easily capable of legitimate avoidance."
There were two ways to change this "highly undesirable situation":
* an attack on the practice of free or low-interest loans to trusts for the purposes of estate planning;
* an attack on the practice of generation skipping.
Katz said the first could have undesirable consequences "throughout the fabric of the economy" and would not be appropriate. Tackling generation-skipping, he said, would require complex legislation.
Katz said the justification for estate duty or donations tax was not the revenue it would yield but the need for equity.
The commission had considered levying a tax on the beneficiaries rather than on the deceased estate, which would have the advantage of taking into account the heirs' own financial circumstances. But the benefits would not outweigh the administration needed to make the change, Katz said.
"We decided this was not a priority."
The commission also considered combining estate duty in a new capital transfer tax act but had decided this was not a "pressing necessity" either.
It was government's prerogative to set the rate of estate duty, Katz said. His commission had warned that if the level was too high, evasion and avoidance mechanisms would be triggered.