Get ready for another set of tax proposals from the taxation commission headed by Professor Michael Katz.
The proposals are likely to contain another attack on retirement funds and will include long-awaited proposals on transfer taxes, including death duties.
Katz told a Star/Southern Life/First National Bank Investors Club the commission's recommendations on retirement taxation should not be seen in isolation, but as part of its vision for the whole tax structure of the country.
The commission's recommendations had to be seen as a broadening of the tax base and reduction of exemptions, better tax collection and growth in the economy.
Among other things Katz said he intended to recommend to Trevor Manuel, the Minister of Finance, that the regulation which specified that the taxation of lump sums at retirement be set at the highest average rate over the preceding two years, be changed to three years because "it has now become apparent that the two-year rule can also be structured and let me use the word, manipulated".
Katz said in examining taxation of retirement funds, the first issue the Commission looked at was the tax deductibility of contributions.
It was usually accepted that the recommendations relating to the 22 percent deductibility 15 percent employer and 7 percent employee were fair. He did not expect any changes to this.
On taxing the build up of assets in the retirement fund itself, the recommendation was a maximum 30 percent tax on the build-up of the fund. Currently the tax is at 17 percent. Katz did not know whether this would change.
One of the recommendations, at the heart of a lot of planning decisions, was that, at the date of retirement, lump sum benefits be subject to a tax rate of 45 percent. This created an incentive for beneficiaries to invest in a monthly pension and not take a lump sum which could be wasted.
Katz said the Commission would be concluding several reports in the next few months on the following topics:
Capital Transfer Tax: The commission hoped to have the report on capital transfer tax, estate duty and donations tax with the Minister of Finance by the end of November.
"We have some far-reaching proposals in this regard. I cannot discuss them here, but all the issues that have been raised in the newspapers have been dealt with generation skipping, interest-free loans and trusts, etc."
Medical Aid Funds: The report would deal with all issues related to medical aid funds, such as pre-payment for post-retirement medical expenses.
Source of Residence Basis for Taxation: At the moment South Africa operated on a source basis for taxation. This can affect transfer taxes, like eath duties as well as foreign investors.
"We want to be a capital importing country. Since the government has spoken of when, not if, exchange control is abolished, we have to recognise the possibility of South Africans exporting their tax base."
Tax Treatment of Non-Government Organisations NGOs): There was a realisation worldwide that the private sector could do certain things more effectively than the government, such as provide welfare and proper tax structures had to be found for these bodies.
National Land Tax: The commission had released a discussion document on this topic, but it was not its final recommendation.
The date for submission of representations had been extended to November 15. The reference in the discussion document to a two percent tax did not mean the commission considered two percent to be an appropriate rate it was considered to be the maximum.
Holistic Approach to Taxation: The commission was investigating a "holistic approach" to tax. "We will be issuing releases on this in the near future to indicate how we will interact with the public."