Applicability of inheritance tax in South Africa

Abstract

This study aims to investigate a new inheritance tax in South Africa. The country's current tax system fails to address wealth inequality issues, as seen by the current high Gini coefficient, necessitating the investigation of a new inheritance tax to collect tax from inheritors and donees of assets and gifts. Beneficiaries of inherited assets in South Africa do not pay inheritance tax under the present tax system. The country requires additional tax income to cover a persistent and expanding budget shortfall due to a compounded lengthy period of low economic development, mounting government liabilities, and a small base of people paying taxes. Globally, countries examine new tax sources when they are satisfied that they will enhance revenue, promote equity, and simplify community life. The study considered the introduction of a new inheritance tax by investigating how an inheritance tax operates and how an introduction of an inheritance tax can affect taxpayers and the government within the South African context. A doctrinal research method was utilised, which allowed the deployment of an archival research strategy to interpret a catalogue of secondary sources relevant to understanding the phenomenon of inheritance tax. The study found that inheritance tax was unique in that it targeted the recipient of inheritance instead of the estate duty imposed on the net value of the deceased property. The introduction of an inheritance tax in South Africa is an opportunity for the government to address high levels of inequality, problems with current taxes (CGT and estate tax) and increasing revenue contributions. Inheritance tax accommodates taxpayers' concerns of double taxation increment of tax burdens and promotes horizontal and vertical equity in the tax system. The study recommends further development of the legislative framework and the function of the asset assessment industry to support the introduction of a new inheritance tax in South Africa.