South Africa Chamber Of Business Calls For Capital Gains Tax Abolition

Mandy Robinson, Tax-news.com, London

11 January 2001

South Africa's Chamber of Business (Sacob) has called the government to scrap its proposed capital gains tax by arguing that the tax will deter direct investment into the country.

Plans to introduce capital gains tax are set out in the Draft Taxation Laws Amendment Bill and the South African finance committee is due to hold public meetings this month with the proposed Bill at the top of the agenda.

Sacob is urging the government to investigate the potential positive and negative aspects of the proposed tax by seeking the advice of fiscal policy experts and the experiences of tax authorities in other countries. The chamber also recommends that the South African tax authority should undertake a cost-benefit study of the tax that compares its yield efficiency allowing for administration costs which are known to add to the problems of capital gains tax.

In a press release Sacob states that the capital gains tax 'has a notorious reputation for its low yield and high opportunity costs arising from distortions it creates in the economy' ... [it is] 'a notoriously inefficient generator of net revenue. Capital gains tax has become a discredited tax, both as a revenue-collection mechanism and as an economic instrument. Many countries would not introduce [it] if they had the luxury of tax redesign.'

Furthermore Sacob argues that the tax is likely to result in a 'locking-in effect' which means that the realisation of assets would be held off indefinitely thus affecting the flow of capital and reducing the country's fiscal revenue: 'Ironically, given the equity argument, lock-in is a particularly serious problem for taxpayers who own one or a few assets. For example a family business that cannot diversify the returns on those assets. For investors who are well diversified, lock-in is a less severe problem.'

In addition the organisation argues that the introduction of capital gains tax will have an immobilising effect on entrepreneurship and ultimately, stifle employment opportunities. Sacob cites countries such as France, Germany, Holland and Italy which offer entrepreneurs exemption from paying the tax on the sale of shares in their businesses and claims that a capital gains tax-free country is a competitive advantage for entrepreneurs looking to set up business.

'At the very least,' states Sacob, 'an exemption from capital gains tax on small business growth and on the value of productive agricultural land should be introduced.'

Sacob represents over 90 Chambers of Business/Commerce, 60 Trade Associations, and 150 large corporations. In total, close to 40,000 businesses are represented by and through the Chamber structures belonging to Sacob. As the country's most powerful business lobby Sacob is hopeful that the government will heed its warnings.

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