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Several reasons have been advanced for this reform. It all basically boils down to fairness. Why should the poor wage earner pay taxes on his hard earned income while the wealthy do not even pay tax on the capital gains they make? Another reason advanced is that it will assist in improving tax morality by discouraging conversion of taxable income into tax free capital gain. The question whether these reasons advanced has any ground to stand on is one that will also be discussed in the research project
This research project will be based on the proposed introduction of Capital Gains Tax. The project will start with a detailed description or explanation of Capital Gain and the current position with regard to it. A distinction will be made between revenue and capital gain and there will also be a discussion of cases in order to show how the courts deal with the issue. This is of course a very important distinction to draw with the current standing of tax law and as will become clear later, with the new proposed law as well, because although capital gains will become taxable the rates will differ. Thus the importance of this distinction will not fall away even if capital gains tax is introduced in South Africa
The second issue, which will be dealt with, is the proposed reform in South Africa. This will entail a proper discussion of the proposed legislation and the changes it will bring about. The writer will particularly look at the affected persons, assets, the proposed rates, the exemptions and how capital gains will be determined. Furthermore the writer will also deal with how the system of Capital Gains Tax will be introduced and implemented. It will be important to look at the impact of CGT on the taxpayer and the economy
There are currently other jurisdictions, which already have a system of Capital Gains Tax in place. These jurisdictions will be looked at and a comparison will be made between the various systems. This comparison will include the proposed system in South Africa. In South Africa different assets are targeted. Higher and lower exclusion levels, asset values may or may not be indexed to inflation, proportion of profits taxed varies and rates applied in the long and short term may differ. Indexing, for instance, is only done in some jurisdictions, such as the UK. The effect of indexing is to ensure that you only pay tax on real gains and not paper gain, having regard to inflation. South Africa's current proposal does not include indexing and questions about the effect of inflation have already come up. Thus it will be interesting to see how they will deal with the issue. The other jurisdictions are the United Kingdom, United States of America and Australia. Australia has recently amended their CGT legislation introducing a discount system. Some jurisdictions have primary exclusion rates, others do not. These are the types of issues that will be looked at when making a comparison. Not only the differences, but also their effects. The different legislation will be dealt with, the effective tax rates and how this work will also be looked at. The writer will also look at the problems and benefits experienced in the said jurisdictions. Even in the jurisdictions where CGT is in place, there is an ongoing debate on whether to retain CGT or to axe it. These are important considerations before to take into account before one introduces CGT
Last but, very important in order to link the proposed research to Namibia, the writer will attempt to make a proposal on whether Namibia should follow the South African example. Namibia has been independent from South Africa for ten years now and we also have our own tax legislation. But we have still not developed an independent tax jurisprudence. We still rely on South African sources, mainly because our tax legislation is very similar to that of South Africa. This is not the only similarity. Our societies are also quite similar be it economically or politically. Legal development has also been quite similar. Therefore Namibia may also at some or other time consider such reform and therefore it is important to look at the effects of such a system of Capital Gains Tax. In doing this one should look at all the incentives and disincentive for the tax regime and also whether our revenue service can in fact administer such a tax at this time
