Refuel property market, please Pravin
Property tax cuts will boost housing delivery, SARS coffers.
Tax authorities, we are told, are focusing efforts on high net worth individuals, particularly those with offshore assets in an attempt to meet South African Revenue Service (SARS) 2009-2010 targets. Stats SA reveals an alarming number of job losses amid the recession, saying this week that another 302 000 have joined the ranks of the unemployed. This in turn means increased reliance on the country's 5m registered taxpayers.
Realestateweb reckons there is a far easier way to rake in revenue than shake it out of rich people who have had the best planning minds ensure their wealth stays out of tax collectors' hands by keeping it tucked away in foreign climes. That is: Rethink property-related taxes in order to help refuel what was not so long ago presumably a very lucrative line for SARS.
It is not just job losses that have meant it is tougher for SARS to meet targets. As the tens of thousands of residential properties that have been on the market unsold for many months will attest, property volumes are down considerably compared to two-three years ago.
Of course, the recession in the property market will have contributed to unemployment numbers. More important, though, there must inevitably have been a dramatic decline in money collected through various taxes associated with property sales.
These include transfer duty, which is the tax buyers must pay before property ownership can be transferred into their names at the Deeds Office, and Capital Gains Tax for those who sell more expensive properties and homes that are not primary residences. Value Added Tax at 14% is included in the price of a property when the property is purchased from a registered VAT vendor.
Transfer duty was left unchanged during this year's budget. As it stands, transfer duty is not payable on the first R500 000 of a property's value, and is 5% on the value above R500 000, with R25 000 plus 8% payable on the value above R1m. However R500 000 gets you very little on the property market these days. The average, fairly modest home, costs in the region of R1m.
With the days of easy credit far behind us now, high deposit requirements from mortgage finance providers are standard. The transfer duty adds to the upfront cash requirement of buying a property as well as the cost of home-ownership in general.
Pravin Gordhan, new Minister of Finance, should consider easing this duty as soon as possible. This way he would encourage middle to higher income earners to spend more on property. The more property sales, presumably the more money would flow through SARS coffers. It is very hard to avoid or evade tax where property transactions are involved, so SARS would need to spend less money rooting out big tax offenders. And, with the property market revitalised, employment numbers in this sector at least would hold steady - which is also good for tax collection.
There are other real estate tax tweaks that Gordhan could perhaps consider in time for next year's national budget too, like creating tax incentives for ordinary salary earners to assist their domestic workers in buying entry-level housing rather than leaving them to the vagaries of the nation's corrupt housing delivery structures. And, if Gordhan were to reduce CGT, more might be inclined to invest in residential properties.
These measures, in turn, would help increase the stock available to the thousands who are not living in formal housing and are increasingly disgruntled with the slow pace of government service delivery. They would also help boost the nation's savings rate because property owners would be saving money through their real estate investments.
C'mon Pravin. Please give South Africa some much-needed property-related tax breaks.
Article by: Jackie Cameron - www.realestateweb.co.za