Of all the problematic announcements made during Mthuli Ncube’s Budget Presentation on Thursday, the wealth tax is arguably the most unsound. The Minister proposes to impose a 1% annual tax on all owners of a house worth US$100,000 or more on the grounds that they have more income.
This means that the owner of a US$300,000 home would pay US$3000 in wealth tax annually.
The very premise of the tax is fundamentally flawed. In Zimbabwe, not all home owners have an income.
A pensioner under 70 receiving a US$30 pension can own a home.
A divorced, unemployed person can own a home they attained through a divorce settlement.
A child can own a home bought for them by their parents.
An unemployed 19 year old can own a home they inherited.
A retrenched person can own a home they bought when they were once employed.
A person can own a home but have lost all their savings or business under one of the three big economic crashes experienced since 2008.
Taxing these people for simply sitting in their homes and breathing is an injustice and offends the constitutional
principle that the tax burden should be shared fairly. There is no doubt that a “wealth tax” of this nature in a distorted economy like Zimbabwe could never be administered fairly.
Pensioners, non-income earning home owners and other poorly paid citizens who managed to purchase homes when the economy fared better decades ago persons cannot be described as “wealthy”.
Imposing a blanket tax on home owners would result in the illegal double taxation on persons who already pay rates and property taxes on their homes, which rates they can in most instances barely afford. What justification is there for taxing persons twice for water, local clinics and basic services?
Additionally, a wealth tax is difficult, expensive and inefficient to administer. In an economy like Zimbabwe, the immediate question that arises is - who would carry out the valuations, with what money and using which formula. The avenues for distortion and corruption would be boundless.
Imposing this ill thought out wealth tax will encourage tax evasion and has the potential to drive away property investors if imposed. Persons with the means will opt to buy in Johannesburg or South Africa where the tax burden is less burdensome and one can get more bang for their buck.
Property is one of the few reliable stores of value in Zimbabwe’s broken economy where savings are not safe in financial institutions due to unsound and inconsistent economic policies. The proposed wealth tax will discourage property investment.
Moreover, by taking a fraction of people’s wealth each year, the tax reduces the return to investing and discourages saving. This can reduce growth because investing and capital accumulation are critical to innovation.
One can already see that, if imposed, such a tax will distort behavior in a way that is harmful to economic growth and national prosperity.
To put the matter to bed, a person who invests in 10 low cost houses valued at US$98,000 each will avoid the tax while a divorced, self-employed single mother who was awarded a basic home in Waterfalls upon her divorce will be taxed for being “wealthy.”
The entire Budget is an anti-people mess. Pro-growth policies make sense, by making everyone better off.
Tax gimmicks don’t.
Comments
Post a Comment