Threshold on inheritance and donations tax to increase
The long awaited Bill to amend the Capital Transfer Act and align it with the Transfer Duty Act will be presented to parliament soon.
A draft of the Bill, also known as the Donations and Inheritance Tax, was published last Friday.
The proposed legislation seeks to expand tax exemptions on donations and inheritances.
The amendments will include among others removing the ceiling of P15, 000 for exemption of transfer of property, such as household goods and personal belongings to heirs.
It will also increase the value of gifts exempt from being taxed from P5, 000 to P25, 000.
The amendments to the Capital Transfer Act are the first in a decade. Financial experts regard the development as a sure sign the Minister of Finance and Economic Development, Kenneth Matambo wants the often ignored tax taken seriously.
It is alleged that on the ground, individuals and businesses have not complied with the Act. In most cases, donations and inheritances have gone untaxed, a direct violation of the law.
Recently, government has voiced concern at the falling of revenue, especially from the volatile Custom and Excise stream. This has forced government to consider new revenue streams, including broadening the tax base.
When it comes to inheritance, currently an heir to an estate is subject to inheritance tax on property valued in excess of P100, 000.
“Technically, if a father passes on and a son inherits a house worth P3 million, the son is expected to pay inheritance tax of P141, 000. This has been causing a lot of challenges in inheritances as most heirs failed to inherit property as they did not have money with which to pay the tax,” a tax consultant, Jonathan Hore said this week as he explained the implications of the amendments.
Although Hore says the Bill is a welcome development, he feels it should have exempted charitable organisations from paying donations tax.
However, he fears it will still be difficult for tax authorities to know who has received a donation.
“One would have thought that the Bill was to address this so that the tax does not remain as one of the least known as well as the one where the levels of compliance are very low,” he said, adding lack of information in the public domain makes it difficult for people to comply with this law, as most are not aware there is such a tax.