These are the taxes government could look at to boost revenue
Chief economist at Economists.co.za, Mike Schussler says that across the three major tax categories, South Africans carry one of the heaviest tax burdens in the world in two of them.
Speaking on the SAFM Market Update, Schussler noted that when it comes to personal income tax and company tax, South Africa’s tax rates are among the highest globally – easily in the top 10 – while the country’s VAT rate (15%) is somewhere in the middle.
However, despite these high rates, the country still sits with a massive R57 billion tax gap, with the latest South African Reserve Bank quarterly bulletin also showing revenue collections coming in under projections.
The Reserve Bank’s data shows that the government derived revenue from taxes on income, profits and capital gains of R191 billion (60.1% of total revenue) in April–June 2019 – 7.8% more compared to the same period a year ago.
This increase mostly reflected a 12% year-on-year increase in personal income tax collections to R126 billion. However, corporate income tax collections remained broadly unchanged at R56.7 billion.
Revenue from taxes on goods and services increased only marginally to R108 billion (33.8% of total revenue) in the first quarter of fiscal 2019/20.
Domestic value-added tax (VAT) collections increased by only 6.6% year on year in the first quarter of fiscal 2019/20 compared to the originally budgeted increase of 7.2% for the full fiscal year – missing targets.
This probably reflects the impact of slowing wage and household consumption expenditure growth on VAT collections, the SARB said.
Due to a marked year-on-year increase of 27.2% in VAT refunds to R57.4 billion, net VAT collections decreased by 3.5% to R73.0 billion in April–June 2019.
Filling the tax gap
According to Schussler, the government will “undoubtedly” look to personal income tax to fill its tax hole, as it will be the most accessible tax to tap into.
The economist said that government has a few options:
- Looking again at VAT;
- Increasing the fuel levy;
- Increasing carbon taxes;
- Increasing sin taxes.
However, he warned that those taxes will not be enough to fill South Africa’s tax hole.
“Although people won’t always realise it, if they actually don’t change income tax brackets to inflation – which they haven’t done much, and specifically the 40% bracket; they haven’t done that for three or four years now – they get more tax.
“So the one tax, the ultimate, is the personal income tax – despite the fact that some people are losing their jobs. So, that’s a scary thing for us South Africans,” Schussler said.
The economist stressed that South Africa’s taxpayer base has run out of legroom, with the only available option to cut spending.
He said that the government is aware of this, evidenced by its move to try to get tax income from South Africans working abroad (via the so-called ‘expat tax‘), as well as an increase seen in tax avoidance or financial emigration.
“I think you’ll find a lot more people have tried to circumvent taxes…I see a lot of things going on at the moment, where people are just trying their best not to pay those taxes,” he said.
“And I think in terms of VAT (earnings) decreasing – consumers are obviously trying to buy smaller items and VAT-free items.”
Ironically, this just leads to more ‘punishment’ with higher taxes on the personal income tax side, Schussler said.
“If (the SA government) are going to be spending and not bring expenditure down – we are going to see more tax hikes. That’s it.”
Read: Why you can expect to pay more tax in South Africa: economist
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