Finance minister Tito Mboweni faces the unenviable task of balancing South Africa’s national budget, and finding enough money from within and without to plug a growing deficit.
Mboweni needs to find approximately R150 billion over the next three financial years to bring South Africa’s budget in line, but with taxpayers overstretched, and little to no political support to cut spending, the minister has very little wiggle room, analysts say.
Many expect the minister to go for easy wins in the his 2020 Budget speech next week (26 February), with more focus on “snips” in expenditure where he can, and no big tax moves, lest he push the country over the tip of the Laffer curve.
A possible increase in VAT has been floated – but where some economists see this as an easy for government to raise billions, others have warned of the knock-on effect to the economy, such as crippling spending, not to mention the political fallout for government.
Instead, the easiest win on the tax side is income tax – with the simple move of little to no relief through shifting tax brackets, could raise R13 billion. Increases to sin taxes and fuel levies can raise several billion more.
Tax collection in South Africa
According to SARS’ 2019 tax data, the 2018 technical recession led to a slow growth in revenue collections, which culminated in a downward revision of revenue targets.
“Whilst revenues generated from the tax system move in tandem with the economy, on average, the growth in tax revenues has been higher than economic growth,” it said.
Tax revenue collected amounted to R1 287.7 billion, growing year-on-year by R71.2 billion (5.9%), mainly supported by Personal Income Tax (PIT) which grew by R30.9 billion (6.7%).
Personal Income Tax (PIT) at 38.3%, Corporate Income Tax (CIT) at 16.6% and Value-added Tax (VAT) at 25.2%, in aggregate remain the largest sources of tax revenue and comprise about 80.1% of total tax revenue collections.
Nominal tax revenue grew at a compound annual growth rate of 6.9% for the period 2014/15 to 2018/19. The tax-to-GDP ratio increased marginally from 25.5% in 2014/15 to 26.2% in 2018/19 (increase of 0.65 percentage points).
Personal Income Tax
The geographic and demographic analysis of the assessments of the taxpayers who had been assessed as at the end of August 2019 showed some interesting results, SARS said.
- 2,680,449 (54.5%) of assessed taxpayers were male taxpayers; 2,236,580 (45.5%) were female;
- 1,342,511 (27.3%) of assessed taxpayers were aged 35 to 44 years; and
- 1,976,674 (40.2%) of assessed taxpayers were registered in Gauteng, of which 636,460 lived in the Johannesburg Metro and were taxed on an average taxable income of R446,838.
While Gauteng, being the economic hub of the country, has the highest concentration of wealth, a more granular assessment – on a municipal level – shows that the richest areas in South Africa are spread across most of the provinces.
Residents in the City of Johannesburg pay the highest average income tax in the country, at R424,000 in 2019.
However, Stellenbosch is the second richest municipality, at an average of R413,561. Stellenbosch is well known for its concentration of wealth, placing higher than the City of Cape Town, overall.
One of the most surprising revelations from the data is that a little-known municipality in the Northern Cape, Gamagara Local Municipality, is the third richest region in the country. This is due to major mining activity in the region, with Gamagara being where most of the wealthy mining bosses settle to be close to operations.
But even though the spread of wealthy municipalities stretches across all provinces among the top 25 richest (with only the Free State not present), Gauteng and Mpumalanga have the the richest areas, with five municipalities each in the top 25.
This is followed by Limpopo, with four municipalities.
The table below shows the richest municipalities in the country, based on the average taxable income in each.
The Free State has 11 municipalities among the bottom 25 in South Africa, with none from Gauteng or Limpopo.
The table below shows the poorest municipalities in the country, based on the average taxable income in each.