Most personal income tax is paid by only a fraction of South Africans

 ·10 May 2017

The deputy CEO of a South African non-governmental organisation recently tweeted that close to 80% of personal income tax is contributed by 1.7 million individuals. But, as with most things to do with tax, the truth is not that simple.

The deputy CEO of AfriForum, a non-governmental organisation which seeks to protect “the rights of minorities”, with “a specific focus on the rights of Afrikaners”, outlined a “tragic truth” in a recent tweet.

“In South Africa, about 1.7 million people (roughly 3% of the population) pay about 80% of income tax,” Ernst Roets tweeted. At the time of publishing, the tweet had been retweeted close to 200 times and liked 155 times.

One of our readers asked that we verify the figure.

No source provided

Roets declined to provide Africa Check with his source and asked that we publish his reasons for doing so.

We then approached the South African Revenue Service (SARS), which directed Africa Check to the 2016 tax statistics report, produced annually in conjunction with the national treasury.

The report aims to “present comprehensive tax revenue data in a manner that will complement and help contextualise economic and demographic data provided by other publications”.

The latest version highlights that R389.3 billion in personal income tax was collected by the revenue service in 2015, out of a total of R1.07 trillion tax.

Total tax collected (2015/2016)

A breakdown of the main contributors of tax revenue for the 2015/2016 fiscal year.

Tax type Contribution to total tax (%) Amount
Personal income tax (including PAYE) 36.4% R389.3 billion
Value-added tax 26.3% R281.1 billion
Other (including fuel levies and custom duties) 19.2% R206.2 billion
Company income tax 18.1% R193.4 billion
Total 100.0% R1,070.0 billion

The South African Revenue Service cites Personal Income Tax as the main contributor to revenue growth for the year under review. Personal Income Tax alone accounts for 36.4% of total collected tax for the 2015/2016 fiscal year.

Only reports on 71.9% of personal income tax

The document, however, only reports on 71.9% of the total collected personal income tax (or R239 billion of personal income tax). This tax is called “assessed tax”.

SARS media executive Sandile Memela explained that assessed income tax refers to the tax paid by individuals who submit income tax returns and pay provisional tax.

Provisional tax refers to tax on income earned from anything other than “remuneration, an allowance or advance” as described in the Tax Act.

Memela told Africa Check that taxpayers who have “alternative income streams such as rental or investment income” have to register as provisional taxpayers. They are then required to pay tax upfront in the form of provisional payments twice a year.

Pay-as-you-earn (PAYE) refers to the tax that is deducted from employees’ salaries and employers then pay to SARS.

The figure reported in the tax statistics publication does not include all income tax paid to SARS.

Income taxpayers who only pay tax through PAYE deductions and aren’t required to submit tax returns are excluded, the treasury told Africa Check.

‘In principle, the figures are reasonable’

Assessed taxpayers had a total taxable income of R1.3 billion and owed SARS R268.5 million for 2015.

There were 1,821,394 individual taxpayers in the 7 highest income groups (people who earned more than R250,001 per year). These individuals collectively contributed R239 million (89%) of assessed income tax that year.

But, as explained above, this total excludes taxpayers who paid income tax through PAYE but are not required to submit a tax return for assessment.

Deborah Tickle is a tax partner with auditing firm KPMG and a member of the Davis Committee, a body established to “assess South Africa’s tax policy framework”.

She told Africa Check that verifying a claim like this is difficult as “the source and date that the numbers were derived [from] are not provided. However, in principle the figures are reasonable.”

Tax year 2015 (71.9% assessed)

Income group Number of taxpayers Tax assessed
<0 – R70 000 623 938 R15 million
R70 001 – R250 000 2 343 002 R29.3 billion
R250 001+ 1 821 394 R239.2 billion
Total 4 788 334 R268.5 billion

Budget review data ‘far more user-friendly’

Professor Matthew Lester, a faculty member at Rhodes Business School and also a member of the Davis Committee, suggested we consider revenue estimates in Treasury’s Budget Review.

These figures are “far more user-friendly,” Lester noted, as they consider all taxpayers and not just assessed taxpayers as is the case with the annual tax statistics report.

The most recent budget review is for 2017/2018 and shows that just over 1.9 million registered taxpayers are estimated to contribute just over 80% of income tax.

In 2016/2017, just over 1.7 million taxpayers were estimated to have contributed 78% of taxes, closer to Roets’ claim.

While these figures are estimates of expected tax revenue, Lester noted the process of collecting tax returns for assessment can be lengthy.

“That’s why it’s better to work with the estimates and what they ultimately expect to receive, as per [national treasury] numbers” Lester added.

Ingrid Woolard, dean of the commerce faculty at the University of Cape Town and fellow member of the Davis committee, added that SARS’ assessed tax data “doesn’t actually tell us anything about the number of people that pay tax nor about the number earning more than R350,000 [annually]”.

Treasury Budget Review tax estimates

A comparison of estimated tax revenue and taxpayers from the 2015/2016 fiscal year to the 2017/2018 fiscal year.

Budget Review Total registered taxpayers Registered taxpayers in income group R350,001+ Total tax collected Tax collected from taxpayers (R350,001+ income group)
2015 15 459 513 1 470 506 R393.9 billion R259.8 billion (65.95%)
2016 13 736 046 1 727 885 R441.0 billion R346.5 billion (78.57%)
2017 13 993 926 1 916 957 R482.1 billion R388.3 billion (80.54%)

The latest budget review data for the 2017/2018 fiscal year estimates more than 1.9 million taxpayers will contribute just over 80% of collected tax.

Each dataset has limitations & drawbacks

Christopher Axelson, ‎a director at national treasury in the personal income taxes and saving division, told Africa Check that while both datasets could be used to check a claim like this, each comes with its own set of limitations and drawbacks.

Budget review data “shows a more complete view of the taxable income distribution, but is only an estimate and actual changes in the distribution may have been different in practice,” Axelson told Africa Check.

“The SARS data illustrates final tax collections, but only indicates this for individuals who filed an assessment,” Axelson said and added it is therefore “an incomplete view of the distribution”.

Conclusion: The claim is mostly correct

To provide an accurate fact-check, it is essential to know the source and timeframe considered. Without these, the burden of proof moves from the speaker to the fact-checker.

SARS and treasury officials, together with consulted experts, directed Africa Check to annual tax statistics and budget review data as the best tax-related information. But both data sources have limitations.

While the latest tax statistics fall close to Roets’s claim (namely, 1.8 million individuals contributed 89% of income tax), these figures aren’t inclusive of all taxpayers.

Treasury budget review data for 2016/2017 is in the same ballpark (1.7 million taxpayers contribute 78% of income tax) and takes into account all taxpayers, but these figures are estimates. The latest treasury estimates show 1.9 million individuals are expected to contribute an estimated 80% of income tax.

Given that claim requires clarification, we rate it mostly correct.

Edited by Kate Wilkinson – This article was first published by Africa Check, read the original here.

Read: South Africa’s richest face three new wealth taxes: report

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