Following the release of National Treasury and SARS’ 10th annual edition of the tax statistics for South Africa in December, Des Kruger and Wesley Grimm of law firm Webber Wentzel have provided an analysis of the data and what it will mean for Income Tax in 2018.
The document provides data on the key trends in tax revenue collections and highlights the role the tax system plays in contributing to South Africa’s fiscal health and socio-economic development, specifically for the 2013 to 2016 tax years.
One of the biggest concerns in 2016/2017 came from Personal income tax (PIT), which grew 9.4% for the 2016/2017 fiscal year – a noticeably slower rate than in previous years.
At over 37%, personal income tax remains the largest contributor to fiscal revenue and often has a direct impact on the economy, as increased individual tax rates may act as a disincentive for economic activity, savings and investment, SARS said.
In focusing on personal income tax, in March 2017, there were 20 million individuals registered for income tax, a 4.7% increase from March 2016. The increase is attributed to the requirement that employers must register all employees as taxpayers, regardless of their tax liability, Weber Wentzel said.
Bearing in mind that an individual earning less than R350,000 a year from a single employer, with no other sources of income and no deductions need not submit a tax return, only 6,367,627 individuals were required to submit tax returns for the 2016 tax year.
Of this number, 4,800,344 returns were submitted and assessed. Those taxpayers who submitted returns had an aggregate taxable income of over R1.4 trillion and a related tax liability just short of R297 billion, with an average tax liability of R61,862 per individual.
“Assuming the same R61,862 average tax liability per individual, the implication of 2.6 million individuals not submitting returns is that a large potential tax liability may still be outstanding,” Webber Wentzel said.
“While the number of outstanding returns does not necessarily represent tax that is due, as PAYE and provisional tax may have been paid in respect of these returns, as these outstanding returns are processed there will no doubt be additional tax that will be payable,” it said.
“The document acknowledges that when the personal income tax rate increases were introduced, assumptions were made that the South African economy would remain largely unchanged,” said Webber Wentzel.
“This was not the case and the “top” personal income tax bracket did not produce as much revenue as expected, due largely to job losses in managerial ranks, as well as fewer bonuses and reduced increases in salaries. They also noted a slippage in compliance among taxpayers.”
According to Webber Wentzel, the main “PITfalls” identified by the Tax Statistics document are:
- increasing personal income tax rates in economically uncertain and depressed times will not, necessarily, result in increased tax collection rates, and;
- there is a pressing need to address personal income tax non-compliance rates.