How South Africa’s wealth taxes have changed over the past 20 years
South Africa’s tax regime has come down a lot harder on the country’s wealthier individuals over the past few years, with capital gains, dividend withholding and the upper personal income tax brackets hitting levels last seen at the turn of the millennium.
Finance minister Malusi Gigaba is scheduled to deliver the 2018 budget speech on Wednesday, where many expect some tough tax hikes to be introduced to fill a R50 billion hole in the national budget.
Tax experts have warned that all South Africans – rich and poor – are likely to feel the effects of higher taxes this year, specifically with a VAT hike on the cards.
However, analysts predict that the wealthier citizens of the country will still bear the brunt of tax hikes, even if it is done ‘cosmetically’ to soften the blow of the VAT hikes on lower earners.
Analysts predict that the highest tax rate (currently at 45%) could be increased further – and other wealth taxes, such as a tax on assets, could be introduced.
Looking at the key wealth taxes, it is apparent that since 2015 the national government and SARS have started coming down harder on the country’s wealthy.
The upper-bound personal income tax rate has increased from 40% to 45%; Capital gains taxes have grown incrementally from 13.35% to 18%; and dividend withholding tax has jumped significantly from 15% to 20% in a single tax year.
In comparison, the lower-bound tax rate has remained stable at 18% since 2000, and standard company tax has remained flat at 28% (down from 35% in 1998) for the last decade.
The graphs below outline how these tax categories have changed since 1998. (Years represent the end of each respective financial year to 31 March).
Source: SARB Tax Chronology
Upper personal income tax rate
The upper-boundary for personal income tax (PIT) has been relatively stable over the past 20 years, and actually came down from a high at the turn of the millennium. In 1998, the rate was still at 45%, before dropping down to 42% then 40% by 2002/03.
However, the rate increased to 41% in 2015/16, before a new tax bracket for the super rich (those earning R1.5 million or more a year) was introduced in 2017/18, taxed at a rate of 45%. One of the 2018/19 changes that may happen is this rate increasing to 47%.
One thing that the graph above does not track is the tax drag due to inflation – where the taxable income brackets are not adjusted with inflation, forcing lower earners into higher tax brackets, effectively leaving them with less disposable income.
So while the tax rates may not change much, the pressure on households as they get pushed into higher brackets is felt.
Capital gains tax
Capital gains tax was introduced in 2001, where income tax is levied on a portion of the gains realised from the disposal of certain assets by corporate and individual taxpayers.
A capital gain arises when the proceeds of the disposal of an asset exceeds the base cost of the asset. The tax is subject to a gain or loss exclusion, which represents the amount of profit or loss you’re allowed to make on an asset before the tax rate kicks in.
This is one of the tax rates that were specifically introduced to target the rich – and after more than a decade of stability, is seeing a sharp increase as government looks to plug its budget gap.
In 2001 when the rate was introduced, it was at a a level 10%, before kicking up to 13.3% in 2002. The rate held at 13.3% until 2015/16, when it was pushed up marginally to 13.7%. In 2016/17 it was again increased, this time to 16.4%. In the 2017/18 budget it was increased again to 18%.
Dividend withholding tax
A withholding tax on dividends was introduced in 2012 at an effective rate of 15% – where it remained until the 2017 budget where it was hiked to a sizeable 20%.
Prior to 2012, instead of shareholders being taxed on dividends paid out by companies, the companies themselves were subject to a secondary company tax (SCT), which had to be paid on all dividends declared.
This SCT was launched at a rate of 12.5%, before being reduced to 10% in 2007. The burden of payment was moved to shareholders via the dividend withholding tax to bring the country’s tax regime more in line with international standards.
Company tax
The standard company tax is the only tax assessed that has decreased over the past 20 years, dropping from 35% to the rate of 28%, which has stuck since 2008.
However, the way companies are taxed in South Africa depends on the size, turnover and even the sector in which they operate. For a full history of how companies have been taxed in South Africa, you can read the Reserve Bank’s Tax Chronology document.
Fuel Levy and RAF
In the 1997/8 financial year, the general fuel levy was at 80 cents for unleaded petrol. By 2017/18 this had increased to R3.15. It is the second biggest contributing factor to the retail fuel price after the basic fuel cost.
The Road Accident Fund levy was introduced in 2001, and started at 21.5 cents, which stuck until 2003. Thereafter it increased almost every year until, in 2017, it was hiked to R1.63.
It is expected that these levies will again be hiked in 2018 to cover the budget gap, though there has also been speculation that the zero-rate VAT on fuel could also be removed.
In that eventuality, it would make sense that one or both of the levies applied to fuel could be reduced or removed – however some analysts have said that the government could just leave them as is, meaning a triple blow to drivers.
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