The highest income tax rates in the world – including South Africa

Economist Mike Schussler has broken down the weighty tax burden placed on individuals in South Africa, showing that we have one of the highest tax rates in the world.

In an economic overview and update for South Africa presented this week, the economist said that the country’s economic predicament isn’t as bad as many people make it out to be – but it’s far from rosy either.

South African businesses, in particular, are performing moderately, he said, with positive cash flows and real growth in turnover – but low business confidence means that they are not willing to invest their money locally, which is stalling growth.

In recent months, business confidence has taken a more positive turn – however, the looming introduction of more taxes from 1 April 2018 will likely put a damper on things.

Notably, Schussler said, South Africa already carries some of the highest tax rates in the world, and hiking these will only serve to further stifle growth, he said.

According to Schussler’s data, from Economists dot coza, of the countries with one million people or more, that are not oil exporters, South Africa’s income tax rate at just under 10% is the 12th highest, below Germany, Austria and the United States.

Denmark has the highest tax burden, approaching 25%, the economist said.

Highest PIT burdens in the world

The reason oil exporting countries are excluded from the analysis is because these nations often carry much lower personal income tax rates, Schussler said.

A more worrying trend is South Africa’s tax to GDP ratio, which is approaching 30% (currently at 27.3%), far higher than the global average of 15%, and even higher than the Euro-zone’s rate of 19%.

South Africa has the 7th highest total tax to GDP ratio – but considering how the country provides money from the customs pool, and effectively pays for the African nations ranked above it (Lesotho, Swaziland and Namibia), SA could be ranked 4th highest, in reality, Schussler said.

Total tax to GDP

Total tax to GDP over time

Taxing people into poverty

Independent economist, Luke Muller, says that introducing new taxes from April will put consumers under incredible pressure, and will effectively tax people into poverty. He said government should focus on cutting spending, and making South Africa’s tax regime simpler..

“South Africa is currently moving in the wrong direction by increasing government spending, raising taxes and inadvertently adding layers of bureaucracy,” he said.

He noted that South Africa is currently lagging behind many of its African counterparts in GDP growth, and has a far more onerous tax process when compared to economic growth leaders, like the Seychelles, Mauritius and Botswana.

“The government’s decision to increase VAT to 15%, increase the fuel levies by R0.52, and introduce a sugar tax is a move in the wrong direction. The government is increasing both the level and complexity of taxation when it should be striving to do the opposite,” Muller said.

The VAT increase is expected to cost South Africans R22.9 billion. Although the national budget announced attempts to cut state costs and lower the budget deficit, overall taxes are still increasing by more than R10 billion. This will not lower the deficit, Muller said.

“What the taxes will achieve is more poverty. A 15% VAT will increase the cost of living for all South Africans,” he said.

“Increased fuel levies will push up transportation costs. Low-income households in South Africa spend a larger proportion of their income on transport than the middle class and rich. Transport costs (to and from work or city centres) have been exacerbated by the separation of townships under apartheid planning.

“A sugar tax is also regressive – food and beverages make up a relatively larger proportion of expenditure in poor than in rich households.”

The economist said that the government should be encouraging a stable economic environment rather than trying to expand government spending, taxes, and debt.

Read: How much income tax you’ll be paying based on your monthly salary from April