Treasury was asked to introduce a flat 30% income tax rate – here’s what it said

On 13 September 2018, the National Treasury released a draft response document to the Draft Rates Bill.

The response document noted that National Treasury received 11 submissions related to the Bill – focusing on everything from the proposed Carbon Tax to changes to Estate Duty.

However, one of the most interesting comments was the viability of a ‘flat income tax rate’ in South Africa, notes Cliffe Dekker Hofmeyr’s Louis Botha.

“In the Draft Rates Bill, the primary, secondary and tertiary rebates were partially adjusted for inflation, and below inflation adjustments to the bottom three income brackets were proposed,” Botha explained.

“Although none of the tax rates for any of the income brackets were increased, a comment was received noting that the tax burden on individuals is very high in South Africa.

“Ordinary workers who earn R305,000 and above face abnormally high tax levels, especially after including fuel levies and indirect taxes. It was therefore proposed that a standard tax rate of 30% be imposed on personal income for all persons who earn up to R1 million and that an additional 25% be imposed on incomes above R1 million.

In response, National Treasury explained that South Africa’s personal income tax system is highly progressive, with over 25% of personal income taxes being collected from around 110,000 individuals who earn over R1.5 million.

“In contrast, around 1.8 million individuals earn less than R250,000 and contribute 8,6% of personal income tax revenue,” it said.

“Moving to a flat rate of 30% as proposed, would lessen progressivity and unless there is a high tax-free threshold, this would most likely result in lower tax revenues.”

Read: Expect tax dodging to rise because of the recession: Nene

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Treasury was asked to introduce a flat 30% income tax rate – here’s what it said