This is who is paying South Africa’s taxes

The South African Revenue Services has announced its preliminary revenue outcome for the 2020/2021, with the group seeing better than expected collection in a year heavily impacted by Covid-19.

For the period ending 31 March 2021, SARS collected a gross amount of R1.5 trillion which was offset by refunds of R290.9 billion – resulting in net collections of R1.25 trillion.

This was compared to the Budget 2021 revised estimate of R1.21 trillion and represents a contraction of R105.6 billion (-7.8%) against the 2019/20 financial year.

SARS said that these are preliminary results, which will be subject to detailed financial reconciliation and a final audit.

“Revenue collections were secured by the revenue plan executed throughout the financial year, which was closely managed in collaboration with regional and national revenue recovery anchors to ensure successful delivery on the desired collection outcomes,” it said.

“The collapse in global economic activity in 2020 is estimated to have been slightly less severe than previously projected, mainly due to shallower contractions in advanced economies and a more robust recovery in China.”

SARS said that a higher-than-expected rebound in economic activities after the easing of economic lockdown measures resulted in better-than-expected tax revenue collections.

  • Corporate income tax collections recovered in the last quarter of 2020, driven mainly by higher international commodity prices;
  • Pay-As-You-Earn (PAYE) collections continue to be challenged by sluggish employment and wage growth, as well as lower bonus payments;
  • Although the announcement of an adjusted lockdown level 3 during December 2020 caused a contraction in domestic VAT liabilities for February, this was short-lived as domestic VAT collections in March bounced back with month-on-month growth of 8.5%. The full reporting period saw a contraction in both the volume and value of domestic VAT liabilities of 7.1% and 2.3% respectively.

Who pays the tax? 

SARS’s data shows that personal income tax (PIT) is the main revenue source, and is there is an ‘ever-increasing dependence’ on PIT revenue mainly due to tax policy changes.

By comparison, the contribution of domestic VAT collections continue to decrease mainly due to a weak economic growth environment with lower consumer and investment spending in the economy, it said.

Corporate income tax contributions to total tax has been declining over the past years, decreasing to a low of 15.9% in 2019/20, with a slight improvement in 2020/21 to 16.4% due to demand constraints on sales and business profits.

The data shows that the most significant contributions were made from:

  • Net personal income tax (PIT) contributed R488.6 billion (39.1%);
  • Net value-added tax (VAT) contributing R330.7 billion (26.5%);
  • Net company income tax (CIT) contributed R204.7 billion (16.4%);
  • Customs duties contributed R47.4 billion (3.8%).

In March, professional services firm PwC warned that South Africa is relying too heavily on income and direct taxes – most of which are coming from a declining base of taxpayers.

PwC’s data shows that the contribution of personal income tax has increased substantially over the period, while the contribution of corporate income tax has decreased, and the contribution of VAT has remained relatively constant.

The firm noted that personal income taxes are collected from an increasingly small pool of taxpayers.

“It is estimated that just 25% of those who pay income tax pay 80% of all personal income tax that is collected.

“Over the past few years, a smaller proportion of taxpayers has become responsible for an increasingly large portion of total personal income tax payable.”

In the 2019/20 tax year, SARS noted 22.2 million registered taxpayers, of which 6.3 million were expected to submit tax returns. In effect, this means that around 1.58 million people are shouldering the bulk of all income tax paid.

PwC also noted that South Africa has very high income tax burden relative to other countries – far above its GDP peers.

“High income taxes result in lower levels of consumption and savings. These in turn translate into lower economic growth.

“According to studies conducted by the OECD and others, personal income taxes are, after corporate income taxes, the next most damaging tax for economic growth,” it said.

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This is who is paying South Africa’s taxes