South Africa’s record-high unemployment rate points to a declining individual tax base and weakening revenue collection.
Tabling its annual performance plan in parliament this week, the South African Revenue Service (SARS) warned that the high and growing unemployment among the youth is a serious threat to the tax base and the overall integrity of the tax system.
“It has become a serious constraint to revenue growth and will cause further strain on the government to increase spending on social benefits,” it said.
It added that the country’s youth participated in the civil unrest that took place in the month of July 2021 following the incarceration of former president Jacob Zuma. Election results from past elections have also shown that the two generations tend to refrain from voting during elections.
“The continued high rate of unemployment and lack of business opportunities for two generations pose a great risk of future civil unrests, which negatively impact investor confidence and tax morale.”
An analysis published by professional services firm PwC at the end of April shows that the country’s narrowly defined unemployment rate is expected to increase to 39.3% by 2030 from 35.3% at the end of last year.
“It is likely that, under this baseline scenario, South Africa will remain in the worst spot globally on both the total as well as youth unemployment rate tables for the foreseeable future,” the group said.
“The solutions to South Africa’s unemployment conundrum are not easy – but the time to act is now. We need to choose the areas that will have the biggest impact on GDP and jobs growth and where big change is possible without necessarily needing big financial commitments.”
Data published in February 2022 shows Personal Income Tax (PIT) collection, the largest source of tax revenue in South Africa, has fallen in recent years.
Between 2003 and 2012, the number of PIT taxpayers grew by 7%. Since 2012, however, some of these gains have been eroded with a 2.1% decline in the number of taxpayers, according to data from SARS.
This is particularly worrying as there were only 5.2 million individual taxpayers in 2020, said EY chief economist Angelika Goliger.
“These 5.2 million individuals, representing approximately 9% of the population, contribute 40% of South Africa’s total tax revenue. Breaking it down further, about 20% of individual taxpayers contributed to three-quarters of personal income tax revenue in 2020,” she said.