South African taxpayers only get 5c value for every R1 they pay
Efficient Group chief economist Dawie Roodt said South African taxpayers do not get much value for the money they give to the state.
Roodt shared his views about South Africa’s tax system during a discussion with podcaster Renaldo Gouws on the Truth Report.
South Africa has a very narrow tax base, with 978,140 people, or 1.5% of the population, paying 60.9% of all personal income tax.
An equally staggering statistic is that 1,051 companies paid 72.3% of all company income tax in South Africa.
Personal income tax and company income tax are two of the core revenue streams for the state, which illustrates the concern about such a narrow tax base.
This small percentage of individuals and companies must provide sufficient funds to cover the costs of education, healthcare, and social grants for all South Africans.
Considering that South Africa has more than 28 million people who receive monthly social grant payments, it is a tremendous burden on taxpayers.
There are also approximately 1.7 million people employed in South Africa’s national and provincial public sectors, who get paid through tax revenue.
That means that 7.9 million personal income taxpayers have to fund nearly 30 million grant recipients and government employees.
Roodt explained that South African taxpayers are already stretched, and raising income taxes to generate additional revenue for the state is not possible.
The only way to significant state revenue is to increase value-added tax (VAT), but that is politically unpalatable. Cutting government spending is also a political hot potato.
This means that the only solution to South Africa’s deteriorating financial situation is economic growth.
However, the country has numerous business-unfriendly policies, including Black Economic Empowerment (BEE) and Affirmative Action.
These policies deter many local and global investors from investing in South Africa, which, in turn, hampers economic growth.
Taxpayers only get 5 cents of value for every R1 they give to SARS
One of the biggest gripes for South African taxpayers is that they do not receive much value for the taxes they pay.
Many roads are full of potholes, the public healthcare system is deteriorating, and the education system produces some of the worst results globally.
Roodt said this gripe was justified, explaining that South African income tax payers receive very little in return for their money.
He created an equation to establish the value which income tax payers receive in return for the money they give to the government.
He highlighted that he had to make assumptions for this equation, including that the state does not waste resources.
“I know this is not the case. Due to corruption, incompetence, and mismanagement, there is a lot of wastage in the government,” he said.
However, even with this assumption, a household with an income of R1 million per year will get less than 5% of the value they pay in taxes.
Put differently, for every R1 this family pays in taxes, it will receive less than 5 cents in value from the government.
This further shows that one family with an income of R1 million pays for approximately 20 families to get services from the state.
“If the family’s income goes up to R2 million or R3 million per year, they get far less value from the state for the tax they pay,” Roodt said.
This illustrates the importance of holding on to South Africa’s tax-paying population, many of whom are looking to leave the country.
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