The personal income tax burden in South Africa has become a heavier burden for citizens over the past few years, despite claims of ‘tax relief’.
A quarterly Labour Market Report by Solidarity, compiled in collaboration with ETM Analytics, noted that the receiver of revenue has time and again claimed a larger slice of SA taxpayers hard earned income, which simply kept pace with consumer price inflation.
Tax relief? Only if inflation is making you poorer, the trade union’s research paper argues.
“What was announced as tax relief in previous years, were actually adjustments to prevent the tax burden of people whose nominal income rose steadily to keep pace with CPI inflation from increasing at the same rate,” said Paul Joubert, senior researcher at the Solidarity Research Institute.
The level at which one starts paying income tax in the country was lifted by 5.6% in 2013, 5.35% in 2014, and 4.17% in 2015. However, these increases did not adequately compensate for CPI inflation, Solidarity said.
“It means that someone whose income kept pace with CPI inflation since 2012, has had to cede a gradually growing proportion of that income to tax.
This is a catch-22 situation, where your income has to increase to keep up with the rising cost of living, but while that is happening, the receiver takes more and more of your money…in order to benefit from tax relief, you would have had to become poorer,” Joubert said.
As an example, Solidarity said that an employee with a total cost package of R183,585 per year in 2012, would have received taxable income of R180,000 – which is R15,000 per month.
This taxpayer – with a medical rebate for a family of four – would have paid approximately R1,095 per month income tax, resulting in after tax income of R13,905.
If this employee had not received a pay rise, he/she would have to pay income tax of about R693 per month in 2015 – nearly 37% less than before ‘tax relief’.
After tax income then amounts to R14,307 per month – 2.9% more than before.
However, Solidarity noted that the consumer price index – a way of judging living costs – rose by 18.4%. “This employee therefore had become 18.4% poorer in terms of CPI in order receive an increase of 2.9% in tax relief,” said Joubert.
“It is reminiscent of a 419 scam , where a swindler promises to pay a large amount of money if the victim pays over a smallish amount in ‘administrative costs’ upfront. Only in this case the amounts are reversed – the victim has to give up a large amount in order to receive a small amount,” the research author said.
If the taxpayer had received money equal to CPI inflation, the taxable income would have been close to R17,800 per month – or 18.6% more than in 2012. However, tax would have risen by more than 28%, to approximately R1,406 per month, leaving an after tax income, up only 17.8% to R16.385.
“While the employee’s total cost package indeed kept pace with CPI inflation, the inadequate adjustment of tax brackets caused his after tax income to fall behind inflation,” Joubert said.
A different scenario
Solidarity noted that, had the above employee received annual increases of 1.5 percentage points higher than the relevant annual figure for CPI inflation in 2013, this increase would have been 7.1%, 7.2% in 2013, and 7.6% in 2015 – taxable income would have increased by 23.8% over the period, from R15,000, to R18,566 per month.
Monthly tax however, would have risen by almost 47%, from R1,095, to R1,608, meaning that after tax income would have been only 22% higher despite the cumulative 23.8% increase in taxable income.
“The employee’s increases, aimed at keeping pace with rising living costs, would therefore, despite the ‘tax relief’, have resulted in him paying a larger percentage of his income to the state in 2015, than in 2012: 8.7% as opposed to 7.3%,” Joubert said.
This table indicates proportion of taxable income ceded in each of the last four years:
|Personal income tax levels with increases equal to CPI inflation|
|Starting point of R183,585 total cost package in 2012|
|Taxable income per month||R15 000||R15 848||R16 760||R17 792|
|Income tax per month||R1 095||R1 181||R1 253||R1 406|
|Percentage income tax||7.3%||7.45%||7.48%||7.9%|
|Increase in after tax income||5.5%||5.7%||5.7%|
|Starting point of R302,361 total cost package in 2012|
|Taxable income per month||R24 800||R26 197||R27 699||R29 398|
|Income tax per month||R3 744||R4 000||R4 237||R4 710|
|Percentage income tax||15.1%||15.27%||15.3%||16.0%|
|Increase in after tax income||5.4%||5.7%||5.2%|