New research highlights the size of South Africa’s tax base, noting that only one in ten adults pay personal income tax to an amount worth mentioning.
This, the research finds, largely coincides with other forms of tax in the country.
According to a quarterly Labour Market Report by Solidarity, compiled in collaboration with ETM Analytics, only 3.3 million out of a total 33 million eligible tax payers in the country pay 93% of all personal income tax.
Worse still, only 3.7% – or 1.1 million people – pay just short of 70% of the total income tax received.
“Out of a population of 55 million people, of which about 30 million are of working age, a mere 1,1 million people pay 70% of all personal income tax.”
“This distorted situation also exists with regard to other types of taxation such as company tax and VAT,” said Piet le Roux, head of the Solidarity Research Institute.
According to senior researcher at the SRI, Paul Joubert, the tax burden on only a few South Africans, along with Government’s “hostility” to private enterprise and employers in general, “has created a disconnect between government and those who fund its operations”.
Who pays which taxes?
Solidarity said that in order to determine the number of taxpayers, the various types of taxes needed to be considered.
The latest figure – for the 2013 tax year – 34% of the government’s national tax revenue was derived from personal income tax. Over a quarter (26%) was value added tax (VAT), and company tax amounted to 20% of the total.
The fuel levy and customs duties each added 5%, while the remaining amount came from the likes of liquor and tobacco and so-called environmental taxes.
South Africa has a tax register of 15.4 million individuals (2013 tax year) after the South African Revenue Service (SARS) compelled employees to register employees in 2011.
This figure, Solidarity pointed out, exceeds the number of people who were employed in that year, by some two million.
“Clearly, the people registered for personal income tax cannot all be paying this tax,” said Joubert. “The number of people registered therefore does not mean much,” as most earn below the tax threshold, he said.
For the 2013 tax year, SARS said that the number of people submitting personal income tax returns reached 6.5 million. This excluded some individuals who had earnings below R250,000 a year.
However, some 460, 000 people in that bracket submitted returns regardless, meaning a total return base of approximately 6.9 million – half the number of people on the tax register.
Solidarity noted that tax distribution is skewed towards the higher income scale. In 2013, those people with taxable earnings of less than R140,000 ceded less than 4% to income tax.
The 3.6 million people in this bracket paid less than 7% of the R276.7 billion collected by SARS in 2013.
In contrast, those with taxable earnings exceeding R140,000 had to part with 21% of their income on average. This group of 3.3 million paid approximately 93% of total income tax earnings.
Moving the cut-off level to taxable income of R200,000 per year amounted to 2.2 million taxpayers who paid 85% of all personal income tax – R234 billion.
Tax payers earning above a taxable amount exceeding R300,000 made up about 1.1 million people who paid about 69% of the total personal income tax in 2013.
What tax relief?
Le Roux said the so-called “tax relief” with which Pravin Gordhan, former Minister of Finance, tried to appease tax payers in recent years, was also merely a ruse.
He said that personal income tax has risen significantly since 2012 due to bracket creep – where inflation pushes income into higher tax brackets. He pointed to a 42% hike in the petrol levy, carbon tax, alcoholic beverage tax, and a variety of increased import tariffs.
“Contrary to his repeated announcements of tax relief, Gordhan made sure that since 2012, personal income tax has increased annually through bracket creep. Bracket creep occurs when income tax brackets are not adjusted sufficiently for inflation,” Le Roux said.
For a true picture of the personal income tax rate, Le Roux said, Gordhan’s hidden increases should be added to the overt increases introduced by his successor, Minister Nhlanhla Nene, this year.
“Someone who earned a pre-tax income of R25 000 per month in 2012, and received CPI inflation related increases since then, will in real terms pay 6% more in income tax this year.”
“And then we have not even mentioned more unobtrusive taxes such as the increase of 42% in the fuel levy, higher carbon tax, inflation and various increases in import tariffs,” Le Roux said.