Despite claims of ‘tax relief’ by South Africa’s finance ministers, personal income tax is becoming a heavier burden for citizens as it can barely keep pace with consumer price inflation.
In February, Pravin Gordhan resumed the customary ‘tax relief’ tradition in his budget speech.
In real terms however, once a person has paid income tax in SA, they are effectively poorer than they were several years ago, says Paul Joubert, senior researcher at the Solidarity Research Institute in a research note for the trade union.
“Tax relief? Only if inflation is making you poorer”, the trade union’s quarterly Labour Market Report said.
Joubert said that ‘tax relief’ measures are simply adjustments to prevent an increasing tax burden on people whose nominal income rises to keep up with CPI inflation.
The level at which one starts paying income tax in the country was lifted by 5.6% in 2013, 5.35% in 2014, 4.17% in 2015, and only 1.8% this year.
However, these increases have not adequately compensated for CPI inflation, Solidarity said, noting that CPI inflation was 5.6%, 5.7%, 6.1% and 4.1% respectively over those years.
It means that someone whose income kept pace with CPI inflation since 2013, 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 money.
“In other words: to get tax relief, you first have to become poorer,” Joubert said.
As an example, Solidarity said that an employee earning taxable income of R180,000 annually – or R15,000 per month – would have paid approximately R1,863 per month income tax.
If this employee had not received a pay rise through to 2016, he/she would have to cede some R1,575 per month to income tax – almost 16% less than before.
His/Her after-tax income would then be R161,100 per year – 2.2% more than the R157,644 in 2012.
In the meantime, the consumer price index, one measure of the cost of living, would have increased by 23.9%
“This employee therefore had to become 21.7% poorer, measured by the CPI, in order to get an ‘increase’ of 2.2% from tax relief, Joubert said. “That is impoverishment, not relief.”
If the taxpayer had received annual increases equal to CPI inflation, his/her taxable income would be R223,000. At the same time, their tax would have increased by almost 32%, from R1,863 per month to about R2,453 per month, with the result that the after-tax income would have increased by only 22.8%, from R157,640, to R193,542 per year.
“Even though the employee’s pre-tax income would indeed have kept pace with CPI inflation, the inadequate adjustment of tax brackets would have caused his/her after-tax income to fall behind CPI inflation,” 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|
|Taxable income||R190 080||R200 915||R213 170||R222 976|
|Income tax||R23 848||R25 284||R27 615||R29 434|
|Percentage income tax||12.55%||12.58%||12.95%||13.20%|
|After-tax income||R166 232||R175 630||R185 555||R193 542|
|Increase in After-tax income||5.45%||5.65%||5.65%||4.3%|
Joubert also noted that in 2014, only 36% of the government’s tax revenue came from income tax – with the remainder made up of VAT, company tax etc.