Trade union Solidarity has published a new report focusing on the tax burdens of South Africa’s main income groups, and how they compare to other countries.
The union used Statistics South Africa’s division of society into ten equal parts called deciles. It then compared this with housing, food, transport and other costs – and the tax payable on each of these.
The data shows that people in income decile 3 and below – with a gross monthly income of R640 – exist below the breadline for all practical purposes.
“As expected, it is only possible to meet extremely basic needs with such a low income. Therefore most of the income is spent on food (38.67%) and housing (25.27%).
“In the end, due to VAT and other taxes, the average person in decile 3 will have an effective tax rate of about 7%.”
With an average monthly income of R8,746, people in decile 9 are already better off than 80% of the country’s people, Solidarity said.
Despite this gap, in terms of South Africa’s tax brackets, this income is still at the absolute bottom end of the spectrum with a large part exempt from tax, it said.
“In the end, people in decile 9 still spend a large percentage of their income on accommodation (27.7%) and food (16.9%), but in addition to that a large tax expense is added in the form of transport.”
The fact that the petrol levy is now already 40% of the fuel price implies that on average, people in this decile pay more tax in the form of petrol levies than income tax, Solidarity said.
“Despite a relatively low income in terms of their tax bracket, people in decile 9 still bear an effective tax burden of 16%. This implies that in a traditional 8-hour workday, people in decile 9 work only 6 hours and 43 minutes for their own income. They actually work the other 1 hour and 17 minutes for the state.”
Although a person with an average gross income of R70,000 per month falls into the highest decile in terms of income, they will only fall into the second-highest tax bracket.
Due to South Africa’s progressive income tax system, a person in this decile already pays substantial amounts of income tax – yet, together with VAT and other taxes, the total amount actually paid to the state is approximately 50% higher than just the income tax amount, Solidarity said.
“On average, the effective tax burden of the person in decile 10 is 42.5%. This implies that people in decile 10 work only 4 hours and 36 minutes for themselves in a normal working day of 8 hours – for the other 3 hours and 24 minutes, they actually work for the state. It means that people who are in their office at 08h00 only start working for themselves at 11h24.”
Where most other countries limit their income streams to a few categories, the South African government has decided to extract taxes from its citizens in every possible way, Solidarity said.
In addition to the above direct charges, the trade union said that South Africans could also expect to be taxed on everything from interest earned to TV licences.
How South Africa compares
When South Africa’s total tax burden to the GDP is compared to that of the rest of the world, it is second only to Sweden at 26.7%.
“Before major policy reforms took place in Sweden in 1995, Sweden was fairly in line with the world average. After 1995, the tax system and the public service sector were restructured, and the Swedish state became the primary service provider for many of these services,” Solidarity said.
One of these services is a pension system that allows people to retire with a good standard of living with a pension linked to their salaries and grants and training programmes for the unemployed, the trade union said.
“Although all of this sounds very good, one should bear in mind that Sweden’s unemployment rate was only 8.9% in 1995; therefore, they could afford it. Since then, unemployment has remained between 4.73% and 8.61%.
A more realistic comparison would be with the rest of sub-Saharan Africa, where the effective tax burden to the GDP is about 18.6% compared to the world average of 15.3%, Solidarity said.
“In the USA – which is comparable to South Africa on many levels because the same economic activities occur there, but on a much larger scale – the total tax burden is only 10% of the GDP.
“South Africa does still have a lot of infrastructure development to do; therefore, an overall average tax burden of 10% may not be feasible any time soon.”