Despite claims of \u2018tax relief\u2019 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.<\/p>\n
In February, Pravin Gordhan resumed the customary ‘tax relief’ tradition in his budget speech.<\/p>\n
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.<\/p>\n
“Tax relief? Only if inflation is making you poorer”, the trade union\u2019s quarterly Labour Market Report said.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
“In other words: to get tax relief, you first have to become poorer,” Joubert said.<\/p>\n
As\u00a0an example, Solidarity said that an employee earning taxable income of R180,000 annually –\u00a0or\u00a0 R15,000 per month\u00a0–\u00a0would have paid approximately R1,863 per month income tax.<\/p>\n
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.<\/p>\n
His\/Her after-tax income would then be R161,100 per year – 2.2% more than the R157,644 in 2012.<\/p>\n
In the meantime, the consumer price index, one measure of the cost of living, would have increased by 23.9%<\/p>\n
“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.”<\/p>\n
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.<\/p>\n
“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.<\/p>\n
This table indicates proportion of taxable income ceded in each of the last four years:<\/p>\n