{"id":553628,"date":"2022-01-27T11:37:50","date_gmt":"2022-01-27T09:37:50","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=553628"},"modified":"2022-01-27T11:37:50","modified_gmt":"2022-01-27T09:37:50","slug":"how-much-more-tax-you-would-have-to-pay-to-fund-a-basic-income-grant-in-south-africa","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/553628\/how-much-more-tax-you-would-have-to-pay-to-fund-a-basic-income-grant-in-south-africa\/","title":{"rendered":"How much more tax you would have to pay to fund a basic income grant in South Africa"},"content":{"rendered":"

The National Economic Development and Labour Council (Nedlac) says that the introduction of a Basic Income Grant (BIG) will make a significant difference in helping to alleviate poverty in South Africa, but its research shows that it will come at a significant cost to taxpayers.<\/p>\n

Nedlac has published a new report<\/a><\/strong> looking at the feasibility of introducing a BIG in South Africa in the coming financial years. Nedlac is a social grouping that includes members from government, labour and the private sector.<\/p>\n

The report shows that the implementation of a universal BIG at the level of the current special Covid-19 Social Relief of Distress Grant (R350 a month) could reduce the concentration of income of the top 10% of earners from 49.9% in 2019\/2020 to just below 47.1% by 2024\/2025.<\/p>\n

The researchers also found that the BIG could impact macro-level economic growth directly, through increasing household productivity and employment, stimulating aggregate demand, affecting labour force participation, and influencing savings and taxation.<\/p>\n

“Based on analysis of the multiplier effects of the BIG at the level of the current special Covid-19 Social Relief of Distress Grant, the grant has the potential to positively contribute around 0.5% to GDP growth over the forecast period through improved household demand as well increase employment by 4% by the end of the projection period,” it said.<\/p>\n

However, there are significant questions around how this grant could be funded – with even the lowest BIG under consideration –\u00a0 R350 a month – requiring billions of rands in funding.<\/p>\n

Based on various scenarios and target groups, the report shows that the cost of such a grant could be anywhere from R95 billion (targeting the unemployed at R350 a month) to R550 billion (universal grant at R1,270) a year, even in the most optimistic circumstances.<\/p>\n

The researchers said that, if funded through personal income tax, a universal BIG at the level of the special Covid-19 Social Relief of Distress Grant (R350) would result in an approximate average increase in effective tax rates at 8.2%.<\/p>\n

This figure escalates dramatically as the value of the BIG goes up. The report looked at the impact on personal income tax levels across three different grant levels.<\/p>\n

\n
\n\n\n\n\n\n
Grant level<\/th>\nIncrease in effective tax rates<\/th>\n<\/tr>\n
R350 (Social distress grant)<\/td>\n8.2%<\/td>\n<\/tr>\n
R840 (Lower-bound poverty line)<\/td>\n19.8%<\/td>\n<\/tr>\n
R1 268 (Upper-bound poverty line)<\/td>\n30.0%<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n<\/div>\n

While the lower and upper bound poverty line levels increased in 2021 (to R890 and R1,335), the report’s figures were based on the 2020 levels of R840 and R1,268, respectively.<\/em><\/p>\n

The tables below outline how tax rates would be impacted across various income bands, in the researchers’ baseline growth scenario.<\/p>\n

\n

Tax impact of R350 grant<\/strong>
\n\"\"<\/a><\/p>\n

\n

Tax impact of R840 grant<\/strong>
\n\"\"<\/a><\/p>\n

\n

Tax impact of R1,268 grant<\/strong>
\n\"\"<\/a><\/p>\n

\n

Wealth tax<\/strong><\/p>\n

The report concedes that tapping into personal income tax to fund a basic income grant in the short term may not be viable.<\/p>\n

The researchers noted the economic effect of Covid-19 resulted in reduced revenue collection, and that PIT, Corporate Income Tax (CIT) and Value Added Tax (VAT) collections are expected to fall substantially over 2020\/21.<\/p>\n

Given the economic impact of Covid-19, the capacity to raise PIT, CIT and VAT tax rates is limited, they said.<\/p>\n

However, National Treasury has signalled the possibility of an inheritance tax and a \u201csolidarity tax\u201d, which is regarded as a wealth tax, in a bid to raise additional finances for the fiscus.<\/p>\n

The Davis Tax Commission (DAC) investigated the feasibility of a wealth tax. It was concluded that with the highly unequal levels of wealth in South Africa, a taxation system that ignores such inequalities in wealth, lacks legitimacy in the tax system. It further concluded, however, that the introduction of a wealth tax cannot be implemented in the short-term.<\/p>\n

However, the committee said that work needed to be done before this could be used as a tool, including determining exactly which levels of taxable income should be regarded as wealthy.<\/p>\n

“It is recommended that cost-benefit analysis, determination of an appropriate tax base and provision of comprehensive data on the pattern of wealth ownership in South Africa should be undertaken before a decision on BIG can be made,” Nedlac said.<\/p>\n

This is to assess whether the tax revenue generated would exceed the administrative and economic burden on taxpayers and the South African Revenue Service (SARS).<\/p>\n

“Given the significance of the cost of a universal BIG, alternative sources of taxation such as those mentioned above, should be assessed for viability in financing (partially or wholly) the implementation of a BIG.”<\/p>\n

“However, such alternative sources of taxation may only be practically implemented over the medium term, therefore PIT, CIT and VAT remain the alternatives over the short-term if the implementation of a BIG takes place within the short-term.”<\/p>\n

\n

Reallocation options\u00a0<\/strong><\/p>\n

Alternatively, the cost of implementing the BIG can be funded through the reallocation of public expenditure, Nedlac said.<\/p>\n

“However, reallocating public expenditure comes with trade-offs. Spending on health, education and social development currently accounts for 56% of government expenditure, as per the 2020 Budget Statement.<\/p>\n

“Furthermore, the implementation of NHI is a policy priority, which will result in additional demands on the fiscus.”<\/p>\n

Ultimately, the introduction of a BIG will require trade-offs with other development programmes, including other social security reforms and tertiary education, the group said.<\/p>\n

\n

Read: Mediclinic sends NHI warning to South Africa<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

The National Economic Development and Labour Council (Nedlac) says that the introduction of a Basic Income Grant (BIG) will make a significant difference in helping to alleviate poverty in South Africa, but its research shows that it have to come at a significant cost to taxpayers.<\/p>\n","protected":false},"author":10,"featured_media":551982,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[26],"class_list":["post-553628","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-headline"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/553628","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=553628"}],"version-history":[{"count":8,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/553628\/revisions"}],"predecessor-version":[{"id":553658,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/553628\/revisions\/553658"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/551982"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=553628"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=553628"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=553628"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}