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Blog : 28 October 2016 (South Africa's tax revenue sources)
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We take a look at where the South African government is getting their money from, as well as where the money is being allocated too. While putting it on paper and announcing it to the world is one thing. Whether government departments and parastals and extra budgetary accounts have the discipline to stick to their allocated budgets is another.
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Only two things certain in life. That's death and taxes.
So the infographic below shows the percentage contribution that various tax types are making to South Africa's total tax revenue collections. As one can see the bulk of South Africa's tax revenue comes from personal income tax (which is paid by a very small number of citizens, when compared to the total population. The rich carrying a heavy burden to support the rest of the country. (Read our analysis of dependence on rich here). And based on the mini-budget personal income tax looks set to rise again come budget speech 2017.
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The second biggest contributor to state coffers is value added tax (or VAT). It acounts for a quarter of all tax revenues collected by the state. The question we have is why government doesn't increase VAT. Sure those against it will argue it is an unequal tax and hits the poor harder than the rich. While this might be the case, government could easily implement legislation that makes additional products purchased regularly by the poor VAT-exempt. This is one way to collect additional tax revenue without milking the already heavily milked rich citizens in South Africa.
Third biggest contributor to the state coffers is company taxes (or the fancier wording used Corporate Income Tax). It brings in about 17% of tax revenue for the government. Odds of seeing tax increases in this segment is zero, as this will drive foreign investment away and will lead to less money available for companies to expand and create jobs. We therefore do not expect any tax increases in this segment. Perhaps government should cut taxes for corporates, if and only if they can prove that they used the tax savings to employ more people. This will assist in reducing unemployment and create larger personal income tax base, which is desperately needed in South Africa. But we dont think the government will have the guts to implement a strategy like that as they would be scared of losing revenue from corporates.
Third biggest contributor to the state coffers is company taxes (or the fancier wording used Corporate Income Tax). It brings in about 17% of tax revenue for the government. Odds of seeing tax increases in this segment is zero, as this will drive foreign investment away and will lead to less money available for companies to expand and create jobs. We therefore do not expect any tax increases in this segment. Perhaps government should cut taxes for corporates, if and only if they can prove that they used the tax savings to employ more people. This will assist in reducing unemployment and create larger personal income tax base, which is desperately needed in South Africa. But we dont think the government will have the guts to implement a strategy like that as they would be scared of losing revenue from corporates.
The fuel levy is a popular money maker for the government. As they know demand for fuel is inelastic and people will have to buy it regardless of how much it is taxed. It is therefore easy for goverment to heavily tax this as people do not have a choice but to buy fuel for their cars.
The surprising statistic is the fact that Excise and Customs duties only makes up 4.6% of tax revenue collected. Especially considering the vast amount of goods and services that are imported into South Africa on a monthly basis. Perhaps a review of South African tariffs are in order. With South Africa's trade (imports and exports) making up almost 60% of the economy it is surprising that Excise and customs duties do not contribute more to tax revenue. Exports are not taxed so essentially all of those duties are earned from imports. Exports are only taxed on rare occations where governments do not want certain goods or services to leave it's shores. For example countries will heavily tax the exports of a very scarce resource. And this is to ensure the scarce resources stays within its borders instead of it going elsewhere. With depeleting natural resources. Don't be surprised if countries start imposing tariffs on exports to keep greater stock of certain scarce resources.
Other taxes makes up roughly 10% (these are all the taxes no included in the main groupings) and includes additional taxes such as transfer duties etc.
While South Africa has a very efficient revenue collection service in SARS, the problem is not getting the money in. The problem for South Africa is the way in which this money is spent. Billions are wasted each year on fruitless and wasteful expenditure. If this can be dealt with more efficiently there would be no need to raise taxes as there is more than enough money going around to fund government's commitments. Sadly it seems to be funding friends of government employees more than it's funding the citizens of the country.
The surprising statistic is the fact that Excise and Customs duties only makes up 4.6% of tax revenue collected. Especially considering the vast amount of goods and services that are imported into South Africa on a monthly basis. Perhaps a review of South African tariffs are in order. With South Africa's trade (imports and exports) making up almost 60% of the economy it is surprising that Excise and customs duties do not contribute more to tax revenue. Exports are not taxed so essentially all of those duties are earned from imports. Exports are only taxed on rare occations where governments do not want certain goods or services to leave it's shores. For example countries will heavily tax the exports of a very scarce resource. And this is to ensure the scarce resources stays within its borders instead of it going elsewhere. With depeleting natural resources. Don't be surprised if countries start imposing tariffs on exports to keep greater stock of certain scarce resources.
Other taxes makes up roughly 10% (these are all the taxes no included in the main groupings) and includes additional taxes such as transfer duties etc.
While South Africa has a very efficient revenue collection service in SARS, the problem is not getting the money in. The problem for South Africa is the way in which this money is spent. Billions are wasted each year on fruitless and wasteful expenditure. If this can be dealt with more efficiently there would be no need to raise taxes as there is more than enough money going around to fund government's commitments. Sadly it seems to be funding friends of government employees more than it's funding the citizens of the country.