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We take a look at the last set of Tax Statistics released by SARS, and look at the worrying dependence of South Africa's tax system on a small number of citizens in the country to supply the bulk of Personal Income Tax (PIT) to state coffers.
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Number of people submitting tax returns vs population
The bar chart below shows the number of people submitting tax returns each year (right hand scale) vs the population of South Africa for each year. As can be seen from the bar chart the growth in the number of people submitting tax returns was pretty strong in 2012 vs 2011 (strong increase in the blue bar over that period). However when 2014 is compared to 2013, the growth in the number of tax payers submitting returns has not been as strong as the growth in South Africa's population (big increase in the yellow bar from 2013 to 2014).
Tax payers submitting returns increased by 1.1% while South Africa's population increased by almost 1.6%. Essentially more people in South Afirca that will be requiring services but growth in tax payers submitting returns and paying taxes are not keeping up with the growth in the population. Thus the proportion of people paying taxes for services are getting smaller. Placing more and more strain on those that do pay. So what kind of money do people earn that submit tax returns? And what percentage does it make up of total personal income tax? We take a look at various personal income tax groupings and their contributions to total personal income tax per year below.
Personal income tax groupings contribution to Total personal income tax
The bar chart below shows various personal income tax groupings (based on taxable income) and the percentage each grouping contributed to total personal income tax collected each year.
The bar chart above highlights a few very interesting patterns. Firstly the decline in the contribution of personal income tax grouping (R70 000 -R250 000) to the total personal tax revenue collected over time. In 2011 this grouping accounted for 42.8% of personal income tax. In 2014 this figure was down to 31.4% . There is a couple of possible reasons for this.
One is inflation and salary increases. As salary packages increase with pay increases, more and more people are pushed out of the (R70 000 - R250 000) grouping into the (R250 000 - R500 000) grouping. Another is more tax relief granted to the lower income tax groupings. I.e. the lower earning groupings are taxed less. As you earn more money, the amount of tax relief granted gets less. The highest personal income tax grouping (> R500 000) has seen it's contribution to total personal income tax increase from 28.5% in 2011 to 36.9% in 2014.
The next question is how many of the tax payers fall within each of these personal income tax groupings?
One is inflation and salary increases. As salary packages increase with pay increases, more and more people are pushed out of the (R70 000 - R250 000) grouping into the (R250 000 - R500 000) grouping. Another is more tax relief granted to the lower income tax groupings. I.e. the lower earning groupings are taxed less. As you earn more money, the amount of tax relief granted gets less. The highest personal income tax grouping (> R500 000) has seen it's contribution to total personal income tax increase from 28.5% in 2011 to 36.9% in 2014.
The next question is how many of the tax payers fall within each of these personal income tax groupings?
Personal income tax grouping analysis
The graphic below provides the answer to that question and compares percentage of people in each personal income tax grouping with the percentage each personal income tax grouping contributes to total personal income tax (for 2014).
The bar chart clearly shows that a very small percentage of taxpayers (9.7%) pays 36.9% of all personal income tax. That 9.7% of tax payers submitting returns works out to roughly 640 000 people (or about 1.2% of South Africa's population) paying close to 37% of all personal income tax in South Africa. But wait there is more. Personal income tax makes up around 35.9% of all taxes collected by SARS. In the 2014/2015 fiscal year, SARS collected R986.3billion. Thus personal income tax collected made up R354.1billion.
Of the R354.1billion collected in personal income tax, 36.9% (or R130.7billion) of it was paid by roughly 640 000 people as calculated above. This means that on average, each of the 640 000 people paid personal income tax to the tune of R204 150. In the end the 640 000 people pay about 13.2% of ALL taxes collected by SARS just via personal income tax.
To put this amount into perspective, according to the Quarterly Employment Statistcs (QES) the average monthly earnings of employees in South Africa is R14 604 (or R175 248 a year). That is less than these 640 000 people's total tax liability for the year.
With such a heavy personal income tax burden on such a small number of people (1.2% of South Africa's population), plus additional taxes such as VAT, fuel levies and all other forms of taxes, how long will this last before the cow SARS have been milking runs dry and a tax revolt starts?
We have already seen a tax revolt in South Africa, with the majority of Gauteng citizens refusing to pay E-tolls. SARS and government needs to be very careful in the way they structure South Africa's tax system in coming years, because if the current trend of continuing to depend on a small amount of people to carry the bulk of taxes carries on SARS might find that this dependible source of tax revenue might become less dependable in future. Perhaps raising VAT by 100 basis points from 14% to 15% should be considered as a larger portion of the population will contribute to paying VAT. And if government is worried about the impact on the poor, make a few more of the goods purchased by the poor VAT exempt.
Of the R354.1billion collected in personal income tax, 36.9% (or R130.7billion) of it was paid by roughly 640 000 people as calculated above. This means that on average, each of the 640 000 people paid personal income tax to the tune of R204 150. In the end the 640 000 people pay about 13.2% of ALL taxes collected by SARS just via personal income tax.
To put this amount into perspective, according to the Quarterly Employment Statistcs (QES) the average monthly earnings of employees in South Africa is R14 604 (or R175 248 a year). That is less than these 640 000 people's total tax liability for the year.
With such a heavy personal income tax burden on such a small number of people (1.2% of South Africa's population), plus additional taxes such as VAT, fuel levies and all other forms of taxes, how long will this last before the cow SARS have been milking runs dry and a tax revolt starts?
We have already seen a tax revolt in South Africa, with the majority of Gauteng citizens refusing to pay E-tolls. SARS and government needs to be very careful in the way they structure South Africa's tax system in coming years, because if the current trend of continuing to depend on a small amount of people to carry the bulk of taxes carries on SARS might find that this dependible source of tax revenue might become less dependable in future. Perhaps raising VAT by 100 basis points from 14% to 15% should be considered as a larger portion of the population will contribute to paying VAT. And if government is worried about the impact on the poor, make a few more of the goods purchased by the poor VAT exempt.