Just 4% of the country’s nearly 14-million registered taxpayers contributed more than half of the R546.8bn in revenue the state collected from individuals last year. Of course, half of those 14-million people earn below the threshold to pay income tax, so the burden of keeping the wheels of the state bureaucracy turning depends, in reality, on a handful of globally mobile individuals.
As it was, just 574,081 people paid nearly R280bn in personal income taxes in 2019. Drill deeper and you’ll see that more than half of that R280bn — R150bn — came from 125,000 people, or 0.2% of the population, who earn more than R1.5m a year.
The other half of all registered taxpayers — 6.8-million people — earn less than R80,000 a year and don’t yet make a contribution to the fiscus.
This statistic, more than anything, puts SA’s inequality crisis into perspective. The reality is the country has too few wealthy individuals it can depend on to keep the economy going.
Anecdotal evidence, mostly gleaned from JSE-listed education companies which are seeing higher-than-normal levels of emigration eating into their enrolments, shows exactly why finance minister Tito Mboweni’s 2020 budget needed to keep the upper crust sweet.
It’s good to see that the government is planning a reduction in the 28% corporate tax rate
This is why the government resisted the urge to increase the VAT rate, hike the marginal tax rate, or even levy a new expat tax — all of which had been speculated in various forums as likely measures to improve SA’s beleaguered finances
Instead, Mboweni’s budget appeals to the goodwill of public sector workers, whose wages consume 34c in every R1 collected in government revenue. These workers will now be cajoled into accepting a wage increase at the consumer price index (CPI) rate, rather than the generous CPI +3% rate which has become the norm in recent years.
But this approach was a necessary one. In all, R546bn of the R1.51-trillion collected by the government comes from personal income tax — 38% of all revenue. Another chunk, R360bn, comes from VAT and a dwindling amount from corporate income taxes. The problem is, these corporate taxes are under pressure as profits — with the exception of mining companies, particularly platinum firms — have contracted sharply.
So, given this pressure on company income statements, it’s good to see that the government is planning a reduction in the 28% corporate tax rate — even as it works on reducing the abuse of tax incentive schemes. Some time ago, the Davis tax committee suggested that a detailed review of corporate tax incentives and the removal of inefficient subsidies was needed. As a result, the state plans to repeal or redesign those incentives that are redundant, inefficient or inequitable. It’s a better approach than leaning to a greater extent on struggling companies.
Avoiding a foolhardy mistake
In the end, SA’s progressive tax system ensures that those with the highest incomes contribute a higher proportion of their earnings to government coffers than those who earn smaller salaries. So, if you earn R750,000 a year, for example, it puts you firmly into that elite club of big earners.
The government needs to retain the confidence of its highest-income earners. This is one of the key reasons why there was no increase in taxes in the budget. Mboweni, correctly, said it would have been foolhardy to raise VAT to 16% After all, the budget documents tabled this week concede that South Africans are heavily taxed, relative to many parts of the world. Remember, it was only in recent years that the government introduced higher levels of personal income tax, which included the new marginal rate of 45% on income over R1.5m a year.
Equally, hikes in dividends taxes, capital gains and VAT have stretched the state’s ability to extract more from its compliant citizens.
As the Budget Review concedes: "Substantial tax increases may obstruct short-term recovery."
Mercifully, Mboweni went the other way. Hence the decision, after freezing bracket creep in 2019, to allow some tax relief in the form of adjustments to tax brackets. This will give the greatest relief to the 55% of people who pay less than 10% of personal taxes.
But, at the same time, Mboweni was able to tread a fine line and not alienate the people who provide the money to keep the country going: the wealthy.
• Whitfield is host of The Money Show on 702 and CapeTalk
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