Tax increases in South Africa – What experts say

An Economic Advisory Council appointed by President Cyril Ramaphosa has proposed a number of tax increases for South Africa amidst the economic downturn and declining tax revenues.

SARS commissioner Edward Kieswetter said he expects a tax revenue shortfall of around R300 billion this year.

This is in line with Finance Minister Tito Mboweni’s estimates in June that government revenue will be R304 billion less than budget estimates.

Considering that the planned introduction of a basic income grant in South Africa could cost R243 billion a year, tax increases will be needed to fund the growing government expenditure.

The Economic Advisory Council, therefore, advised increases to the fuel levy and estate taxes and a three-year “solidarity tax” that would increase income tax for higher earners.

These tax increases echoes comments made by the National Treasury’s chief director Edgar Sishi in July.

Sishi said National Treasury is considering new tax measures as the government seeks to raise an additional R40 billion through tax hikes in the coming years.

He said they were considering research reports from the Davis Tax Committee on new measures, including the viability of a wealth tax and how it relates to a land tax and estate duty.

Taxes on the wealthy are favoured politically, which makes a limited-duration solidarity tax a distinct possibility.

What experts say about tax increases

Tax increases do not always result in higher tax revenues, especially in countries like South Africa where the tax burden is already high.

Economist Arthur Laffer’s well-known Laffer Curve theory, for example, illustrates that cutting tax rates can increase total tax revenue. The inverse is also true.

To get an opinion about the local scenario, MyBroadband asked two experts – Efficient Group chief economist Dawie Roodt and economist Mike Schüssler – for their feedback.

Roodt said the effectiveness of tax increases will depend on the kind of tax, for how long it will be implemented, and what the rates will be.

If, for example, there is a once-off big personal income tax “surcharge” in one month, then it will be difficult to put measures in place to avoid the tax and much of it will be collected.

If, however, it is a smaller percentage increase over time then it will allow for time to evade such a tax and it could well result in less tax collection – which is the case already.

“The bottom line is that, at best, extra revenue can be gained only in the short term. Over a longer-term, chances are that less will be collected,” he said.

Schüssler said the South African tax burden is already very high. “We are inside the highest 12 countries on tax as a percentage of GDP,” he said.

As a result of the high tax rate, many companies avoid investing in South Africa, which has resulted in slow economic growth.

Personal income taxes to GDP are also one of the highest in the world, while VAT revenues are in the top half of countries.

“This is unsustainable as the people who pay taxes get very little in return – they have seen the wastage, corruption, and high government salaries,” Schüssler said.

He said increasing taxes further will result in people looking to get out of South Africa or working less.

How to improve South Africa’s economy

Roodt said there are only a few ways to improve the country’s economy, and raising taxes is not one of them.

He said South Africa can hope for some form of windfall like a commodity price boost, or it must spend less.

“I’m not holding my breath for strong economic growth, which leaves only one option and that is to cut spending dramatically,” Roodt said.

Spending less will, however, be exceedingly difficult politically and will actually depress economic activity even further in the short term.

“We’ve run out of options,” said Roodt.

Schüssler echoed Roodt’s views, saying there should be a strong focus on cutting government spending. This, he said, should include:

  • Cut the total government wage bill by allowing only small increases for a decade to government employees.
  • Reduce government departments to 15 at most.
  • No bailout for SOEs unless they made money under normal times. This includes closing SAA.
  • Make UNISA the university where government-financed students go – and only them.
  • Impose a three-year moratorium on strikes in critical industries.

Schüssler said the government should also get other income now by doing the following:

  • Sell the government-owned forests and dispose of the land parcels by selling them to farmers of colour.
  • Free the airwaves, sell the spectrum, and sell more broadcasting licenses.
  • Sell the SABC’s radio and TV stations.

Schüssler said South Africa has run out of money and any further pressure on the private economy will slow down the recovery.

He said unless the government is realistic about the economic crisis and find suitable solutions, we will see further job destruction with young and rich people leaving the country.

Personal Income Tax Rates

The table below, courtesy of Trading Economics, shows that South Africa currently has one of the highest marginal personal income tax rates in the world.

Personal Income Tax Rate
Country Tax Rate
Ivory Coast 60%
Sweden 57%
Finland 57%
Japan 56%
Denmark 56%
Austria 55%
Aruba 52%
Belgium 50%
Israel 50%
Slovenia 50%
Netherlands 50%
Ireland 48%
Portugal 48%
Iceland 46%
Luxembourg 46%
Australia 45%
South Africa 45%
China 45%
France 45%
Germany 45%
Spain 45%
United Kingdom 45%
Greece 44%
Italy 43%
Papua New Guinea 42%
South Korea 42%
Euro area 42%
Barbados 40%
Guinea 40%
Mauritania 40%
Republic of the Congo 40%
Senegal 40%
Switzerland 40%
Taiwan 40%
Colombia 39%
Cameroon 39%
Norway 38%
Morocco 38%
Suriname 38%
Zambia 38%
European Union 37%
Namibia 37%
United States 37%
Croatia 36%
Uruguay 36%
India 36%
Algeria 35%
Argentina 35%
Chile 35%
Cyprus 35%
Ecuador 35%
Equatorial Guinea 35%
Ethiopia 35%
Gabon 35%
Malta 35%
Mexico 35%
Pakistan 35%
Philippines 35%
Sierra Leone 35%
Thailand 35%
Tunisia 35%
Turkey 35%
Vietnam 35%
Venezuela 34%
Canada 33%
New Zealand 33%
Puerto Rico 33%
Swaziland 33%
Mozambique 32%
Poland 32%
Latvia 31%
Bangladesh 30%
Chad 30%
Congo 30%
El Salvador 30%
Gambia 30%
Indonesia 30%
Jamaica 30%
Jordan 30%
Kenya 30%
Lesotho 30%
Malawi 30%
Malaysia 30%
Nicaragua 30%
Peru 30%
Rwanda 30%
Tanzania 30%
Uganda 30%
Brazil 28%
Samoa 27%
Azerbaijan 25%
Botswana 25%
Dominican Republic 25%
Ghana 25%
Honduras 25%
Myanmar 25%
Panama 25%
Slovakia 25%
Trinidad And Tobago 25%
Zimbabwe 25%
Laos 24%
Lebanon 24%
Nigeria 24%
Sri Lanka 24%
Albania 23%
Armenia 23%
Uzbekistan 23%
Egypt 23%
Liechtenstein 22%
Czech Republic 22%
Singapore 22%
Syria 22%
Afghanistan 20%
Cambodia 20%
Estonia 20%
Fiji 20%
Georgia 20%
Isle of Man 20%
Lithuania 20%
Madagascar 20%
Moldova 18%
Ukraine 18%
Angola 17%
Hong Kong 17%
Costa Rica 15%
Hungary 15%
Iraq 15%
Mauritius 15%
Seychelles 15%
Sudan 15%
Yemen 15%
Belarus 13%
Bolivia 13%
Russia 13%
Tajikistan 13%
Macau 12%
Bosnia and Herzegovina 10%
Bulgaria 10%
Kazakhstan 10%
Kosovo 10%
Libya 10%
Macedonia 10%
Mongolia 10%
Romania 10%
Serbia 10%
Montenegro 9%
Guatemala 7%
Bahamas 0%
Bahrain 0%
Bermuda 0%
Brunei 0%
Cayman Islands 0%
Kuwait 0%
Oman 0%
Qatar 0%
Saudi Arabia 0%
United Arab Emirates 0%

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Tax increases in South Africa – What experts say