The table on this page is one the government doesn't want you to see. It’s an embarrassment.
The table is included in the annual Budget Review document, which is released on the day of the Finance Minister’s Budget Speech.
The National Treasury is obliged to publish the statistics, but I’m sure it would rather keep them away from the public eye and from prying journalists.
Income tax revenue for the 2024/25 tax year is projected in the Budget Review to be R739 billion, about 40% of total tax revenue of R1.86 trillion. VAT makes up 26% (R477bn), corporate tax 16% (R303bn), and other duties and levies make up the remaining 18% (R344bn).
Let’s now look at the table, which tells a sorry tale. There are 14.2 million registered taxpayers in South Africa, who represent about a quarter of the entire population of 60 million. Just under half of those (6.8 million) fall below the tax threshold.
Income tax revenue therefore comes from 7.4 million individuals, or about an eighth of the population.
But the table breaks this down further. Just under half of income tax revenue (47%) comes from the estimated 490 676 tax-paying individuals earning more than R1 million a year. Put another way, just under 7% of taxpayers are providing half of the income tax revenue the government uses to fund its obligations to all South Africans.
Another 1.3 million people are earning between R500 000 and R1m a year. If you add those to the equation, you have about 1.8 million people paying 77% of the income tax.
“What about VAT?”, you may ask. Yes, everyone pays VAT, but the poor obviously pay far less than middle and high earners, also considering the fact that basic foodstuffs are zero-rated. That 1.8 million is probably contributing about three-quarters of the VAT, at least.
There have been rumours of a “wealth tax”, which, thankfully, was not taken any further by the minister on Wednesday. But, as we see, the burden of supporting the entire country falls on the shoulders of the wealthy few.
This wouldn’t be so tragic if the government was using that money responsibly.
In a post-Budget panel discussion of tax specialists hosted this week by Professor Keith Engel, the head of the South African Institute of Taxation, Deborah Tickle, the adjunct associate professor at UCT, elaborated on this point, suggesting that the situation was unsustainable.
“We’ve collected R640bn (or that was the plan anyway) from personal income tax last year; this year it's going to be R739bn. That’s an increase of about R100bn. The proportion of tax coming from individuals is 40% versus 35% last year, and corporate income tax is actually coming down.
“I have a problem with that, because we’ve got reduced employment, non-growth, and personal income tax going up. That doesn’t work for me. If you haven’t got growth and you’ve got people unemployed, where is this money coming from? I don’t think this is sustainable,” Tickle said.
She said South Africa has only about 800 companies that were contributing significantly to the fiscus.
“So we’ve got this tiny tax base, and the only way to grow the tax base is to have growth, more employment and more people paying tax, and then you can start funding more. Until then, you have, as former finance minister Tito Mboweni used to say, the ‘jaws of the hippo’ – they just keeps closing in on you,” Tickle said.
The small tax base says loads about the high level of inequality in South Africa, which we’ve always battled with and seems to be worsening.
But it also says that the government is taking from the wealthy to give to the poor to a far greater degree than many other countries.
Another point that was made in the discussion was that other countries might have a top tax bracket of 45% or more, but that was reserved for the extremely wealthy.
With the Treasury regularly failing to adjust the tax brackets for inflation, not to mention the woeful lack of adjustments to exemptions and tax thresholds, the tax burden may extend more to the middle-income salaried earner, and more low earners may be pulled into the tax net from the bottom.
That may widen the tax base slightly, but won’t pacify the hippo.
* Hesse is the former content editor of Personal Finance.
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