Authored by Anthea Scholtz, Global Employer Services Leader, Deloitte Africa Tax & Legal Ronel de Kock, Senior Manager: Global Employer Services, Deloitte Africa Tax & Legal
As South African taxpayers eagerly await the delivery of the 2024/2025 National Budget Speech, scheduled to take place on Wednesday 21 February 2024; the question on many taxpayers’ minds is whether South Africa’s already over-burdened taxpayers will see further tax hikes proposed in the National Budget so as to boost the state’s revenue collections.
In the 2023 Medium-Term Budget Policy Statement (MTBPS), it was noted that revenue collections were expected to be approximately R56 billion below the budget estimate. This anticipated shortfall comes at a time when South Africa is in desperate need of a buoyant revenue base to meet its many challenges.
Based on the 2023 Tax Statistics report, issued by National Treasury and the South African Revenue Service (SARS) on 29 December 2023 (the Report), Personal Income Tax continues to be the highest contributor of revenue to the state’s coffers, at 35.7% of total revenue collections. This is followed by value-added tax (VAT) at 25%, and corporate income tax at 20.6%. These three revenue sources collectively contribute 81.3% of the total tax revenue collected.
Encouragingly, the report notes that tax compliance revenue, which was generated by focused efforts made by SARS, yielded R231.8 billion for the 2022/2023 fiscal year, that is R16 billion (or 7.5%) higher than in the preceding year. These efforts also include SARS making it easier for taxpayers to comply through various platforms, an increase in the use of data to drive insight, improve risk assessment and audit outcomes as well as various engagements with stakeholders in the tax ecosystem.
The number of registered individual taxpayers also increased overall by 14.5% from 22.2 million in 2018/19 to 25.9 million in 2022/23. This growth in the number of registered taxpayers is driven mainly by various, intentional initiatives which SARS has implemented over the last few years, including the revised employer filing and employee registration processes; enabling bulk registration at places of employment; an online SARS facility to register employees when submitting monthly Pay-As-you-Earn (PAYE) returns; and increasing the number of employers registered for PAYE.
Notably, while around 7.1 million of the 25.9 million registered individual taxpayers were expected to submit income tax returns for the 2022 tax year, only approximately 5.9 million taxpayers (84.7%) had been assessed (based on available data as at October 2023) - with reported aggregated taxable income of R2.1 trillion and a total tax liability of R447.6 billion. Of these 5.9 million individuals who were assessed, 19.4% earned taxable income above the R500 000 threshold and collectively contributed 74.7% of the tax assessed.
The average tax rate payable by taxpayers was 21.8% compared to 21.3% in the previous tax year. Income from salaries, wages, pension, overtime, and annuities accounted for the highest portion (75.5%) of total taxable income.
These statistics again confirm that while there has been significant growth in tax collections1 over the years, a relatively small percentage of the South African population is financing the country’s tax bill. the ‘man-on-the-street' also continues to pay a significant amount of tax (both direct taxes, such as personal income tax as well as indirect taxes, such as VAT).
These statistics should be viewed within the context of South Africa’s progressive income tax system where high-income earners contribute a greater proportion towards revenue (i.e., the more you earn, the higher tax you should pay). What the numbers also suggest is that these taxpayers seem to be bearing a high share of the country’s tax burden and will continue to feel the lingering fiscal pinch on their disposable incomes.
A budget that supports South Africa’s future, should go further than just tax increases. Although the main component of our revenue base will always be tax revenues, tax is not the sole solution and other revenue-generation measures such as among others, efficient tax administration, broadening the tax base and enforcing compliance with existing tax laws should continue to be implemented. As well as measures to stabilise public finances, and economic reforms to generate higher growth also need to be implemented.
1 During the 2022/23 fiscal year, R2.07 trillion was collected by SARS in gross tax revenue, (R183 billion or 9.7% more than in the preceding year) R381 billion in tax refunds, (R60 billion or 18.7% more than in the preceding year) and a net tax revenue of R1.69 trillion, (R123 billlion or 7.8% more than in the preceding year).