Should single mothers pay less tax?

SHOULD our tax system make concessions to single mothers who are supporting children on their income with little or zero financial support from the children’s fathers?

This question was raised by a contributing author to the 2022 Women’s Report by the South African Board for People Practices in partnership with Stellenbosch Business School, which was released this week.

In a paper for the report titled “Equal pay but unequal taxes?”, Dr Lee-ann Steenkamp, head of the Postgraduate Diploma in Financial Planning programme at Stellenbosch Business School, says South Africa’s working women have made progress in achieving equal pay for equal work, but the financial scales are tipped against them by a tax system that treats women and men equally, but with unequal results.

Steenkamp says applying “affirmative action” to redress the disproportionate impact of VAT and personal income tax on women, especially single mothers, would “support South Africa’s goal of inclusive economic growth and encourage greater labour force participation and entrepreneurship by women”.

She says single-earner households carry a greater tax liability than dualearner households at the same income level.

“With the high prevalence of households with a female breadwinner only and single mothers carrying the most child-rearing responsibility, this places a disproportionate tax burden on women,” she says.

South Africa’s discriminatory tax system of the apartheid years, which disadvantaged working married women, was repealed post-1994, and the tax laws now treat men and women equally, irrespective of marital status.

However, Steenkamp says equal treatment has not had equal outcomes. “Despite the removal of the explicit tax discrimination of the past, the new dispensation intended to treat all taxpayers equally has had unintended consequences due to the realities of society today. By disadvantaging single-earner households, the revised tax system with its unisex tax tables has, in fact, deepened inequality in taxation between men and women,” she says.

Single earners vs dual earners Steenkamp illustrates the point by comparing a dual-earning household with two minor children and a combined annual income of R204 000 against a single-earner household, also with two minor children, earning the same amount.

Each partner in the dual-income household is taxed individually (at the lowest marginal rate of 18%) and each benefits from the primary tax rebate of R16 425, resulting in a total tax liability of R3 870 for the year. The single-earner, although also falling within the 18% bracket, only benefits from the rebate once and so pays R20295 in tax.

“Given the fact that nearly onefifth of South African households consist of a single person, this tax discrepancy warrants closer attention,” Steenkamp says.

More than 40% of South African households are headed by a sole female breadwinner, she says, while far more children (41.7%) live with single mothers than with single fathers (4.4%), meaning the added tax liability of single households falls predominantly on women.

SARS’ tax statistics illustrate that the gender pay gap still persists.“south Africa’s progressive income tax system, where higher earners are taxed at a higher rate, is designed to achieve wealth redistribution, but the statistics show that women’s levels of taxable income are still much lower than those of men, with women making up only 14% of the earners in the highest bracket. This disparity is symptomatic of the country’s historical gender pay gap and socio-economic inequalities,” Steenkamp says.

Affirmative actions

Steenkamp proposes incorporating elements of affirmative action in favour of women into the income tax regulations. These could include higher tax thresholds for women, tax breaks for female-owned businesses, reduced tax rates on property owned by women, and tax deductions for childcare costs.

Re-introducing the child tax rebate that was available pre-1994 should be considered, she says, as a form of tax relief for childcare costs. Capping the rebate by income level and means testing would ensure equitable treatment, ensuring that those in higher tax brackets do not benefit unfairly.

“Fiscal policy can, and should, be used to redress gender inequities and support the nation’s broader transformation agenda,” Steenkamp says.

Women’s Report editor Professor Anita Bosch, the research chair for Women at Work at Stellenbosch Business School, says the 2022 report analyses South Africa’s fiscal policies through the lens of gender equity. Although men and women are treated the same “on paper” regarding taxation, retirement funds and social grants, the policies in practice create life-long financial inequality for women.

“This edition of the Women’s Report shows that greater consideration of the facts of life in South Africa that hamper women’s advancement is needed in fiscal policy-making. Such an approach, covering tax, social grants, retirement funding and gender-based budgeting, should aim to halt the downward spiral of odds that progressively stack up against women as they navigate life.”