SA should stop overburdening a shrinking tax base

SA’s individual and corporate tax base is shrinking. Fewer and fewer taxpaying individuals and corporates are contributing the bulk of taxes, while large numbers of companies are collapsing and tax paying individuals are becoming unemployed because of the mismanaged economy.

At the same time there are very little returns on taxes for the individuals and corporates who are paying these taxes — public services are often nonexistent, police are ineffective and most of the tax income is siphoned off through corruption, mismanagement and waste.

Not only does this underscore the terrible state of the economy, but shows that the debates in the ANC alliance, EFF and many civil groups are out of kilter with economic realities. A government policy on the generation of new income or redistribution that is focused solely on imposing more taxes on a shrinking tax base, which is argued for by many ANC and EFF supporters, is therefore simply foolish.

There are just under 5-million registered individual taxpayers. It is estimated that there are just under 60-million people in SA. Of the 5-million registered taxpayers, just more than 1.9-million in the higher income brackets are estimated to contribute close to 80% of income tax. At the same time, these individuals also often pay the equivalent of the income tax they pay to the SA Revenue Service (Sars) to private

“public services” such as private education, health and security, because the public education, health and police system has, in parts of the country, essentially collapsed.

On top of this, the small tax base also pays a third tax, called administrative tax — the taxes utilities charge for water, electricity and sanitation. The profit model of SA’s wasteful, corrupt and debt-ridden SOEs and utilities, which are often monopolies, is predominantly to increase their service charges whenever they have shortfalls but without increasing the quality of their services, efficiency or responsiveness.

A case in point is the ineffective, corruption-strewn and wasteful Eskom wanting a 17% tariff increase, yet without better quality services, better governance or quality staff.

The combined National Treasury and Sars 12th annual report of tax statistics published in December provided an overview of tax revenue collections and tax return information for the 2015 to

2018 tax years and the

2014/15 to 2018/19 fiscal years. Generally, tax revenue should move in tandem with the growth of the economy, but the report shows that although the economy has been in a slump, tax revenue has proportionally increased as the government squeezes more tax from an overburdened, small but shrinking base.

The annual report on tax statistics showed that tax revenue has been growing year-onyear by R71.2bn (5.9%), mainly because of personal income tax, which has grown by R30.9bn (6.7%). The proportion of personal income tax to overall revenue stands at 38.3%, corporate tax at 6.7% and value-added tax at 25.2%.

In 2018/19, R17.9bn was raised through capital gains tax, the tax levied on profit from the sale of property or an investment, of which R9.5bn was attributable to individuals and trusts and R8.3bn to companies. About 40.2% of the assessed taxpayers were registered in Gauteng, with the majority living in the Johannesburg Metro.

Out of the 814,151 companies assessed as at the end of August 2019 for tax year 2017, 24.3% had positive taxable income, with 48.3% having had taxable income equal to zero and the remaining 27.4% reported an assessed loss. Sars said companies submitting returns fell to 36.9% or just over two million for the 2018/19 fiscal year, partly due to many being considered “inactive or dormant” due to the poor economy.

There has to be focus on increasing the quality of return on taxes. This will also reduce the double tax taxpayers have to pay on private health, education and security. Improving the quality of public services will also encourage the well-off to pay more taxes. In order to increase SA’s dwindling individual and corporate tax base, taxes should encourage job creation and investment — not make it more difficult to do so.

There has to be focus on increasing the quality of return on taxes