People in one province pay half of all income tax in South Africa written by Shaun Jacobs

[Nat Quinn]

Nearly half of all personal income tax (PIT) is paid by residents of Gauteng, with South Africa’s smallest province by land area contributing 48.4% of all revenue from this source.

This was revealed by Sanisha Packirisamy, an economist at Momentum Investments, following an analysis of the latest tax statistics provided by SARS and the National Treasury.

Tax collections have increased from R113.8 billion in 1994/95 to R1 740.9 billion in 2023/24, at a compounded annual growth rate of 9.9%.

In the 2023/24 fiscal year, SARS collected R2.2 trillion in gross tax revenue, R87.0 billion or 4.2% more than the prior year.

Personal income tax is the biggest source of tax revenue in South Africa and has remained strong despite economic challenges.

However, it is extremely concentrated, with Packirisamy’s data showing that only 7.6 million South Africans are expected to have submitted returns in the past financial year.

Even less, around 6.6 million people, are expected to have been assessed for tax purposes.

This is in stark contrast to the 27.1 million South Africans registered to pay personal income tax, as the vast majority earn below the income tax threshold of R95,750 per year.

An increasingly effective SARS and minimal relief for taxpayers has resulted in this small base of taxpayers being squeezed harder for more revenue to fund the government’s ambitions.

South Africa’s personal income tax base is one of the most concentrated in the world, hovering around 9% of GDP.

This is extremely high compared to its peers, with most averaging a personal income tax to GDP ratio of 3% or less.

The latest tax statistics report showed that 1,660,182 people pay 76.2% of all personal income tax. This means that 2.6% of people pay the most individual income tax in South Africa.

Data from Packirisamy also showed that taxpayers are highly concentrated geographically, with 48.4% of all personal income tax being collected in Gauteng.

The Western Cape is in a distant second place at 15.2% of all collections.

This narrow tax base may be squeezed even further in the coming years as the government’s finances come under increasing pressure.

The delayed 2025 Budget Speech will likely result in significant changes to existing taxes, even if the National Treasury does not impose a two percentage point increase to VAT.

Old Mutual’s head of tax, Nazrien Kader, outlined that changes to existing ‘wealth taxes’ such as donations tax, estate duty, and capital gains tax are likely.

These may be coupled with a fit-for-purpose wealth tax targeting rich South Africans to generate additional revenue.

Individuals are likely to be squeezed harder by bracket creep, a phenomenon in which the minister does not increase the tax brackets in line with inflation.

This means some individuals will be pushed into a higher tax bracket and thus generate more revenue for the government.

The National Treasury has also been analysing the feasibility of a wealth tax for some time, with it confirming studies to Parliament towards the end of 2024.

The debate endures, with advocacy groups pushing for early implementation and economists cautioning that such a tax on wealth could risk driving taxpayers away through emigration and tax planning strategies.

Kader said Old Mutual expects the National Treasury to tinker with existing ‘wealth taxes’ in the current regime.

These include donations tax (currently 25%), estate duty (dual rate of 20% on the first R30m and 25% thereafter) and the capital gains tax inclusion rate for individuals (currently 40%).

Other changes could be made to the fuel levy, which has remained flat for the past two financial years, and sin taxes.

source:People in one province pay half of all income tax in South Africa – Daily Investor

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