November 30, 2021

A big tax shift has hit South Africa – and it could cause problems

Tax income assortment has shifted considerably in South Africa during the last decade as the federal government grows more and more reliant on particular person taxpayers, a brand new report from the Monetary Fiscal Fee exhibits.

The group’s information exhibits that there has been a drastic ‘substitution effect’ of company revenue tax (CIT) with private revenue tax (PIT) and home taxes on items and companies since 2010.

“More specifically, CIT receded significantly in the proportion of total tax revenue from 22.5% in 2008/09 to 15.6% a decade later in 2019/20. Replacing these gaps in revenue was PIT at 38.2% in 2019/20 and value-added tax (VAT) on goods and services at 25.6% (from 24.7% in 2009/10).”

This consequence means that, over the previous decade, South Africa’s fiscus has grow to be extra depending on labour and family revenue and actions in consumption, the fee stated.


In efforts to fill the hole within the whole tax income, further sources needed to be raised from different technique of taxes.

When it comes to PIT, Treasury launched a brand new revenue tax bracket at 45% for taxable revenue above R1.5 million per 12 months and elevated the dividend withholding tax from 15% to twenty% in 2017.

Taxes on the home consumption of products and companies noticed a rise of 1 share level within the oblique taxation of VAT in 2018, taking it to fifteen%.

“Vigilant of the reductions in CIT in its 2020 Budget Review, National Treasury indicated plans to restructure its fiscal policy to broaden the tax base of companies by simplifying the tax code and reducing the rate,” the fee.

“Notwithstanding these measures, the extent of damage done at the tax administration of the South African Revenue Service (SARS), resulting from mismanagement, governance failure and the loss of trust in the institution from as early as 2014, should be acknowledged.”

Overdependence on private taxpayers 

The rise within the focus and dependence on PIT and VAT for public income era has made fiscal income extra weak to Covid-19, particularly because of the pandemic’s impression on family revenue and consumption behaviour.

The Covid-19-induced lockdown has left thousands and thousands of individuals unemployed. Thus the PIT-concentrated tax base will take in the complete impression of the misplaced revenue, the fee stated.

“When it comes to consumption, though the federal government offered the particular Covid-19 dwelling allowance grant – R350 per particular person per 30 days – its impression is negligible when in comparison with the person lack of revenue and decreased spending energy.

“The federal government also needs to take cognisance of its fiscal sustainability when overspending to smoothen folks’s consumption sample.

To keep away from including strain on the financial system struggling beneath Covid-19, the federal government has withdrawn its preliminary proposal to extend taxes within the 2021 price range. As a substitute, tax aid was issued via the higher-than inflation adjustment within the tax brackets for PIT at 5%.

“It is anticipated that the tax relief created will encourage spending and stimulate economic growth with some returns on VAT so that government can meet its expenditure needs,” the fee stated.

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