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30 August 2011 at 17:15 - Posted by Anonymous

Tax payers get too little for what they pay says economists


Through taxes, tolls and other unavoidable levies, individual taxpayers are giving up to half of their monthly salaries to the taxman.

While the official rate paid by these taxpayers ranges from 18% (for those earning R150000) a year to 33% or more (for those earning R1-million or more), they fork out significantly more in many other taxes, including VAT, fuel taxes and duties.

While there are, officially, 10.67million registered individual taxpayers (including trusts), a Grant Thornton study shows there are really only 5.7million individual taxpayers and they carry 97% of the personal income-tax burden, paying for a population of close to 50million people.

"Of this 5.7million, a mere 2.75million people carry 64% of the personal income-tax burden and more than 60% of the total tax burden," Grant Thornton said.

SA's highest tax bracket, from 29% to 40%, is significantly higher than the current global average top marginal rate of about 29%.

People paying personal income tax contributed R674.2-billion to Treasury's coffers last year, when personal income tax was SA's biggest source of tax revenue.

As South Africans are being called on to pay a growing number of taxes, including to fund infrastructure development, the question arises: is our tax burden too heavy?

"It's not just the burden," said Dawie Roodt, Efficient Group chief economist. "We need to look at what we're getting in return.

"SA's tax contributions to GDP are low when compared with Europe, where some countries make up more than half with taxes. We are somewhere in the middle, between developing and developed countries in that respect

"But, if we look at what is returned to taxpayers by way of services, then we rank very low. Those who pay don't get back."

SA was "unique". Brazil resembled it "only partially ... in its highly redistributive stance".

"Naturally, this is because you have a small, high-earning population and many have-nots. It's all about the income disparity. This is borne out in the composition of our tax system," Roodt said.

"While SA's taxpayers' contribution to the fiscus may be in line with that of countries in the developed world, the split of direct versus indirect taxes is markedly different.

"Our personal income tax contributions are much higher, while our indirect taxes, such as VAT, are much lower, so it targets those who are employed and tries to spare the poor on their expenditure. This is the opposite of the case in China, for example," said Roodt.

He said taxes were rising too fast, especially if one considered what it was being spent on. "The money collected goes towards current (mainly social) expenditure. Not nearly enough is going towards capital expenditure, for example in infrastructure projects," Roodt claimed.

"We don't have to lower taxes. In fact, I think we could even tolerate an increase. But I think what's called for is a drastic simplification of the costly existing tax system so we can get more out of it. It needs an overhaul. There should be only four taxes. The system should be less distortive in asset allocation. The cost and complexity of the tax system is working against itself."

Dawie Klopper, investment economist at PSG Konsult, said the tax burden was already too high.

"We are paying way too much, especially if you also add spending on security, schooling and healthcare in the mix.

"We get very little back in the way of service for what we pay. We can and should rethink our spending on social services. It is unsustainable."

Jennifer Roeleveld, head of postgraduate tax studies at the University of Cape Town, said income earned over R580000 a year was taxed at about 40%. "Even though the tax on R580000 is at a marginal rate of 29%, what is left must fund property rates (another tax) and usually bond repayments before all other normal expenses on which VAT is payable. Compared internationally, our tax burden is probably not so bad, but with the limitations proposed on medical deductions and capping of retirement saving deductions our situation may not be so attractive."

Roeleveld was also worried by lack of incentives to save. "The aggressive legislation to 'catch evaders' like the company car fringe benefit also adversely catches the genuine non-evader. Until the taxpayer perceives the tax system and administration to be fair they will attempt to legally avoid tax."

Charles de Wet, tax partner at PwC, said the total tax rate SA-based companies paid was not unreasonably high in global terms. "However, we are comparing SA with countries that have significant social security nets in place, which we do not.

"Unfortunately, our ability to compare SA with other developing countries is hampered by data availability in those countries."

He said he believed that there could be an improvement in "the ease of tax administration and certainty over tax policy".

Indirect taxes and other unavoidable costs

  • Air passenger tax: If you're flying out of SA, you'll pay a tax to leave - R150 for foreign destinations, R80 for neighbouring countries.
  • Donations tax: If you dispose of property free of charge, unless you make that donation to a scientific, cultural, educational or religious institution, you'll pay 20% of the value to the taxman.
  • Estate duty: Unless it's transferred to a spouse, any estate valued above a R3.5-million threshold will be subject to 20% estate duty.
  • Transfer duty: This amounts to 3% of the value of a house above R600000; R12000 plus 5% for a house valued over R1-million; and R37000 plus 8% of a house valued over R1.5-million.
  • Capital gains tax: On the disposal of any immovable asset or change of ownership. The first R16000 is exempt, thereafter 25% of the net capital gain will be subject to tax at your marginal rate. This counts for all assets, worldwide, and in some cases you could be paying tax in both countries.
  • VAT: There are a few basic foodstuffs that are zero-rated, but for just about everything else you buy, 14% of the value goes to SARS.
  • Motor vehicle ad valorem tax: A fancy way of saying that the government can't let you buy an expensive item without getting in on the action. If you buy a car valued at more than R900000, a quarter of that value must go to SARS.
  • Other ad valorem duties: The price you pay for most imported electronic appliances, perfumes, firearms, fur products, make-up and, yes, golf balls, is inflated by duties that have been paid to the government.
  • Airport taxes: These include a passenger service charge (collected by the airport), a passenger safety charge (going to the Civil Aviation Authority) and a fuel surcharge.
  • Incandescent light-bulb tax: You pay roughly R3 per non-energy-saving light-bulb to the government.
  • Environmental levy on electricity: It just ends up in the collective coffers of the National Treasury and may or may not be ultimately spent on anything to do with the environment. You pay 2c per kilowatt-hour to the taxman.
  • Excise duties on tobacco products: There's a tax on cigarettes of R9.74 per packet of 20s, R10.53 per 50 grams of cigarette tobacco, R2.98 per 25 grams of pipe tobacco and R50.50 for every 23 grams of cigar in your mouth.
  • Excise duties on alcohol: R6.97 per litre of sparkling wine, R2.32 per litre of unfortified wine, R53.97 per litre of absolute alcohol in malt beer, R2.70 per litre of alcoholic fruit beverages and R93.03 per litre of absolute alcohol in spirits is all siphoned off for the benefit of the Treasury. There is no tax at all on traditional African beer.
  • Plastic bag levy: 4c from every bag purchase goes to the government.
  • TV licence: R250 per year, whether you watch SABC or not.
  • Driver's licence: Every five years you need to reapply and it will currently cost you R140 for the card.
  • Vehicle registration: Licence fees depend on the vehicle, but you'll probably pay a couple of hundred rand a year.
  • General fuel levy: R1.78 per litre of petrol and R1.63 per litre of diesel gets paid over to the Treasury.
  • Customs and excise levy on fuel: 4c per litre of petrol or diesel goes towards this levy.
  • Road Accident Fund levy: 80c per litre of petrol or diesel is collected for the RAF.
  • Toll fees: It used to be that you had to pony up for driving on the N1, the N2, the N3, the N4 and the N17 outside of the country's major metro areas. But now you'll soon have to start paying to use the roads through cities too.
  • Municipal rates: You can't have a property without paying the taxman. Over and above what you pay for the provision of basic services, you'll pay anywhere from R60 to R3283 per year for the right to live in a house in Johannesburg.
  • Dividends tax: This tax is being phased in by 2012. It will replace the secondary tax on companies and see shareholders taxed 10% on dividends.
  • New taxes to come soon: Soon you will not only pay VAT and a 6% provincial tax on gambling winnings; you will pay a further 15% of any winnings that exceed R25000. There's also going to be an emissions tax.
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