Government squeezing South African taxpayers

South Africa’s personal income tax base is growing increasingly slowly while the government is collecting more personal income tax revenue, raising concerns about its sustainability.

An analysis by Daily Investor revealed that South Africa’s tax base has grown by less than 16% over the past decade, while personal income tax revenue has more than doubled.

Interestingly, while the number of personal income taxpayers increased, the total number of registered taxpayers has decreased by almost 7% between 2014 and 2024.

PwC tax partner Professor Osman Mollagee recently outlined the problems with South Africa’s shrinking tax base. 

He revealed that a tiny fraction of South Africans pay over 90% of all personal income tax. 

Mollagee pointed out that while the 2024 Budget was pragmatic, it failed to address the country’s shrinking tax base and the problem of squeezing more revenue from fewer people. 

The 2024 Budget revealed that South Africa had 7.12 million personal income taxpayers in 2023, down from 7.45 million the year prior.

Mollagee explained that South Africa’s tax base is even more concentrated than outlined by the National Treasury. 

He said a small fraction of the country’s population pays 90% of the total personal income tax collected. 

To make matters worse, Godongwana announced at this year’s Budget Speech that the government won’t adjust personal tax brackets for inflation, which the government expects to run at 4.9% this year.

This results in ‘bracket creep’, a phenomenon where tax tables and tax deduction limits are not adjusted for inflation, making taxpayers pay more and thus resulting in greater revenue without hiking rates.

This will be used to increase the revenue the government collects and help plug its widening deficit. 

South Africa’s personal income tax base is expected to grow to 7.41 million in 2024, but this is still only a 15.43% increase from a decade ago.

Notably, the government’s personal income tax revenue is estimated to have grown by 109% over the same period.

Therefore, the government is squeezing more and more revenue from a relatively stagnant tax base.

This is made even more concerning as an increasing number of South African taxpayers are leaving the country in their thousands, shrinking the already small tax base and threatening the government’s future revenue. 

BDO tax specialists Beatrie Gouws and David Warneke said that, in recent years, there has been growing discontent among high-income earners, who argue that excessive taxation stifles entrepreneurship and undermines economic growth.

This has resulted in a number of top-tier earners who are simply choosing to emigrate due to increasingly high taxes, among other reasons. 

For example, the 2024 BRICS Wealth Report highlighted that South Africa was home to 37,400 US dollar millionaires (including 102 centi-millionaires and five billionaires) at the end of 2023 – a 20% decline from 2013.

This means South Africa has lost approximately 9,350 US-dollar millionaires over the past ten years. 

Data provided by SARS shows that over 32,000 people ended their tax residency in South Africa between 2017 and 2021.

Of those individuals, approximately 2,700 earned more than R500,000 annually and 1,100 earned more than R1 million annually.

If an increasing number of South Africa’s richest people leave the country, the country will lose taxpayers who contribute greatly to the government’s revenue and, thus, the provision of services.

The impact is exacerbated by South Africa’s highly concentrated tax base, which results in a tiny number of wealthy people paying the vast majority of the country’s taxes. 

Below are graphs showing the meagre growth of personal income taxpayers over the past 10 years, compared to the immense growth of government tax revenue.