3 million South Africans pay 90% of income tax

A tiny fraction of South Africans pay over 90% of all personal income tax. It shows the precarious position of the country’s tax base, with more and more revenue being squeezed from fewer people. 

This was revealed by PwC tax partner Professor Osman Mollagee, who outlined the problems with South Africa’s shrinking tax base. 

Mollagee was speaking at PwC’s post-budget event, where Finance Minister Enoch Godongwana’s Budget Speech was praised for navigating the pre-election need to win votes and be pragmatic. 

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

National Treasury’s estimates of individuals and taxable income for 2023/24 clearly illustrate a problem.

They show South Africa has 7.1 million individual taxpayers, down from 7.4 million a year ago. The country’s registered taxpayers are declining, while government expenditure is increasing. 

South Africa now has four times as many grant recipients as personal income taxpayers.

According to Treasury projections, the number of people receiving grants is expected to increase from 27.78 million in 2023/24 to 28.31 million this year.

Grant beneficiaries – excluding Covid-19 social relief of distress grant beneficiaries – are projected to increase from 18.8 million in 2023/24 to 19.7 million in 2026/27.

The National Treasury estimates it will spend R266.21 billion on social grants in the 2024/25 financial year, equivalent to 3.6% of GDP.

This spending increasingly relies on revenue being squeezed from a declining minority of South Africans.

The table below shows the National Treasury’s estimates of individuals and taxable income for the 2023/24 financial year.

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

He said that 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, meaning that as salaries increase to keep up with the rising cost of living, workers get pushed into higher tax brackets and end up paying more tax. 

Rebates and medical tax credits also won’t be adjusted for inflation.

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

Godongwana said that at R1.73 trillion, tax revenue for 2023/24 is R56.1 billion lower than estimated in the 2023 Budget.

“The shortfall is largely due to the decline in corporate profits and revenue from taxes on mining. Over the medium term, revenue projections are R45.6 billion, higher than the 2023 MTBPS estimates.” 

Bracket creep and above-inflation increases in excise duties on alcohol are the tools with which Godongwana aims to raise R15 billion to alleviate immediate fiscal pressure and support faster debt stabilisation.