Edward Kieswetter’s big corporate tax headache

The government’s different forms of tax revenue have grown significantly over the past decade, but corporate income tax growth has been lagging as South African businesses struggle in the country’s tough operating environment.

An analysis by Daily Investor revealed that the government’s total tax revenue has grown by almost 89% over the past decade – from R986.3 billion in 2014 to an estimated R1.86 trillion in 2024.

This was largely boosted by personal income tax revenue, which grew by over 109% between 2014 and 2024.

Other tax revenue streams have also grown significantly over the past decade.

Value-added tax revenue has increased by 82.46%, and revenue from the fuel levy has grown by 92.65%.

However, a significant depressant has been corporate tax revenue, which has only grown by 63.69% over the past decade.

The slower growth of corporate income tax revenue compared to other taxes can be seen in the graph below.

The low growth of corporate tax revenue became particularly prevalent in 2023 when the National Treasury declared a massive deficit due, in part, to significantly less-than-expected corporate tax revenue.

In 2022/23, corporate tax revenue was R344.66 billion. Last year, this fell to R301.37 billion. This was because South African companies struggled to make higher profits in the country’s moribund economy.

This is made worse considering the National Treasury’s tax revenue is already struggling due to the country’s small – and shrinking – tax base.

Finance Minister Enoch Godongwana’s 2024 Budget documents revealed the highly concentrated nature of South Africa’s tax revenue.

National Treasury’s latest data showed that personal income tax will generate an estimated R739 billion in the current financial year.

This means that PIT generates around 40% of South Africa’s total tax revenue. It is well ahead of value-added tax and corporate income tax.

What is concerning is that a very small number of South Africans pay a very large portion of total personal income tax.

National Treasury’s individuals and taxable income for the 2024/25 financial year showed South Africa has 7.4 million personal income taxpayers.

The fact that only 12% of South Africa’s population pays personal income tax is worrisome. Even more concerning is that they support 28 million grant recipients.

However, it gets worse. The data further showed that only 862,000 people pay 58.7% of all personal income tax.

That means South Africa relies on only 1.4% of its population – less than 1 million people – to provide most of the money for education, healthcare, security, and social grants.

The situation looks even worse when it comes to corporate income tax, which is set to contribute R303 billion, or 16.2%, to tax revenue this year.

In 2023, renowned economist Dawie Roodt revealed that 770 companies pay around 66% of all corporate income tax in South Africa.

Therefore, when those 770 companies make less than expected in a given year, the government’s tax revenue will take a major hit.

Below is South Africa’s corporate income tax revenue growth over the past 10 years.