South African tax warning
Standard Bank’s chief economist and head of research, Goolam Ballim, warned that South Africa’s tax system is “resting on a pinhead”.
Ballim made this comment during a presentation about the South African and global economic outlook.
He highlighted that emigration poses a big risk to the South African tax system and the local economy.
The warning came despite South African Revenue Service (SARS) commissioner Edward Kieswetter saying the narrative around emigration is “overstated”.
Kieswetter said only around 6,000 people left the country’s tax base last year, which did not significantly impact tax revenue.
However, Ballim said there is more to taxpayers leaving South Africa than meets the eye.
He said it is important to look at the historical trends in the number of taxpayers within three different tax brackets.
- The income group earning less than R500,000 a year experienced a particular knock during the pandemic but has mostly returned to pre-covid levels.
- Since 2018, the number of taxpayers within the R500,001 to R1,000,000 income group has remained constant.
- Since the pandemic, the number of taxpayers in the income group above R1,000,000 per annum has seen a noticeable downturn.
Standard Bank believes that the number of taxpayers with an income over R1 million per year is of great concern.
The state’s main income stream is personal income tax, and only 164,000 taxpayers pay 30% of all income tax.
Ballim said there is an upward trend in the number of individuals financially emigrating – increasing from 4,000 individuals in 2019 to just below 7,000 individuals in 2022.
7,000 people may not seem like a lot, but with only 350,000 individuals accounting for 42% of the total personal income tax, it is incredibly significant.
He described the South African tax system as “resting on a pinhead” and warned that emigration could slowly hollow out tax revenue.
Emigration also has multigenerational consequences as people who leave the country typically establish their whole family abroad, causing further destruction to the tax base.
Approximately 4,500 high-net-worth individuals (HNI) are estimated to have left South Africa over the past decade.
These wealthy individuals tend to move their businesses offshore, which is detrimental to the South African economy and job creation.
When business owners and other rich people leave a country, it directly impacts the business environment and job creation.
Since 2017, there has been a decrease in the number of companies registered with SARS – from 3.7 million to 3.5 million.
It clearly illustrates the impact emigration of wealthy individuals has on the economy and, in turn, tax revenue.
Ballim is not the only economist who sounded the alarm on South Africa’s unsustainable tax system.
Efficient Group chief economist Dawie Roodt said a small number of people and companies pay most of South Africa’s tax, putting the country’s revenue at risk.
Of the 60 million people in South Africa, only 7.4 million pay personal income tax. Just 1.1% of taxpayers – around 164,000 people – pay 30% of the total personal income tax (PIT) in South Africa.
“20% of all the personal income taxpayers pay 90% of total personal income taxes,” Roodt said during a budget review presentation for the Free Market Foundation.
Roodt warned that South Africa’s narrow tax base means the government cannot increase PIT, as it would risk losing the taxpayers that are contributing to the majority of tax revenue. “They are leaving already,” he said.