1.1 million South Africans who earn R500,000 or more per year are responsible for 73% of all taxes in the country, statistician Garth Zietsman said.
In an article written for the Free Market Foundation, Zietsman said adults who earn R500,000 or more make up 19.3% of taxpayers.
This group earn 53.5% of all income subject to income tax and pays 76.5% of all assessed income tax.
Assuming they accounted for nearly all the business taxes and spent most of their after-tax income, they ended up paying about 73% of all government revenue.
Zietsman’s calculations suggest that the top one-fifth of earners spend close to half their productive efforts involuntarily working for the government.
On average, 22% more of their income goes toward government revenue than is the case for the country as a whole. Therefore, about 46% of their income goes to the government.
It implies that the other four-fifths of income earners spend one-fifth of their lives working to keep the state afloat.
There is a risk to South Africa. International experience shows that people with that sort of tax burden are prone to leave the country imposing it.
“Those proposing a new wealth tax recognise this and factor in an evasion rate of one in five,” he said.
By international standards, South Africa combines a high tax burden for countries with our GDP with an exceptionally small tax base.
“In addition, the government seems intent on chasing away its largest source of revenue,” he said.
He added that government revenue is undeserved because the South African state is particularly inefficient.
“Quite a considerable proportion of government revenue goes to salaries for worthless administrative tasks,” he said.
“It is an understatement to say the government is bad at the basic functions of government like security, infrastructure provision and enabling large scale coordination.”
He added that the scale of corruption is so bad that the popular perception is that it is not so much a government as a racket.
“At best, the South African state is an organisation that serves only to extract wealth for members of the state,” Zietsman said.
SARS commissioner Edward Kieswetter responds
SARS commissioner Edward Kieswetter recently commented on the issue, saying fears that the personal income tax base is dwindling because of unemployment and emigration are exaggerated.
Kieswetter told Financial Mail that South Africa’s tax base is growing and that financial emigration is inconsequential in tax collections.
He explained that personal income tax has been resilient and outpaced South Africa’s GDP growth in recent years.
The SARS commissioner said the country’s tax system is benefitting from people earning more and higher compliance rates.
However, speaking at the WBS Leadership Dialogues, Kieswetter admitted that there are factors that continue to erode South Africa’s tax base.
These factors include tax emigration, tax crime, and tax planning – technically known as transfer pricing and base erosion.
He said tax emigration is small in relation to tax crime, which accounts for billions in tax losses yearly.
Kieswetter added that South Africa’s tax base increased by 3.5 million people. It resulted from adding people who should be registered by are not and ensuring taxpayers are registered for all tax types.