1.4% of South Africans pay 59% of income tax. 770 companies pay 66% of corporate tax.

South Africa’s tax system disproportionately targets rich South Africans, harming the economy and stifling growth.

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

National Treasury’s latest data showed that personal income tax (PIT) 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 (VAT) and corporate income tax (CIT).

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.

Renowned economist Dawie Roodt said 770 companies pay around 66% of all corporate income tax in South Africa.

He highlighted that South Africa’s economic policies are highly redistributive, where money is taken from the rich and given to the poor.

The situation where unemployment and grant recipients are rapidly increasing and are funded by a shrinking tax base is unsustainable.

The table below shows the estimates of individuals and taxable income for the 2024/25 financial year.

South Africa’s skewed tax system

There are two prominent reasons for South Africa’s tax system, which disproportionately targets the rich – the left-leaning government and historical structures.

Roodt said the government is still steeped in outdated communist ideologies, which has resulted in “pro-poor” policies which target the rich and stifle economic growth.

Despite the economic damage, it is politically palatable and expedient to increase taxes targeting wealthy individuals and companies.

Another reason is that current tax laws originated at a time when whites were taxed under separate and more complicated laws than those imposed on the black population.

Simply put, the current tax laws and system were designed by and for people with relatively high incomes.

As tax rates increased inexorably over the years, wealthy taxpayers found it to be in their interests to hire experts to help them minimise their tax obligations.

Thus, a never-ending battle began between sophisticated taxpayers seeking legal ways to avoid tax and the state seeking to close loopholes.

Apart from the rich paying a concerningly high portion of taxes, another consequence is that local tax laws have become highly complex.

“Tax laws have become so complicated that almost everyone is baffled. The Income Tax Act still contains exceedingly technical and abstruse wording,” Roodt said.

Instead of trying to squeeze more money from the very small group of affluent taxpayers, the government should grow the economy and increase the tax base.

However, this is unlikely to happen under the current government, with President Cyril Ramaphosa at the helm.

Ramaphosa, for example, celebrates the fact that there are now 28 million grant recipients. Roodt described it as celebrating poverty, where people rely on the government to survive.

The current government’s business-unfriendly policies, incompetence, and corruption are the reason for the country’s problems.

To expect the same government to suddenly become honest and efficient and change how they see the world is misguided.