South Africa

South Africa can replace all taxes with a 23% flat rate

South Africa can replace all taxes by introducing a 23% flat rate on personal income tax, value-added tax (VAT), corporate income tax, customs and excise duties, and fuel levies.

The National Treasury’s tax revenue for the previous financial year reveals that five taxes comprise over 90% of all tax revenue.

Personal income tax, VAT, corporate income tax, customs and excise duties, and fuel levies account for R1.52 trillion of the total R1.69 trillion tax revenue.

All other taxes, including skills development taxes, transfer duties, the plastic bag levy, sugar taxes, and estate duties, only brought in R165 billion.

It shows that the multitude of ‘other taxes’ stifling economic growth and putting an unnecessary burden on citizens can be done away with.

Anything from the plastic bag levy to air departure taxes and estate duties is nearly irrelevant in raising money for the state.

It is not only the numerous unnecessary taxes which frustrate citizens and businesses. It is also the complexity of the tax system.

Current tax laws originated during Apartheid 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 in their interest 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.

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

Roodt explained that the complex tax regime creates undue compliance costs, especially for small businesses. “They are one of the greatest inhibitors of small firm development,” he said.

Numerous business leaders have called on the government to simplify the tax system to make it easier and more affordable for companies to operate.

Learning from Mauritius’s example

South Africa can learn from Mauritius, which implemented a simple tax system that encouraged a high compliance rate.

Mauritius has a flat rate of 15% on personal income tax. The same rate is applied to company profits and value-added tax (VAT).

Many South African companies have moved their head office to Mauritius to benefit from the attractive tax structure.

South Africa can follow in Mauritius’ footsteps by introducing a 23% flat rate on five taxes – personal income tax, VAT, corporate income tax, customs and excise duties, and fuel levies.

All the taxes that would be scrapped collectively account for only 9.8% of the total tax revenue received in 2023. This is a list of more than 20 different taxes.

Collecting and administrating the long list of taxes has tremendous overhead costs for the government and businesses.

The 23% flat rate will generate the same tax revenue as the current system but with significantly less complexity.

The tax system will be far easier to administer and monitor. It will, therefore, encourage a higher compliance rate, which, in turn, will increase tax revenue.

A flat tax system is also inherently equal, as everyone pays the same proportion of their income and is treated the same.

The government can, therefore, not raise taxes and maintain political support by creating a villain – i.e. the rich and companies – and selling it to the poor.

A flat tax rate will affect all South Africans equally. It will create a united country when it comes to tax matters, and raising the flat rate will not sit well with voters.

The best way for the government to generate more tax revenue would be through economic growth. This, in turn, will lead to business-friendly policies.

Although it makes sense to simplify the country’s tax system and make it more business-friendly, it is unlikely ever to happen.

It would be political suicide to increase VAT from 15% to 23% and introduce personal income tax to low-income earners who are currently below the threshold.

23% flat tax rate

The table below shows how only five tax sources could generate the same current tax revenue at a flat tax rate of 23%.

SourceTaxable amount
Personal income tax excluding capital gains taxR607 billion
VATR642 billion
Corporate income tax excluding capital gains taxR281 billion
Fuel leviesR56 billion
Customs dutiesR102 billion
Total tax revenueR1,687 billion
Flat tax rate22.8%

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