Warning on shrinking tax base in South Africa


South Africa’s tax base is shrinking and the South Africa Revenue Service (SARS) is coming down harder on taxpayers, says Keith Engel, chief executive of the South African Institute of Tax Professionals (SAITP) ).

Talk to 702Engel said that in 2000, South Africa’s population was around 45 million – that figure has since risen to around 60 million in 2022, but the tax base has not increased proportionately.

Overall, there’s a slightly lower number of people paying income tax for an ever-growing population, he said.

Engel said that as the wealthy contribute more to the tax base, they also take money from abroad or move abroad.

“If you try to tax them too hard, to get your fair share, they might leave,” the tax man said.

He said the wealthiest 2% of the tax-paying population, who contribute more than 30% of the nation’s individual tax revenue, are vulnerable and best not to come under too much pressure from SARS.

According to EY’s chief economist, Angelika Goliger, between 2003 and 2012, the number of personal income tax (PIT) taxpayers increased by 7%; however, some of these gains were eroded by a 2.1% decline in the number of taxfilers.

The PIT remains the largest source of tax revenue at the national level (39.1%), and this is particularly worrying because there were only 5.2 million taxpayers in 2020, representing 9% of the population and contributing 40% of the country’s total tax revenue, Goliger said.

According to SARS, in 2010 there were 5.5 million taxpayers assessed; however, in 2019 there was a significant decrease to a total of 4.9 million taxpayers assessed.

Engel added that the tax base, due to the tough economic times of the past two years, has narrowed as people move to lower income levels. Some middle-class households have slipped into the lower middle class, he said.

He said SARS is trying to uncover the “hidden” incomes of a percentage of the tax base with new methods of accessing wealth and tax compliance.

The tax collector said he plans to pilot new methods of taxing and tracking funds for affluent taxpayers. The Tax Authority has established the High Net Worth Individuals Unit which seeks to identify taxpayers who are non-compliant with tax regulations and/or who are individuals with gross assets of R75 million.

In addition to the new unit, SARS is piloting a new initiative to test whether it can use existing legislation to target unexplained wealth or whether it should take an international approach focused on a stand-alone unexplained wealth order (UWO).

A UWO could lead a court to confiscate unexplained wealth on the grounds that a person’s or entity’s wealth is disproportionate to the legal income earned or reported by the person – and they cannot reasonably justify it.

The alternative

Engel said SARS taps into more tax streams, but the easiest way to access a broader tax base is to grow the economy.

The problem is more of an economic problem than a tax problem — you can’t look at taxation in isolation, Engel said.

The Organization for Economic Co-operation and Development (OECD), in its latest Economic Survey for South Africa 2022, recommended that the South African government broaden the tax base.

The organization said there could be a slight lowering of the minimum income tax threshold to include some people earning between minimum wage and the current income tax threshold.

He noted, however, that the country’s progressive personal income tax schedule is undermined by deductions that largely benefit high-income earners.

Read: Why you should be positive about South Africa’s future: CEO


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