JOHANNESBURG – Today is Tax Freedom Day (TFD) – the day South Africans stop working for government and start working for themselves.
But according to calculations by the Free Market Foundation (FMF), TFD falls on May 22 – the latest date into the year since 1994.
Garth Zietsman, an FMF statistician who is responsible for the annual calculation of TFD, says this year’s TFD is 13 days later than last year when it fell on May 9 and is “likely to be even later next year because government spending, the deficit and government debt is still increasing.”
TFD measures the extent to which tax consumes a nation’s wealth.
“Assuming all income goes to government until all tax has been paid, what people earn for the first 141 days of the year goes to government,” Leon Louw, executive director of the FMF, writes in an article published on its website.
Australia celebrated TFD on April 10 this year while TFD fell on April 21 in the US. In Estonia it was April 24, in New Zealand May 3 and in Lithuania May 8.
The United Kingdom will only celebrate TFD next week on May 28.
Louw says South Africa’s government expenditure as a percentage of all wealth produced (GDP) has grown significantly. In 1994 TFD was on April 12, 40 days earlier than this year.
“This means that taxpayers are spending 10.7% more of the year working for the government. According to the 2014-15 Budget, the tax burden will be 38.6% of GDP. In effect, South Africans work for the government for 38.6% of the year and thereafter for themselves.”
SA’s tax burden
David Warneke, director of tax at BDO, says South Africa’s top personal income tax rate of 40% is high when compared with the global average top rate, which is around 32%.
In the case of corporate tax, the global average is approximately 24% compared with that of South Africa, which is 28%.
Relatively high tax rates could potentially have an impact on foreign investment.
Warneke says one of the problems is that South Africa desperately wants to encourage growth.
The government finds itself in a very difficult position because it needs money in order to implement service delivery, help the unemployed and invest in infrastructure, he says.
An idea that could be explored is whether the lowering of tax rates wouldn’t enable the collection of more revenue from tax, as it would be to the benefit of business and possibly investment in South Africa, he says.
However, it is also important to consider the tax burden in conjunction with the government services received.
Professor Sharon Smulders, head of tax and technical research at the South African Institute of Tax Professionals (Sait), says the comparison suggests that South Africa’s tax burden is high compared to other jurisdictions (other than the UK).
Smulders says it is important for South Africa to be more competitive. Sait has recommended to parliament to consider reducing the corporate tax rate to bolster foreign direct investment, infrastructure development and growth.
This is especially important in the current context where the country is in desperate need of economic growth.
Although one should be careful to look at tax rates in isolation, South Africa’s value-added tax (VAT) rate is low when compared with some of these other countries, she says.