In many a discussion and article about the tax burden in South Africa, figures are bandied about regarding the actual number of taxpayers in the country. The latest figure that the South African Revenue Service (SARS) likes to use is 13,7 million, while “five million” is often heard during everyday conversations. In actual fact, the figure is closer to 2,3 million, or even as low as 1,5 million taxpayers.
To determine the actual number of taxpayers in South Africa, certain things have to be placed in context first. In the 2011 tax year (March 2011 to February 2012), the most recent year for which figures are available, personal income tax represented just 33,7% of the state’s tax revenue. Company tax accounted for 20,4%, value-added tax (VAT) for 27,2% and taxes like the fuel levy and import tariffs made up the remaining 18,7% of tax revenue. However, it is important to bear in mind that the people who pay income tax are also, to a very large extent, responsible for paying the other types of tax.
Company tax is, for example, by no means a tax on companies – it’s a tax on the owners and employees of companies. Company shareholders are individuals and so are the employees. These individuals would have received the higher returns from the company’s activities if it hadn’t been swallowed up by company taxes. To a great extent, shareholders and employees of companies are the very same people who pay income tax. The same goes for other taxes like import tariffs and fuel levies. The people who buy most of the products that are subject to these taxes are also largely the people who pay income tax. With respect to VAT, the tax burden probably leans a bit more towards people who don’t earn enough to pay income tax, but not as much as might be expected, because of their low purchasing power. Moreover, numerous basic foodstuffs are not subjected to VAT. Low-income individuals tend to spend large portions of their income on these products – which is precisely why no VAT is levied on these products.
Exact calculations are not possible, but it can reasonably be accepted on the strength of the abovementioned grounds that the same people who are responsible for 33,7% of the state’s tax revenue by paying income tax are by far the main contributors in respect of other taxes as well. In other words: There is a strong, positive correlation between the amount of personal income tax and the amount of other tax a person pays.
In analysing the latest income tax statistics, the first figure that stands out is the 10,3 million people who were registered as taxpayers for the 2011 tax year. For the 2012 tax year, the figure is 13,7 million. In 2008, this figure was approximately 5,2 million, which is the likely source of the popular “five million taxpayers” figure. People who have been referring to “five million taxpayers” until now should therefore actually adjust the figure to 13,7 million.
However, this figure does not accurately reflect the number of taxpayers. Just because someone is registered for income tax does not automatically mean that he or she actually paid income tax in a specific year. It is like a gym membership: just because someone is a member of a gym doesn’t mean that he or she actually gets any exercise. The steep increase in the number of people registered for income tax was merely as a result of an administrative change and doesn’t mean that more people actually pay tax. In the 2011 tax year only around 4,8 million people had to submit tax returns. About 5,5 million people who are registered for income tax can therefore immediately be ruled out of the total of 10,3 million when determining the number who actually pay income tax.
Of the 4,8 million who had to submit returns, SARS had finalised the tax assessments of about 4,5 million at the time of the latest data release, with 6,3% yet to be finalised. The following figures have been calculated using the data for the 4,5 million, adjusted upwards proportionately to include the entire 4,8 million.
To begin with, 0,2 million can be deducted from these 4,8 million people, as they didn’t have any taxable income for the period in question. This leaves 4,6 million potential taxpayers. Of these 4,6 million people, approximately 1,3 million had an income of R1 to R90 000 during the tax year. This quarter of the taxpayers contributed only 1% of the total income tax for the year – on average just 2,7% of their taxable income. These 1,3 million people can hardly be called taxpayers. If they had all been exempted from income tax entirely, the effect on state revenue would have been barely noticeable. Consequently, we are left with approximately 3,3 million people who paid around 99% of all income tax.
Included in this group of 3,3 million people is another group of approximately one million people in the income groups ranging from R90 000 to R150 000, who jointly contributed an additional 5,9% of income tax. On average, around 9% of their income went towards income tax. It would be somewhat inaccurate and ungrateful to not regard this group as “taxpayers”, as 9% of one’s income is not insignificant. However, for the purposes of this article it is enlightening to remove this million from the total as well. This leaves 2,3 million people who were responsible for around 93% of all income tax collected in 2011.
This group of 2,3 million people can be further reduced in size by excluding people who earned R150 000 to R200 000, leaving 1,5 million people who were responsible for close to 84% of all income tax collected. Technically speaking, one could also deduct a number of public servants from the totals, but doing so would require a subjective assessment of the value that public servants actually add, which falls outside the scope of this article.
Clearly, there is a much larger imbalance between the number of people who are paying tax and the total population than is implied by SARS when they quote 13,7 million as the number of taxpayers. Actually, only 3,3 million taxpayers pay 99% of all income tax, while only 2,3 million pay 93% and 1,5 million are responsible for 84% of income tax. People who, with great concern, point out that South Africa only has five million taxpayers are therefore incorrect, but the actual figures are cause for even greater concern. A very small number of South African taxpayers bear almost the entire weight of the South African state on their tired shoulders.