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How much is the tax burden, really?

What the average middle-class family is paying in various taxes every month.
South Africans are being hit from all sides when it comes to tax, the author writes. Picture: Shutterstock

It is not surprising that reports of a new investigation into the viability of an additional provincial levy on fuel were met by outrage in the Western Cape: South Africans are already saddled with an extremely high tax burden. The total tax bill for a middle class family, where both the husband and wife work, can amount to close on R20 000 per month depending on their saving and spending habits.

We are not talking about millionaires. We calculated the total tax burden for a family where the husband earns R40 000 per month and the wife earns R20 000 per month (or the other way around). 

The husband will see an income tax deduction of R7 436 per month from his salary. This assumes a monthly contribution of R4 000 to his pension fund (funded 30% by his employer) and investment of R2 000 per month into a retirement annuity to get the full available tax discount. He also pays R3 600 per month towards medical aid, which offers some tax relief.

His wife pays R2 000 of her R20 000 into her pension fund and contributes R1 000 per month to a retirement annuity. She will pay R1 947 tax per month as of March 2018, which leaves around R14 000 per month after deductions and paying her retirement annuity.

Although she can reduce her tax liability by another R500 per month by increasing the investment into her retirement annuity, it will reduce her monthly cash flow and she will (maybe) consider it next year.

Together, the couple will pay income tax of R9 378 per month. And then all the indirect taxes start to quietly funnel more money towards Sars. One of the biggest is the existing fuel levy of R5.40 per litre of fuel.

Most households have two cars. Assuming that each car will travel around 26 000km per annum (the average distance car owners travel every year according to the Auto Dealers Guide) and uses ten litres of fuel per 100km, the couple will pay R14 040 each in fuel levies this year, or R1 170 per month per car. It is not unusual that at least one of the cars will clock double the average every year and thus pay significantly more in fuel tax.

The family’s tax burden is approaching R12 000 per month. If they spend R25 000 per month on food, clothing, telephone and data usage, haircuts, school uniforms, entertainment, security and maintenance around the house, they will pay VAT to the tune of R3 000 per month and the total tax jumps to nearly R15 000 per month.

The local municipality will collect rates and property tax of at least R1 000 per month on the type of house that a family like this can afford. And with the high excise duty on alcohol and cigarettes – and the import duty on the occasional fancy chocolate – it does not take a lot of wine, beer or whisky and a few good cigars to fork over another couple of hundred per month to the tax man.

Eventually our middle class family will pay close to R17 000 per month in tax on their combined income, or around R200 000 per annum. They cannot afford another increase in the fuel levy.

The tax situation is even worse when only one of the partners in the marriage works and earns R60 000 per month by his or herself. Then the marginal tax rate jumps to 36% and the total tax burden increases by another R3 000 per month.

Maybe better tax planning can bring some relief, but less wastage by government will help to reduce taxes in SA. 

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If only we got something for our tax.

The sad truth is many companies do an absolute minimal (if any) amount of financial training for their employees. They have given a 4 – 5% increase (market related) and continue to let them flounder with no source of serious interaction to offset the plundering of their monies by the state. They continue to lose good qualified staff, because they can’t live on their salary. Some companies teach money BASICS.Some teach the cure! They need Financial Fitness. They have the cure.
EMPLOYEE’S COMING IN TO WORK BROKE EVERYDAY HAS SERIOUS REPERCUSSIONS IN AND ON THE BUSINESS. Fool yourself for a short while BUT ???

Very true Finfit; and offer minimal tax efficient remuneration packages to the rank and file. Those are reserved for the upper echelons 🙂

“Maybe better tax planning can bring some relief, but less wastage by government will help to reduce taxes in SA.”

I don’t want to be a pessimist but I don’t think the waste is ever going to reduce, I think it might just take on new and interesting forms like government sponsored dairy farms, NHI and “free education” instead of the good old classic expensive car wastage of the past.

Except that the middle class is paying much more than what is reflected in this article – Security company and high insurance premiums because of a high crime rate and police incompetence and corruption; Extra tutoring for their school going children because of a dysfunctional education system; dependence on expensive medical aid to fund expensive private healthcare because public healthcare is laughable; Ever-increasing energy and water costs due to government corruption and incompetence….the list goes on.

The amount of tax in SA is ridiculous.

The reality is income tax is already high, we pay 15% VAT plus any import and customs duties on anything imported hence why our cars, electronics etc are all much more expensive than overseas, rates and taxes of R1000 is actually quite low given the valuation increases, we pay sewage and trash removal separately. Fuel levy appears to be about 40% of the average fuel cost, that is before you consider the RAF levy on top of that. That is also before you consider CGT and dividends tax.

Ridiculous burden on a small base relative to the population size. That is before you consider that you have to provide for your own healthcare, security and education for your kids. I suspect that relative to other countries, the effective tax rate considering all the additional costs must be close to 60% or 70%. No plan to try reduce medical or education costs etc means that % will continue to climb.

I would actually be ok with all of that if at least the enormous burden meant that the lives of the poor was improved, instead that money is being used to feed the corruption machine. So I land up getting overtaxed, no services of note being provided, threats to my property rights and the poor are pissed at me for earning a salary. Not sustainable.

This is the real point i.e.it is not sustainable. R60k per month is less than 4000 pounds so a low income yet highly taxed. No security(SAPS are hopeless), government medical( a disaster), government education(the no. 1 cause of the mess here) and old age pension of less than 70 pounds a month and only for the poorest of the poor. The middle class is being destroyed and the middle class is the bastion of democracy.

VAT, fuel levy, Cape Town rates , water and electricity redistribution taxes, import duty, excise on tobacco and alcohol, DWT and CGT on investments and you realise that we are taxed way to high for what we get in return.

But young, clever people can and do leave the country if they can and older rich people also can buy citizenship in the EU etc. Sooner or later the gravy train plundering will slow down or stop and then we will go broke!

And the author also forgot once you have paid all those taxes, you pay tax again on your savings in CGT and dividends withholding tax, and those RA tax deductions are not really tax free because you are just going to be paying tax in the income they provide you with later in life, so again, tax, and the final nail in the coffin (sorry for the pun) is the day you die and they get to tax you again on anything you might have left.

And thus the circle is complete : Birth-Tax-Death

It seems to me the best “tax planning” tool, is to reconsider your residency status.

For example, the upper (individual) bracket rate in Botswana is 25% last time I checked. Corporates have a flat 22% tax (and manufacturing industry 15% flat company tax)

Mauritius: indiv tax rate = 15% flat irrespective of income (indiv & corporates). NO CGT tax or dividend tax exist. (…it’s a tax haven of sorts, although their Govt don’t like to be called that)

Romania (part of EU): 10% flat tax on indiv + 17% social security tax if you’re employed. Company tax = 16%.

Bulgaria (part of EU): indivuals @ 10% flat tax ; businesses, farmers, self-employed persons = 15% flat.

Australia: maximum marginal tax bracket is 37% (indiv). But….you get a stack of benefits in return 😉

Back to SA: we’re not really complaining. We live a comfortable life….I mean you got to be nuts to emigrate: most S’Africans won’t let go of the outdoor lifestyle with our bush breakaways to KNP, Botswana, Nam, Moz with one’s Double Cab/SUV + offroad caravan. That’s what we live for (incl. rugby & sunshine…Chevrolet is now gone). Not going to have that elsewhere. The tax burden thus a minor inconvenience. Generally, S’Africans seem to earn well…we for example we don’t mind paying for our crazy local Data-tariffs, despite that the same VC, MTN offers there services in other countries for a fraction of our tariff.

Tax brackets and rates can be very misleading. IN SA middle income is taxed under upper income tax brackets. Not so for USA or Australia. South Africans effective income tax is much higher than say the US.

“We live a comfortable life….I mean you got to be nuts to emigrate: most S’Africans won’t let go of the outdoor lifestyle with our bush breakaways to KNP, Botswana, Nam, Moz “…certainly other countries dont have access to Botswana etc, but many other countries have outdoor activities that are as good or better than SA! New Zealand is more beautiful; Australia and the US are far larger. And safer.

But what saffas on this and other sites often seem to forget is that other countries offer completely different leisure activities you cant get in SA. So a decision on emigration isnt JUST about losing SA-specific leisure activities…you also gain completely new ones.

So depending on the person, the new ones an emigrant gains might very well be better than those lost in SA.

Thanks gtech 🙂 I played a bit of devils’ advocate to see what type of responses one would get. Very valid points & glad you mentioned them 😉

(…have friends/contacts in Auckland, Hamilton, Christchurch, and many of the NZ photos I receive via WhatsApp are insanely beautiful.)

clearly in your example, the husband and wife need to move closer to work and stop driving so much. 26k km on average per year each, WTH do they live in another city to where they work? Move closer, it’ll be better for your finances, stress and health.

End of comments.

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