The shrinking personal income tax base

And how to get it to expand.
Encouraging emigrants to return and expediting visas for skilled foreigners are two options. Image: Bloomberg

Personal income tax (PIT) collection, the largest source of tax revenue in South Africa, has fallen in recent years.

Between 2003 and 2012, the number of PIT taxpayers grew by 7%. Since 2012, however, some of these gains have been eroded – with a 2.1% decline in the number of taxpayers, according to data from the South African Revenue Service (Sars).

This is particularly worrying as there were only 5.2 million individual taxpayers in 2020.

These 5.2 million individuals, representing approximately 9% of the population, contribute 40% of South Africa’s total tax revenue.

Breaking it down further, about 20% of individual taxpayers contributed to three quarters of personal income tax revenue in 2020.

Source: National Treasury and Sars

There are a couple reasons behind this trend.

Firstly, the decline in PIT has been the result of the weak economy which has reduced the ability of firms to grow, increase salaries and hire people. The outlook for South Africa’s economy is expected to remain muted (GDP is expected to grow between 1.4% and 1.8% by 2023) and the unemployment rate has remained at untenable levels – so this trend is likely to persist.

The second factor contributing to the decline in individual taxpayers is the emigration of skilled South Africans.

The UK, Australia and the Netherlands, for example, have all registered strong growth in the number of South African immigrants in recent years.

Sources: UK Home Office, Australian Department of Home Affairs, CBS (Statistics Netherlands)

So what can be done to turn this situation around?

The quickest way to boost taxpayer numbers …

The quickest intervention to boost the supply of individual taxpayers is to simply import more skilled workers.

Visas for skilled foreign workers should be encouraged and expedited.

Fast-tracking the employment of foreign workers will benefit the economy in several ways:

  • It will ease an immediate constraint and allow businesses to grow;
  • Skilled foreign workers will create jobs directly for other South Africans; and
  • Perhaps most crucially, South Africans working with these individuals will learn global knowledge and best practices in their respective industries.

We also need to encourage South Africans based overseas to come home.

When South Africans return, following the siren call of family and culture, they bring with them knowledge, experience and access to global markets which can be leveraged to start and grow local businesses.

Beyond the ‘softer’ lifestyle aspects, we need to create a viable business case for South Africans to return and this can only be achieved through a growing and vibrant economy.

Economic growth

In the medium- to long term, a growing economy is the most significant factor when it comes to sustainably growing PIT collections.

The International Monetary Fund (IMF), in its most recent Article IV consultation, found that implementing the economic reform and fiscal consolidation agenda could result in South Africa’s GDP growth reaching 3.6% by 2025, compared with the IMF’s baseline view of 1.4%.

Consequently, this would reduce South Africa’s fiscal deficit from 8.3% of GDP in 2021 to 1.8% of GDP by 2025.

There is no getting around the difficult decisions and hard work needed to drive the economy forward.

Angelika Goliger is chief economist at EY.

COMMENTS   5

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So the easy way out is to advocate immigrants to replace the mainly white emigrants so you can tax them.
Smell of Cubans coming !!

Anything to boil frogs hey ????

“The quickest intervention to boost the supply of individual taxpayers is to simply import more skilled workers.”

Even though First World countries like the UK, North America and the EU have their own political and social issues, they pale in comparison to ours where the murder and safety rate is off the charts in comparison. Two years ago SA was ranked the fifth most dangerous country out of the 144 countries covered. It only placed above Liberia, Venezuela, Gabon, and Afghanistan. The Gallup Law and Order Index.

Why on earth would a young family want to come here, considering the crime, corruption, abysmal public schooling or stratospherically expensive if private? Medical expenses are exorbitant and the quality of lifestyle and social standards fall way behind Australia where more than 35% of the working population have a proper BA degree.

There is no public transportation and on the Reef the quality of air pollution and water is chronically bad. Down here in the retirement belt of the Southern Peninsula of Cape Town, the air is wonderfully clean, but you may be invaded by baboons breaking into your home, trashing the kitchen and have to be on constant alert with any opening locked and barred.

Sorry Ms Goliger, nice try but no cigar.

The South African GDP in dollar terms has increased by 30% since Luthuli House has come to power. The GDP of Ethiopia rose by 300%, ten times more, over the same period.

Local industrial manufacturing is dying a slow death. We need investments of 30% of GDP in investments in industrial manufacturing annually to enable sustainable GDP growth of more than 3% per year. The current rate of investments is 10% of GDP and shrinking. We are consuming the investment capital that is supposed to finance the tax base. Luthuli House uses various taxes to turn capital values of factories, plant and equipment, residential property, and infrastructure into consumption where it ends up as sewerage that fills the potholes in ANC municipalities.

Our wealth in mineral resources offers enormous potential for economic growth. Industrial capacity, resource wealth, human potential, efficient capital markets, and an untapped labor force remains underutilized because South Africans prefer redistributive policies over food. Locals don’t mind if they are unemployed, poor, and hungry, as long as they have a nice minimum wage policy, a law that protects the monopoly of militant labor unions, BEE policies, and redistributive municipal rates and taxes. They see the investor as their enemy, to be exploited, attacked, abused, and plundered.

Local voters thrive on socialist dogma. They feed redistribution policies to their children to satisfy their hunger pains. They don’t need taxpayers. That is a European colonialist concept.

The only virtue of socialism is the shared misery and poverty by all !!

A question not answered here is whether foreigners still feel safe coming to SA.

Another one is whether the SA govt is doing enough to stimulate the economy or if it should be replaced…

And perhaps another missed trend is the number of young professionals now working for foreign companies online…

Do we have answers? Does the ANC have answers?

End of comments.

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