According to the Solidarity Research Institute, consumers could start paying more tax in order to cover government's expenditure.
The South African tax base is small, yet it brings in 70% personal income tax, according to the Solidarity Research Institute’s quarterly report,
the Real Tax issue.
Piet le Roux, head of the Solidarity Research Institute, explained: “Out of a population of 55 million people, of which about 30 million are of working age, a mere 1.1 million people pay 70% of all personal income tax. This distorted situation also exists with regard to other types of taxation such as company tax and VAT.”
In the report, Le Roux and Gerhard van Onselen, from the Solidarity Research Institute, highlighted that government expenditure has increased, which means that more tax needs to be generated in order to cover the government’s increasing debt.
“While the state’s net borrowing requirement in the two five-year terms before 2009 was an average of R50 billion, it has, in the five years since, shot up to nearly R700 billion. Given the political unpopularity that any curtailment of government expenditure will cause, productive South Africans are probably destined for higher taxes and their children are destined for higher public debt,” said Le Roux and van Onselen.
“You pay more tax than you think you do”
According to Le Roux, “You pay more tax than you think you do. And in the future you will probably pay even more.” He
pointed out that former Minister of Finance Pravan Gordhan attempted to placate tax payers through a so-called ‘tax-relief’. However, since 2012, according to Le Roux, personal income tax has increased annually as income tax brackets were not sufficiently adjusted for inflation.
This led to the current Finance Minister Nhlanhla Nene announcing changes to the income tax brackets in his budget speech earlier this year.
“Someone who earned a pre-tax income of R25 000 per month in 2012, and received CPI inflation related increases since then, will in real terms pay six percent more in income tax this year. And then we have not even mentioned more unobtrusive taxes such as the increase of 42% in the fuel levy, higher carbon tax, inflation and various increases in import tariffs,” revealed Le Roux.
And some good news…
Consumers gained some relief last week when the South African Reserve Bank (SARB) announced that it would leave the
prime lending rate (repo rate) unchanged at 5.7%.
However, according to Kelli Knutsen, marketing manager of DebtBusters, this is not a relief for over-indebted consumers. “Consumer debt levels in South Africa are still too high and we need repo rate reductions, so that the debt levels can be reduced to more manageable amounts.”
She added: “Recent client statistics released by DebtBusters have indicated that consumers entering into the debt counselling process and earning less than R5 000 per month are already financially crippled, as the average interest rate for unsecured credit agreements is 24%, the highest amount recorded in six years.
“The unchanged rate will give the South African consumers with large amounts of debt a second chance to resolve their finances while they still can but will also provide no short-term relief, as the interest on these debts will stay the same.”
While consumers are struggling with debt, the country’s gross national debt has been increasing over the past six years, noted Le Roux. “More debt means higher debt servicing costs, even in an environment of low interest rates. Given the tide of increasing government spending, debt servicing costs and difficult economic circumstances, taxpayers must brace themselves for tough times ahead.”
