This year's Tax Freedom Day in South Africa comes on Monday, a couple of days later than last year.
It is the day on which the average South African taxpayer has earned enough money to cover this year's tax bill and can now spend money on themselves, according to economists.
In effect, the total earnings of the average South African taxpayer from January 1 to May 11 this year is equal to the total taxes they have to pay for this year.
The Free Market Foundation calculates this day annually by using gross domestic product and total taxes paid. These taxes include most of the 21 taxes levied in South Africa as identified in the PricewaterhouseCoopers Total Tax Contribution project.
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Garth Zietsman, who was responsible for the calculation, said: "This means that 132 days have been spent working for the government and only from May 12 do individuals start working for themselves and their families.
"This spend can vary greatly between families but may include improvements to the house, that new car, a holiday or simply saving amounts for the trying times that may lie ahead."
Foundation director Eustace Davie added: "South Africa was rated at 5.6 out of 10 in the size-of-government category (of which tax is a component) in the latest economic-freedom-of-the-world ratings and ranks 89th out of the 141 countries rated in the study."
The size-of-government category measures the extent to which a country relies on choice and markets rather than government budgets and political decision-making.
"South Africa could achieve higher growth rates by reducing taxes and government involvement in the economy," he said.
Tax Freedom Day in the US fell on April 23 while in Australia it was April 24. This means the average South African pays proportionately more taxes to income earned than the average resident in these countries but much less than the average citizen in the UK where Tax Freedom Day is on June 2, or Germany where the date was July 13 last year.
Davie said the big difference was that in these countries residents are entitled to significant benefits from social security and pay significant taxes in this regard.
Last year, Tax Freedom Day in South Africa was on May 10. A move of two days means the overall tax burden has increased, taking the additional day in the leap year into account, despite Finance Minister Trevor Manuel consistently reducing tax rates in his annual Budgets over the last few years. This extension of two days, despite significant tax relief, may be explained by changes in the tax laws.
The concept of Tax Freedom Day was developed and copyrighted in 1948 by Florida businessman Dallas Hostetler. When he retired it was transferred to the Tax Foundation in the US. The copyright in South Africa is owned by the Free Market Foundation which calculates this day every year.
"The data gathered during the PwC Total Tax Contribution survey makes it possible to calculate the average Tax Freedom Day for the participants who comprise 50 of the largest companies in South Africa, including Sasol, SAB Miller, British American Tobacco and Anglo American," said Charles de Wet, PricewaterhouseCoopers (PwC) tax director.
The purpose of the study was to investigate perceptions that large companies do not pay as much tax as they should.
Tax Freedom Day creates the opportunity to reflect on the tax system and the value that is received for taxes paid.
- This article was originally published on page 12 of Cape Argus on May 11, 2008
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