Tax burden a barrier to SA’s economic growth
By Neil De Beer and Zaid Railoun
JOHANNESBURG - If you Google today in your search engine “South Africa’s population today” it will show 59.530603 million.
And if you search for “annual tax report published by National Treasury and the South African Revenue Service (SARS) payers 2019” the first paragraph gives you the core reason why public infrastructure is worsening and living standards for a large section of the population are falling.
Debt levels continue to rise, as does the unemployment rate and all are related to the 56 million people that do not pay tax as only 3 million carry the burden of a nation.
South Africa's economic growth in the last few years has simply underperformed and lagged behind the global as well as emerging markets even to the point that Nigeria is the best economy on the African continent.
Our current gross domestic product performance on a per capita basis is the weakest since the 1960s, according to the Tax Statistics of 2019. So, it is vehemently obvious that a handful of taxpayers cannot fund schools, roads, water networks and hospitals and the various social grants for a country that is continually growing.
As I am speaking, 10 people were added to the population number. To make matters worse tax estimates for 2020 are speculated to vary from somewhere between R150 billion and R250bn in under-collections due to our global Zootonic friend, Covid-19. The question remains how many billions will be collected at the end of this year from personal income tax as more than 30 000 companies were battered by Covid-19, which is still in “lockdown”.
SARS and the Treasury have exhausted their options in raising more tax from individuals’ salaries, as revenues from the tax are simply constrained due to low business and investor and consumer confidence for the last couple of years.
The year 2018 was a prime example, where low economic growth reduced tax revenues while government spending continued to increase on state-owned enterprises, particularly Eskom and the 10 years of state capture. So how can we solve the problem? Well, as a nation we can downsize the bloated government sector and its wage bills. Last year, the World Economic Freedom Index, designed by top scholars from many specialities, including three Nobel Laureates, was perplexed by our large government for a nation still in its developing stage.
Another possible regime could be to implement a “friendly” tax regime as a direct stimulus to the economy. Develop local businesses, small, medium and micro-enterprises and reduced tax will be a direct incentive for growth.
When you look at the research of the World Economic Freedom Index it found that South Africa’s high, top marginal tax rate prevents the country from building wealth and increasing wealth. South Africa’s top marginal income tax rate is at 41percent compared to the low percentages found for its sub-Saharan competitors and even the world average, which is at 28percent.
Reduce company tax as US President Donald Trump and the UK did even before Covid-19. I think company tax should be reduced to 15 to 17percent, because it is simple, the higher tax will generate less income.
Reducing it can allow more companies to be established as from 2015 the number of companies registered at SARS declined from 3.2 million to the present 2 million and we need more companies, because we need food on the table, our people need work.
Most important of all is we need structural reforms such as stabilising state-owned enterprises, particularly Eskom, the political will to implement the National Treasury’s growth plan and palpable action to recover all our “bad decisions in the past 20 odd years” to push forward a solidified plan for the future of our country. And as I finish this article with you, 300 people were born since, and I have not read online opportunities created to fix an economy that has failed to generate the growth necessary to produce a better life for all South Africans.
We look forward to this game-changer plan for South Africa, but I must conclude by saying with only our independent vote in 2024 can we change, and only through educating ourself of the changes happening now in the voting process can we change South Africa for only ourselves.
Neil De Beer is the president of the IFA and advises numerous African states on economic development. www.ifa.africa or [email protected]