How much is the tax burden, really?

It is not surprising that reports of a new investigation into the viability of an additional provincial levy on fuel were met with 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 use 10 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 South Africa.

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