With SA finding itself in the top 10 countries with the highest tax-to-GDP ratio, personal income tax has become more important as a source of government revenue in recent years.
Income tax contributed over a third of the R1.22 trillion in taxes collected by government in 2017-18, according to a Statistics SA report.
According to the International Monetary Fund’s (IMF) figures of the 115 countries for which data are available, South Africa is ranked in eighth spot behind New Zealand and Sweden.
The report states that the second biggest source of tax was value-added tax (VAT), followed by company income tax.
“Tax revenue has been increasing despite weak economic growth. The tax-to-GDP ratio, which gives a sense of the tax burden, shows tax revenue as a percentage of gross domestic product (GDP). In 2017-18, South Africa’s tax-to-GDP ratio was 25.9%,” the report reads.
The 2008-09 global financial crisis, which resulted in SA’s first economic recession since 1994, was particularly hard on businesses and revenue from company income tax declined in 2009-10. Since then it had grown at a much slower rate than the amount collected from personal income tax.
“For a nation that has a high ratio but where taxpayers are receiving good value for money, a high tax burden might not be that detrimental. Countries such as Denmark, Sweden and Norway have high tax-to-GDP ratios, but these nations report the highest standard of living.”
- Personal income tax contributed 38% of the R1.22 trillion in taxes collected last year.
- The second biggest source of tax was value-added tax at 24%, followed by company income tax at 20%. – Stats SA