In recent years, personal income tax has become an important source of revenue for the South African government, Statistics South African (Stats SA) has said.
This is according to the agency’s latest publication which provides a breakdown of the latest tax data from the national government.
According to Stats SA’s financial statistics of the national government report, personal income tax contributed over a third of the R1.22 trillion in taxes collected in the 2017/18 fiscal year.
The report also revealed that the second biggest source of tax was value added tax (VAT), followed by company income tax.
“The tax mix looked starkly different a decade ago. In 2008/09, the national government collected about the same amount of personal income and company income tax: contributions that year were 31% and 30% respectively.
“The 2008–2009 global financial crisis, which resulted in South Africa’s first economic recession since 1994, was particularly hard on businesses. Revenue from company income tax declined in 2009/10, and since then has grown at a much slower rate than the amount collected from personal income tax,” Stats SA said.
The agency said despite weak economic growth, tax revenue has been increasing despite weak.
“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 agency said.
The tax-to-GDP ratio peaked at 26.4% in 2007/08, Stats SA said, explaining that “the higher the percentage, the higher the amount of tax collected relative to the size of the economy”.
“South Africa finds itself in the list of top ten countries with the highest tax-to-GDP ratio, according to the International Monetary Fund’s (IMF) figures. Of the 115 countries for which data are available, South Africa is ranked in 8th spot, just behind New Zealand and Sweden. Notably, our neighbours Namibia and Lesotho are higher up on the ladder in 2nd and 3rd places, just behind Denmark, the front runner,” the agency said.
It added: “South Africa finds itself ahead of other countries such as the United Kingdom (25.7%), Australia (22.2%), Brazil (12.7%) and the United States (11.9%). The world average, according to the IMF, was 15.4% in 2017.
“Is having a high GDP-to-tax ratio a good or a bad thing? It depends on each country. 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.”
Stats SA further said that a very low tax-to-GDP ratio could be problematic as it may be a sign of an inefficient tax system.
“A government will struggle to provide services, build infrastructure or maintain public goods if it fails to collect taxes during periods of strong economic growth. Indonesia, for example, has in recent years committed itself to raise its tax-to-GDP ratio from 10% to 15.4%
“The tax-to-GDP ratio alone provides no indication of good governance, the efficiency of the taxation system in the country, nor the way in which taxes are used or distributed.”
(Compiled by Makhosandile Zulu)