A ‘welfare state’ of affairs

EVERY consumer, employed or unemployed, ultimately pays a price for their seat in South Africa through indirect taxes like VAT (value added tax), fuel levies and sin taxes.

‘If you buy a Coke, you contribute tax to this country,’ said KZN Provincial Treasuries General Manager of Economics and Executive Support Clive Coetzee.

But of the total R813.8 billion collected by the South African Revenue Services (SARS) in the 2012/2013 fiscal year, 56% (R459.6 billion) derived from direct taxes comprising personal income tax, company income tax and secondary taxes on companies (STC).

And according to Solidarity Research Institute (SRI) Senior Economic Researcher Paul Joubert, the entire burden of this bulk amount rests on the shoulders of a few million taxpayers.

‘The actual number of taxpayers is very small,’ said Joubert.

‘According to the South African Revenue Service (SARS) 13,7 million people were registered for personal income tax during the 2012 tax year.

‘Of this group, 3,7 million taxpayers paid 96% of all income tax, while 2,7 million paid 90%, and a mere 1,7 million were responsible for 80%.’

Head of Department of the Economic Faculty at the University of Zululand Dr Irrshad Kaseeram said the low tax base is indicative of enduring inequality, an unemployment crisis and skilled South Africans leaving the country for better prospects elsewhere.

‘More than a million highly skilled South Africans have immigrated, which eroded the tax base further and reduced the employment and entrepreneurial opportunities as each skilled person creates additional employment of at least 1.5 persons,’ said Kaseeram.

‘Expanding the tax revenue base ought to be one of the main objectives for government to pursue.

‘If they don’t, government will be forced to tax the few taxpayers more and will be forced to borrow more.

‘Higher taxes will mean less disposable income to spend and will lead to a weaker economy and lower employment while higher borrowing will increase interest rates, crowd out private investment and result in capital flight.

‘Foreign investors will see the government as risky and this will eventually lead to political instability since the poor will revolt!’

Dependency dilemma

Kaseeram believes South African is a ‘welfare state’ having to, this year, support 16.5 million people through social security grants while being heavily dependent on the exports market.

‘When the global economy is in recession it means we suffer losses in foreign income and surviving local businesses will be forced to lay off workers.

‘The government will again need to raise taxes or borrow more to sustain its welfare state.’