SA’s exorbitant tax burden is grossly out of line with the rest of Africa

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The issue of brain drain in South Africa has rapidly accelerated over the last few years. The resultant erosion of our country’s skill base poses a serious threat to the economic recovery of South Africa. What makes this reality even more sobering is the fact that skilled South Africans are departing the country despite the onerous pension fund amendments which make it troublesome to access your pension in the event of emigration. An incompetent government and unstable political climate are amongst the myriad reasons behind the country’s ever-shrinking tax base. In this article by Dr BC Benfield, the inordinate tax burden carried by South Africans is explored in depth. South Africa has one of the highest company tax rates in Africa at 38.8% and one of the highest rates of personal income tax in the world – driving away desperately needed skills and business. – Nadya Swart

Are South Africans the highest taxed in Africa?

By Dr BC Benfield*

Driving Away Employment:

If the ANC government wishes to retain the last few remaining local and foreign employers left in South Africa, let alone attract new ones, it is going to have to bring corporate and personal taxation in line with the rest of Africa, if not with the world.

African Rates of Tax:

Source: IMF & World Bank 2021: Approximates

Additional Taxes Paid by South Africans:

In addition to the above, South Africans pay many further direct and indirect taxes. Examples include excise duties on the purchase of everyday items like:

  • Wine: 11%
  • Beer:  23%
  • Whiskey: 36%
  • Cigarettes:  52%
  • Petrol: 68%  (i.e. R68 of every R100 spent on fuel goes to tax!)

Over and above these charges, South Africans pay a further 15% VAT on most of the above items.

Then there are taxes on wealth and assets, including:

  • Buying Property: Taxes slide up to 13% on purchases from R10m
  • Municipal Property Rates: R822,00 per R100,000 value in Johannesburg
  • Capital Gains: Applied at punitive rates to sales of assets by Individuals (18%) and Companies (22,4%)
  • Double taxation on basic services: In many instances there is effectively another 100% tax for persons to establish and maintain or to supplement the provision of services that the state and municipalities are expected to supply from taxes already paid. These include electricity, water, refuse removal, sewerage services, healthcare, security and education, either not provided at all, or provided at unacceptably low standards.
  • Estate duty: On death, a further 20% of your assets above R3,5m goes to government.

Driving away Business:

One cannot seriously expect to attract and build desperately needed employment opportunities when South Africa has one of the highest company tax rates in Africa at 42,4% (28% + 20% on dividends). What hope do we have when our neighbours like Botswana levy only 20% and Mauritius just 15%?

There are at least seven countries in the world where company taxation is zero. How do we possibly compete with them? There are another 15 countries where total company taxation is less than 15%. Many more have corporate tax rates of less than 30%. The overall global company tax rate average is less than 24%.

Is South Africa where foreign or even local businesses would want their company to be an employer?

Driving away Skills:

Apart from one of the highest rates of company taxation, South Africa also boasts one of the highest rates of personal income tax in the world. At a maximum marginal rate of 45% (payable on earnings from a paltry US$115,000 pa.) it is the second highest in Africa after Cote d’Ivoire. Every other African country has a lower rate of personal tax. How do we intend to compete with African tax rates that average two thirds of ours, and with several very much lower than ours?

As mentioned, one should not forget that a further 15% VAT is paid almost every time a South African employee spends hard-earned, after-tax income.

Having to pay twice for the same basic services of security, policing, schooling, health care, stable water and electricity supplies and the like, makes South Africa an ever less attractive jurisdiction.

This distinct lack of appeal as a place of residence, employment or investment, is made yet more unattractive through crime and the incessant threats of further state confiscation of assets without compensation, property already paid for with declining after-tax earnings.

Burgeoning Size of South African Government:

The South Africa government has been repeatedly warned by leading economists, including those at the International Monetary Fund (IMF) and World Bank, that as a percentage of the national economy the size of its government is far too big. In the current 2020/21 tax year, National Treasury has estimated total government expenditure could rocket up to 41% of Gross Domestic Product (GDP). This is almost 60% bigger than it was in the year 2000 when it was just  25,9% of GDP.

The World Bank and IMF statistics show that our neighbouring countries have much smaller governments than ours, thus placing far less burden on the productive sectors of their economies.

Compared to South Africa’s 41% of GDP, the chart above shows that the relative size of our neighbouring governments is positively minor.

We are grossly out of line with our fellow African neighbours, let alone the rest of the world.

To overcome the triple scourge of poverty, unemployment and inequality in South Africa, the ANC government might begin by eliminating the excessive rates at which it taxes its private and corporate citizens. At the very least it might seek to match some of the highest tax rates in the world with the provision of equivalent world-class state services. The latter is impossible given the absence of state capacity; the former is possible but demands will,  commitment and discipline from a government whose people have apparently long abandoned any genuine desire to uplift and care for their people.

  • Dr B C Benfield, Retired Professor, Department of Economics, University of the Witwatersrand. The views expressed in this article are the author’s and are not necessarily shared by the members of the Free Market Foundation.

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