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The South African tax and spending system
Road Freight Association
Presenter: Cecil Morden | Economic Tax Analysis, Tax Policy | June 2014
Overview
• Introduction
• Real Gross Domestic Product
• How South Africans spend their money
• Main budget balance
• Tax principles, South Africans tax system & tax reforms
• Tax revenue trends in South Africa
• Main tax instruments
• Tax and fiscal incidence
• Additional slides
2
Introduction
• Population of 51.8 million
• ± 15.0 million working (formal & informal);
Age
• ± 5.0 million unemployed;
0 to 14
15 to 64
• unemployment (narrow) = ± 25.0%
65+
Total
Number
15 100 089
33 904 480
2 765 991
51 770 560
%
29.2%
65.5%
5.3%
100.0%
• Gini coefficient (2006):
– Pre- grants, subsidies & taxes (income only) = 0.69
– Post- grants & subsidies = 0.52
– Post- grants, subsidies & taxes = 0.47
“South Africa confronts severe inequality and
high unemployment…” Budget Review, 2012
3
Real GDP growth (%) – annual average
4
Real GDP growth (%) annual
5
Real GDP per capita (@ 2005 prices)
6
How South African households spend their
money: % by main expenditure group
2. Expenditure
Table 2.40 (%) - Average household consumption expenditure by main expenditure group and
expenditure deciles
Expenditure deciles
Lower
2
3
4
Main expenditure group
5
6
7
8
9
Upper
Total
households annual
Food and non-alcoholic beverages
35.0%
35.2%
33.9%
32.1%
29.3%
26.0%
21.3%
15.3%
10.3%
5.6%
12.8%
Alcoholic beverages and tobacco
3.3%
2.8%
2.4%
1.7%
2.0%
1.7%
1.9%
1.3%
1.1%
0.6%
1.1%
Clothing and footwear
Housing, water, electricity, gas and other fuels
7.8%
8.6%
8.6%
8.5%
8.1%
7.8%
7.4%
5.6%
4.2%
2.6%
4.5%
26.0%
22.5%
22.3%
22.1%
23.2%
25.4%
27.2%
32.4%
33.5%
35.2%
32.0%
4.5%
5.3%
5.8%
5.9%
5.7%
5.7%
5.6%
4.7%
4.7%
5.1%
5.1%
Health
1.7%
1.6%
1.5%
1.4%
1.3%
1.3%
1.4%
1.3%
1.5%
1.4%
1.4%
Transport
7.0%
8.6%
9.4%
11.0%
12.2%
12.5%
14.6%
14.7%
15.1%
21.1%
17.1%
Communication
3.9%
3.6%
3.5%
3.4%
3.1%
3.2%
3.1%
3.0%
3.1%
2.5%
2.8%
Recreation and culture
1.2%
1.5%
1.8%
1.8%
2.1%
2.2%
2.3%
2.8%
3.5%
3.5%
3.0%
Education
0.4%
0.4%
0.5%
0.8%
1.0%
1.9%
2.0%
2.5%
3.3%
3.2%
2.7%
Restaurants and hotels
2.3%
2.1%
2.0%
2.4%
2.7%
2.4%
2.4%
2.3%
2.7%
2.4%
2.4%
Miscellaneous goods and services
6.8%
7.7%
8.2%
8.7%
9.1%
9.9%
10.6%
13.8%
17.0%
16.8%
14.7%
Other unclassified expenses
0.1%
100%
0.1%
100%
0.1%
100%
0.1%
100%
0.2%
100%
0.1%
100%
0.1%
100%
0.1%
100%
0.1%
100%
0.2%
100%
0.1%
100%
Furnishings, household equipment and routine
maintenance of the dwelling
Total
Source: Statistics South Africa, Income and Expenditure Survey,
2010/11
7
How South African households spend their money:
Cumulative % across income deciles
Table 2.40 (%) - TOTAL household consumption expenditure by main expenditure group and expenditure deciles
Expenditure deciles
R' 000 - TOTAL
Lower
2
3
4
Main expenditure group
5
6
7
8
Upper
9
only
Total
TOTAL- Cumulative %
Food and non-alcoholic beverages
2.7%
7.5% 13.7% 21.3% 30.2% 40.5% 52.1% 64.9% 79.6% 20.4%
100%
Alcoholic beverages and tobacco
3.0%
7.5% 12.6% 17.4% 24.3% 32.2% 44.5% 57.2% 75.7% 24.3%
100%
Clothing and footwear
Housing, water, electricity, gas and other fuels
1.7%
5.0%
9.5% 15.2% 22.3% 31.1% 42.6% 56.0% 73.0% 27.0%
100%
0.8%
2.0%
3.7%
5.7%
8.6% 12.6% 18.5% 29.3% 48.6% 51.4%
100%
Furnishings, household equipment and routine
maintenance of the dwelling
0.9%
2.7%
5.3%
8.8% 13.1% 18.8% 26.4% 36.3% 53.2% 46.8%
100%
Health
1.2%
3.1%
5.5%
8.6% 12.2% 16.8% 23.6% 33.6% 52.6% 47.4%
100%
Transport
0.4%
1.3%
2.6%
4.5%
7.3% 11.0% 16.9% 26.1% 42.3% 57.7%
100%
Communication
1.4%
3.6%
6.4% 10.1% 14.4% 20.1% 27.8% 39.3% 59.3% 40.7%
100%
Recreation and culture
0.4%
1.3%
2.7%
4.5%
7.2% 10.8% 16.0% 25.8% 46.7% 53.3%
100%
Education
0.2%
0.4%
0.9%
1.8%
3.3%
6.9% 12.0% 22.1% 44.8% 55.2%
100%
Restaurants and hotels
0.9%
2.4%
4.4%
7.4% 11.7% 16.7% 23.7% 33.7% 54.0% 46.0%
100%
Miscellaneous goods and services
0.5%
1.4%
2.7%
4.5%
6.9% 10.3% 15.3% 25.4% 46.6% 53.4%
100%
Other unclassified expenses
0.7%
2.0%
4.3%
6.5% 11.1% 15.8% 22.3% 32.8% 48.8% 51.2%
100%
Total: Cumulative %
1.0%
2.7%
5.1%
8.1% 12.0% 17.1% 24.1% 34.8% 53.2% 46.8%
100%
Source: Statistics South Africa, Income and Expenditure Survey, 2010/11
8
Main Budget: Income & Expenditure as a % of GDP
9
Main budget deficit / surplus &
debt-service costs as a % of GDP
10
Main budget: expenditure, revenue,
deficit & surplus
11
Consolidated fiscal framework – Budget 2014
Table 3.1 Consolidated fiscal framework, 2010/11 – 2016/17
2010/11
R billion/percentage of GDP
Revenue
2011/12
2012/13
Outcom e
2013/14
2014/15
2015/16
2016/17
Estim ate
Medium -term estim ates
762.9
27.7%
842.3
28.2%
909.3
28.4%
1 010.5
29.2%
1 099.2
29.0%
1 201.3
28.9%
1 324.7
29.1%
804.6
29.6%
871.3
29.4%
951.7
29.9%
1 041.6
30.2%
1 131.1
30.0%
1 218.1
29.5%
1 306.5
28.8%
75.3
2.7%
81.7
2.7%
93.5
2.9%
107.7
3.1%
121.2
3.2%
133.5
3.2%
145.1
3.2%
Expenditure
879.9
32.0%
953.1
32.0%
1 045.2
32.7%
1 149.3
33.2%
1 252.3
33.0%
1 351.6
32.6%
1 451.6
31.9%
Budget balance
-117.1
-4.3%
-110.8
-3.7%
-135.9
-4.3%
-138.8
-4.0%
-153.1
-4.0%
-150.3
-3.6%
-126.9
-2.8%
Non-interest expenditure
Interest payments
Source: National Treasury

Revenue stabilises at around 29 per cent of GDP over the medium term

Non-interest expenditure declines from 30.2 per cent of GDP in 2013/14 to 28.8 per cent of GDP in
2016/17

As economic growth improves and spending limits stay in place, the budget deficit is projected to
narrow to 2.8 per cent of GDP by 2016/17
12
Expenditure - Budget 2014
Real main budget non-interest expenditure growth, 2003/04 – 2016/17
Source: National Treasury
13
Consolidated expenditure – 2012/13
2012/13
Main budget
Rand million
%
965 495.6
92.4%
Social security funds
25 870.5
2.5%
Public entities
43 435.5
4.2%
Provinces
6 710.2
0.6%
RDP Fund
3 699.9
0.4%
1 045 212
100%
Consolidated government
expenditure
Consolidated Government Expenditure:
Functional Classification
Rand million
General Public Services
Consolidated Government Expenditure:
Economic Classification
2012/13
%
2012/13
Rand million
%
%
158 927.3
15% 3
Defence
37 851.0
4% 8
Public Order of Duty
Economic Services & Infra..: Transport,
Energy, etc..
99 905.9
10% 7
: Compensation of employees
374 977.2
36%
124 633.9
12% 5
: Goods & services
167 938.2
16%
7 127.8
1% 10
93 466.9
9%
Housing and Community Amenities
117 227.4
11% 6
Health
127 890.0
12% 4
7 720.0
1% 9
Education
212 316.5
20% 1
Payments for Financial Assets
Social Protection
151 612.0
15% 2
Total Consolidated Expenditure
Total Consolidated Expenditure
1 045 212
Environmental Protection
Recreation and Culture
Current Payments
636 382.2
61%
of which
: Interest and rent on land
Transfers and subsidies : to Households, Provinces,
Municipalities, Public Entities, NGOs, etc.
336 747.8
32%
Payments for Capital Assets: Buildings, Machinery &
equipment, etc.
67 141.5
6%
4 940.1
0.5%
1 045 212
100%
100%
14
Consolidated expenditure: 2007/08 to 2012/13
Consolidated Government Expenditure: Functional Classification
General Public Services
Defence
Public Order of Duty
Economic Affairs
Environmental Protection
Housing and Community Amenities
Health
Recreation and Culture
Education
Social Protection
Total Consolidated Expenditure
2007/08
2008/09
14.9%
4.9%
10.2%
12.9%
0.5%
8.3%
11.0%
1.5%
19.6%
16.3%
100%
Consolidated Government Expenditure: Economic Classification
Current Payments
2009/10
14.1%
4.5%
9.9%
14.2%
0.5%
8.4%
11.0%
1.4%
20.0%
15.8%
100%
2007/08
2010/11
13.1%
4.4%
9.6%
15.8%
0.4%
8.8%
11.6%
1.0%
19.6%
15.6%
100%
2008/09
2011/12
14.2%
3.6%
10.1%
12.9%
0.4%
9.7%
12.1%
0.8%
20.5%
15.6%
100%
2009/10
2012/13
14.7%
3.7%
9.9%
11.1%
0.4%
10.1%
12.5%
0.8%
21.4%
15.2%
100%
Rank
12/13 vs.
07/08
15.1% 3
3.8% 8
10.0% 7
10.5% 5
0.5% 10
10.3% 6
12.7% 4
0.7% 9
21.1% 1
15.2% 2
100%
2010/11
2011/12
0.2%
-1.1%
-0.2%
-2.4%
0.0%
2.1%
1.7%
-0.8%
1.5%
-1.1%
2012/13
59%
58%
57%
59%
61%
61%
33.0%
32.7%
33.1%
35.2%
36.3%
35.9%
17%
17%
17%
16%
16%
16%
10%
8%
8%
9%
9%
9%
35%
34%
32%
32%
32%
32%
Payments for Capital Assets: Buildings, Machinery & equipment, etc.
6%
7%
7%
6%
7%
6%
Payments for Financial Assets
0%
2%
4%
3%
0%
0%
100%
100%
100%
100%
100%
100%
of which
: Compensation of employees
: Goods & services
: Interest and rent on land
Transfers and subsidies : to Households, Provinces, Municipalities, Public Entities, NGOs,
etc.
Total Consolidated Expenditure
15
Allocations - Department of Transport
R'000
1 Departmental baseline
SANRAL: National Road Agency: Capital
SANRAL: National Road Agency: Coal haulage
PRASA: Passenger Rail Agency of SA
Compensation of employees
Other
2 Conditional Grant to Local Government
Public Transport: Infrastrcuture & Network
Operations
3 Conditional Grant to Provincial Government
Provincial Road Maintenance
Public Transport Operation
4 Net additions (e.g. PRASA)
5 TOTAL
Transport - National - Budget Allocations
2012/13
2013/14
2014/15
23,021,852
28,418,447
29,725,696
6,394,541
7,515,300
7,849,560
648,910
665,498
696,111
7,481,110
10,710,959
13,865,547
381,322
405,748
430,101
8,115,969
9,120,942
6,884,377
5,589,135
5,912,264
6,184,228
13,093,000
8,540,479
4,552,521
571,313
42,275,300
13,735,539
8,952,830
4,782,709
156,960
48,223,210
14,367,374
9,364,661
5,002,713
3,100,381
53,377,679
16
Why taxes ?
• Government is tasked with provision of public goods, infrastructure and
services to the benefit of all citizens
• Public delivery of goods, infrastructure and services require a shift of
resources from the private economy to the public system
• Good fiscal policy rests on three pillars:
– Sufficient revenue to cover public expenses [tax policy];
– An optimal allocation of scarce
public funds to carry out
government’s commitments [expenditure policy];
– Prudent management of fiscal shortfalls [public debt management].
•
-
“To tax and please is not given to me, but to tax and be fair is”.
Nani A. Palkhivala
17
Taxpayers expectations ?
a social contract
“If people want more public services and trust that their government will
try to deliver such services as effectively and efficiently as possible,
they are more likely to support efforts to raise taxes than they are when
experience has taught them to expect little in the way of benefits from
increased government activity (as has happened in too many countries).
This view implies that taxes imposed without adequately representing the
interests of the people being taxed are unlikely to be collected easily
(and will not be productively spent)”.
-
Richard Bird, “Taxation and Development”, Economic Premise Nr. 34,
The World Bank (October 2010)
18
The main principles of a good tax
• Efficiency:
•
•
•
•
The tax system must produce sufficient income for the
state, with minimum distortions to the economy.
Equity:
All residents must contribute to the fiscus in proportion to
their ability to do so. Both horizontal and vertical equity are
important.
Simplicity:
As far as possible, taxes should be simple to understand
and should be collected in a timely and convenient manner.
Transparency & certainty: The manner in which taxes are collected and
the calculation of tax liabilities should be certain. Tax rules
and procedures should be transparent.
Tax buoyancy: The tax system should raise sufficient revenue during all
phases of the business cycle, while it lends support to a
counter-cyclical fiscal framework.
19
Promote economic growth
(US – report on taxation, 2005/06)
• Reducing the likelihood that households or businesses will
alter economic behaviour because of special benefits
• Promoting savings throughout the economy, especially at
household level
• Equalizing the tax treatment of several forms of corporate
financing, raising the incentives for companies to issue
equity rather than debt to finance growth
• Reducing the compliance burden for small businesses.
Providing them with an immediate write-off for all purchases
of new tools and equipment
• Reducing the double-tax on corporate profits
• Updating our international tax system
20
Consider the tax (& spending) system as a
whole – Mirrlees Review, 2011
• Consider the system as a whole:
– A good tax system should be structured to meet overall spending
needs and the earmarking of revenues for particular purposes
should be avoided.
– Not all taxes need to address all objectives.
– Not all taxes need to be progressive as long as the overall system is.
– Generally, the right tools for achieving distributional objectives are
direct personal taxes and benefits / spending.
– PIT can be designed to achieve the desired degree of progressivity;
other aspects of the tax system can be focused on achieving
efficiency.
(Source: Institute for Fiscal Studies (IFS), 2011. Mirrlees Review: Reforming the tax system for the 21st century, Tax by Design)
21
Tax reforms & tax revenue since 1994 (1)
• From 1994 to 1999, revenue growth was largely supported by personal
income tax, which constituted 41 per cent of total tax revenue by 1999/00.
• Corporate income tax revenue grew strongly between 2000/01 and
2008/09 in line with robust economic growth, the commodity boom and
improved compliance.
• Government introduced efforts to expand the tax base – known as base
broadening – including capital gains tax and measures to limit tax
avoidance, reinforced by South African Revenue Service (SARS)
administrative reforms to improve compliance.
• These measures allowed for a reduction in the headline corporate income
tax rate from 40 to 28 per cent.
• The secondary tax on companies was replaced with a 15% tax on dividends.
22
Tax reforms & tax revenue since 1994 (2)
• Measures were introduced to enhance the competitive position of businesses
and the economy, including incentives to support industrial policy, skills
development, urban development zones, and research and development.
• The top marginal personal income tax rate was reduced from 45 to 40 per cent,
and personal income tax brackets and thresholds were increased to provide
relief from inflation.
• The fairness of the tax system is undermined if individuals and businesses are
able to structure their affairs to avoid paying income tax or artificially (yet
legally) reduce their income tax payments – amendments to tax legislation over
time have sought to curtail these loopholes.
• The tax system plays an important role in addressing market failures, as
governments around the world look for a more effective combination of
interventions (both regulations and taxes) to deal with challenges related to
solid waste, water pollution, local air pollution, climate change, etc.
23
Key Tax Instruments in SA: National
•
•
Direct Taxes
– Personal Income Tax /
Individuals
– Corporate Income Tax
– Dividend withholding tax
(Previously Secondary Tax on
Companies)
– Estate Duty
– Donations Tax
– Payroll Taxes
• Skills Development Levy
• Unemployment Insurance
Fund
24
Indirect Taxes
– Value Added Tax (VAT)
– Excise Duties (Specific and Ad
Valorem)
– Custom Duties
– Transfer Duties (Properties)
– Security Transfer Tax (Financial
transactions - shares)
– Environmentally-related taxes
• Fuel Levy
• Electricity levy – nonrenewable generation
• Air Passenger Departure Tax
• Plastic Bag Levy
• Tax on incandescent light
bulbs
• CO2 Motor vehicle CO2
emissions tax
Other revenue instruments in SA
• Other: non-tax revenue
– Mineral & Petroleum Royalties
• Provincial Government
– Gambling Taxes
– Motor Vehicle Licence Fees
• Local Government
– Property rates
– Surplus from Electricity sales by Municipalities
25
Main tax revenue instruments
Tax revenue by instrument as a % of National Budget Revenue
1993/94
1999/00
2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13
Individuals
39.1%
43.3%
29.2%
30.1%
32.0%
35.4%
33.9%
33.8%
35.0%
VAT
26.3%
24.4%
27.9%
26.9%
25.3%
25.5%
27.4%
25.8%
27.4%
Companies
11.9%
10.6%
24.7%
25.0%
27.2%
23.3%
19.8%
20.5%
20.3%
Fuel levy
8.1%
7.2%
4.5%
4.2%
4.1%
5.0%
5.1%
4.9%
5.1%
Specific excise
4.8%
4.5%
3.4%
3.3%
3.3%
3.7%
3.4%
3.4%
3.6%
Customs duties
3.5%
3.3%
4.9%
4.7%
3.7%
3.4%
4.0%
4.6%
4.9%
STC / Dividends
0.9%
1.6%
3.2%
3.7%
3.3%
2.7%
2.6%
3.0%
2.5%
Sub Total
94.6%
94.9%
97.9%
97.9%
98.9%
98.9%
96.3%
96.1%
98.9%
Three (PIT, VAT, CIT)
77.2%
78.3%
81.9%
82.0%
84.6%
84.2%
81.1%
80.1%
82.8%
26
Tax / GDP ratio
27
PIT, VAT
(prior to 1991 /92 GST)
& CIT as a % of GDP
28
Direct and Indirect tax revenues
29
Longer-term tax revenue trends
Nominal tax revenue collections, 1994/95 – 2012/13
Individuals
R million
Companies
CAGR1
R million
Value-added tax
CAGR1
13 591
R million
CAGR1
29 288
Total tax revenue
R million
CAGR1
1994/95
44 973
113 775
1999/00
85 884
13.8
20 972
9.1
48 377
10.6
201 266
12.1
2004/05
110 982
5.3
70 782
27.5
98 158
15.2
354 979
12.0
2008/09
195 146
15.2
165 539
23.7
154 343
12.0
625 100
15.2
2012/13
275 822
9.0
1. Compound annual growth rate (percentage)
159 259
-1.0
215 023
8.6
813 826
6.8
30
Tax revenue – 2013/14
Tax Revenue Estimates for 2013/14 (R million)
2013
Budget
Review
2013
MTBPS
2013
MTBPS vs.
2013
Budget
2014
Budget
Review
2014
Budget vs. Actual
2013
2013/14
Budget
Actual vs.
2014
Budget
1. Persons / individuals
306 188
307 700
1 512
308 930
2 742
309 801
872
2. Companies
169 830
170 200
370
176 965
7 135
177 282
317
3. Value-added tax
4. Secondary Tax on Companies /
Dividend Withholding Tax
242 990
242 500
-490
239 286
-3 704
237 781
-1 506
22 930
17 000
-5 930
17 000
-5 930
17 309
309
5. Specific excise duties
31 265
29 200
-2 065
28 943
-2 322
29 138
195
5. Fuel Levy
44 970
43 500
-1 470
43 300
-1 670
43 685
385
6. Custom / import duties
41 340
45 100
3 760
44 500
3 160
44 103
-397
7. Other1
38 491
39 804
1 313
40 076
1 586
40 751
674
Total tax revenue
898 004
895 004
-3 000
899 000
996
899 849
849
Non-tax revenue
23 328
17 950
-5 379
30 541
7 213
29 776
-765
5 900
6 189
289
6 500
600
6 439
-61
Less SACU
-43 374
-43 270
104
-43 374
Total budget revenue
877 958
869 683
-8 274
886 167
of which: Mineral and petroleum royalties
8 209
-43 374
0
886 250
84
1:Includes - transfer duty, STT, estate duty, and other indirect taxes
31
Personal income tax tables
Table 4.1 Personal income tax rate and bracket adjustments, 2013/14 – 2014/15
2013/14
2014/15
Taxable income (R)
Rates of tax
Taxable income (R)
Rates of tax
R0 - R165 600
18% of each R1
R0 - R174 550
18% of each R1
R165 601 - R258 750
R29 808 + 25% of the amount
R174 551 - R272 700
R31 419 + 25% of the amount
above R165 600
R258 751 - R358 110
R53 096 + 30% of the amount
above R174 550
R272 701 - R377 450
above R258 750
R358 111 - R500 940
R82 904 + 35% of the amount
above R272 700
R377 451 - R528 000
above R358 110
R500 941 - R638 600
R132 894 + 38% of the amount
R185 205 + 40% of the amount
R528 001 - R673 100
R140 074 + 38% of the amount
above R528 000
R673 101
above R638 600
Rebates
R87 382 + 35% of the amount
above R377 450
above R500 940
R638 601
R55 957 + 30% of the amount
R195 212 + 40% of the amount
above R673 100
Rebates
Primary
R12 080
Primary
R12 726
Secondary
R6 750
Secondary
R7 110
Tertiary
R2 250
Tertiary
R2 367
Tax threshold
Tax threshold
Below age 65
R67 111
Below age 65
R70 700
Age 65 and over
R104 611
Age 65 and over
R110 200
Age 75 and over
R117 111
Age 75 and over
R123 350
32
Personal income tax - distribution
Table 4.2 Estimates of individual taxpayers and taxable income, 2014/15
Registered individuals
Taxable bracket
Number
0 - R70 0001
R70 001 - R150 000
8 835 791
2 758 078
R150 001 - R250 000
% R million
% R million
Personal income
tax relief
Income tax
payable before
relief
Taxable income
Income tax
payable after relief
% R million
% R million
%
194 445
11.5
25
–
25
–
–
–
43.0
288 161
17.0
18 092
5.2
1 740
18.9
16 351
4.9
1 644 142
25.6
321 624
19.0
41 491
12.0
1 843
20.0
39 648
11.8
R250 001 - R350 000
852 656
13.3
250 125
14.8
43 789
12.7
1 557
16.9
42 232
12.6
R350 001 - R500 000
531 173
8.3
220 166
13.0
48 072
13.9
1 475
16.0
46 597
13.9
R500 001 - R750 000
346 123
5.4
208 636
12.3
55 303
16.0
1 335
14.5
53 969
16.1
R750 001 - R1 000 000
132 917
2.1
114 037
6.7
34 663
10.0
591
6.4
34 072
10.1
R1 000 001 +
154 111
2.4
291 160
17.2
103 760
30.1
685
7.4
103 075
30.7
100.0 1 693 908
100.0
345 169
100.0
9 225
100.0
335 944
100.0
Total
6 419 200
1 888 353
15 254 991
Grand total
1.Registered individuals with taxable income below the income tax threshold
345 194
9 250
335 944
33
PIT reforms between 1998 and 2012
• Between 1998/99 and 2003/04 the bottom income threshold was
increased by 17.7 per cent per annum and that of the top income bracket
by 16.6 per cent per annum
• Between 1998/99 and 2002/03 the marginal rates decreased by between
1 and 9 percentage points :
•
•
•
•
•
•
1 (bottom)
2
3
4
5
6 (top)
by 1 percentage points from 19% to 18%
by 5 percentage points from 30% to 25%
by 9 percentage points from 39% to 30%
by 8 percentage points from 43% to 35%
by 6 percentage points from 44% to 38%, and
by 5 percentage points from 45% to 40%
• Between 2003/04 and 2012/13 the bottom threshold was increased by 9.0
per cent per annum and that of the top income bracket by 9.6 per cent per
annum.
• The marginal tax rates have remained unchanged during this period.
• The tax free threshold was increase by 8.2 per cent per annum since 1998
34
Personal Income tax rates
Taxable Income
PIT bracket
Budget
Tax year
Bottom
Marginal personal income tax rate for the six brackets
Top
1
2
3
4
5
6
1
2013
2013/14
165 600
638 600
18%
25%
30%
35%
38%
40%
2
2012
2012/13
160 000
617 000
18%
25%
30%
35%
38%
40%
3
2011
2011/12
150 000
580 000
18%
25%
30%
35%
38%
40%
4
2010
2010/11
140 000
552 000
18%
25%
30%
35%
38%
40%
5
2009
2009/10
132 000
525 000
18%
25%
30%
35%
38%
40%
6
2008
2008/09
122 000
490 000
18%
25%
30%
35%
38%
40%
7
2007
2007/08
112 500
450 000
18%
25%
30%
35%
38%
40%
8
2006
2006/07
100 000
400 000
18%
25%
30%
35%
38%
40%
9
2005
2005/06
80 000
300 000
18%
25%
30%
35%
38%
40%
10
2004
2004/05
74 000
270 000
18%
25%
30%
35%
38%
40%
11
2003
2003/04
70 000
255 000
18%
25%
30%
35%
38%
40%
12
2002
2002/03
40 000
240 000
18%
25%
30%
35%
38%
40%
13
2001
2001/02
38 000
215 000
18%
26%
32%
37%
40%
42%
14
2000
2000/01
35 000
200 000
18%
26%
32%
37%
40%
42%
15
1999
1999/00
33 000
120 000
19%
30%
35%
40%
44%
45%
16
1998
1998/99
31 000
120 000
19%
30%
39%
43%
44%
45%
35
Personal income tax brackets & rebates
Personal Income Tax
Income tax threshold
Budget Tax year
< 65
65 and >
Rebate
75 and >
PIT relief
Primary Secondary Tertiary
R billion
Taxable Income
Taxable Income
PIT bracket
PIT bracket
Bottom
Top
Bottom
Top
Rand
Rand
% Change
% Change
1
2013
2013/14
67 111
104 611
117 111
12 080
6 750
2 250
7.0
165 600
638 600
3.5%
3.5%
2
2012
2012/13
63 556
99 056
110 889
11 440
6 390
2 130
9.5
160 000
617 000
6.7%
6.4%
3
2011
2011/12
59 750
93 150
104 261
10 755
6 012
2 000
8.1
150 000
580 000
7.1%
5.1%
4
2010
2010/11
57 000
88 528
10 260
5 675
6.5
140 000
552 000
6.1%
5.1%
5
2009
2009/10
54 200
84 200
9 756
5 400
13.5
132 000
525 000
8.2%
7.1%
6
2008
2008/09
46 000
74 000
8 280
5 040
7.2
122 000
490 000
8.4%
8.9%
7
2007
2007/08
43 000
69 000
7 740
4 680
8.4
112 500
450 000
12.5%
12.5%
8
2006
2006/07
40 000
65 000
7 200
4 500
13.5
100 000
400 000
25.0%
33.3%
9
2005
2005/06
35 000
60 000
6 300
4 500
6.8
80 000
300 000
8.1%
11.1%
10
2004
2004/05
32 222
50 000
5 800
3 200
4.0
74 000
270 000
5.7%
5.9%
11
2003
2003/04
30 000
47 222
5 400
3 100
13.3
70 000
255 000
75.0%
6.3%
12
2002
2002/03
27 000
42 640
4 860
3 000
15.0
40 000
240 000
5.3%
11.6%
13
2001
2001/02
23 000
39 154
4 140
3 000
8.3
38 000
215 000
8.6%
7.5%
14 2000
2000/01
21 111
36 538
3 800
2 900
9.9
35 000
200 000
6.1%
66.7%
15 1999
1999/00
19 526
33 717
3 710
2 775
4.9
33 000
120 000
6.5%
0.0%
16 1998
1998/99
18 500
31 950
3 515
2 660
3.7
31 000
120 000
36
Adjustments to personal income tax brackets
•
•
•
•
•
•
The fairness (vertical equity) and progressivity of the personal income tax system
is note only dependent on the marginal tax rates but also on how the income tax
brackets are adjusted to take account of inflation as wages and salaries
increases over time.
In the context of a progressive personal income tax system such as ours (with six
income tax brackets) and in an inflationary environment individuals are faced with
higher tax liabilities if wages and salaries are increased to account for inflation
(cost of living adjustments) but the personal income tax brackets are not.
Since 2000 all the personal income tax brackets were increased at least by
inflation. In some years the these thresholds were increases above inflation.
This policy stance has provided real income tax relief for all taxpayers, with most
of the relief to lower and middle income earners.
Personal income tax reforms since 2000 have maintained the progressivity and of
the personal income tax system and the level of income (in)equality amongst
individual above the income tax threshold.
Personal Income tax is the main progressive tax instrument of our tax system.
The absence of a sound fiscal drag policy will negatively effect the progressivity of
the personal income tax system.
37
PIT /COE – estimated average “effective”
personal income tax rate
38
Personal Income Tax Revenue as a % of
Compensation of Employees
39
CIT headline rate and CIT revenue
55.0%
8.0%
CIT Headline rate (lhs) and CIT as a % of GDP (rhs)
2008/09, 7.2%
50.0%
7.0%
CIT Rate
CIT: % of GDP
45.0%
6.0%
1985/86, 6.0%
40.0%
5.0%
35.0%
1995/96, 35.0%
4.0%
30.0%
1999/00, 30.0%
2005/06, 29.0%
25.0%
2008/09, 28.0%
3.0%
1999/00, 2.5%
1993/94, 2.6%
2.0%
20.0%
1.0%
15.0%
2010/11
2009/10
2008/09
2007/08
2006/07
2005/06
2004/05
2003/04
2002/03
2001/02
2000/01
1999/00
1998/99
1997/98
1996/97
1995/96
1994/95
1993/94
1992/93
1991/92
1990/91
1989/90
1988/89
1987/88
1986/87
1985/86
1984/85
0.0%
1983/84
10.0%
40
“Average effective” corporate income tax
rate - % of net operating surplus
41
Fuel Sales, litres - million
42
Fuel – Litres per real GDP’000 (2005 prices)
43
Fuel levy – petrol, 93 Octane - cents / litre:
(Nominal and Real = 2008 prices)
44
Fuel levy revenue
2011/12: R36.6 billion; 21.7 billion litre; 50 800 MtCO2
45
Incidence of the tax system - households
• Overall the tax system is progressive because of PIT
• The tax burdens from the main taxes are as follows: expressed as a % of
income (or a percentage of expenditure in the case of VAT)
Decile
1
2
3
4
5
6
7
8
9
10
CIT
VAT
Excise
PIT
(s/holders:
(% of HH exp) (% of HH exp)
consumers = 1:1)
0.0%
6.1%
8.8%
0.6%
0.0%
6.4%
8.7%
0.6%
0.0%
5.3%
8.5%
0.7%
0.1%
5.1%
8.8%
0.7%
0.5%
5.1%
9.0%
0.9%
1.4%
5.5%
9.2%
0.8%
3.4%
5.1%
9.0%
0.9%
6.0%
5.3%
8.8%
0.7%
11.6%
6.8%
8.6%
0.6%
23.9%
6.5%
8.4%
0.4%
(Source: Woolard et al., 2005, Tax Incidence Analysis)
46
Fiscal incidence (see slide 3)
• Fiscal redistribution increased in the period after 2000 and the
expansion of spending on social grants in particular had contributed by
2006 to a highly redistributive fiscal stance.
• Yet, despite this, much inequality remains.
• Reason – massive degree of inequality in pre-transfer income, which
remains the biggest challenge to perceived equity of outcomes.
• The scope for further fiscal redistribution is now constrained by the size
of the budget and by the extent of redistribution that has already
occurred.
• Major impediment to more social equity now rather appears to lie in the
inefficiency of the social delivery process among the poor.
Source: van den Berg, S 2006. Fiscal incidence od social spending in South Africa
47
GDP: Demand side (Expenditure) Y= C+G+I + (X-M)
(2005 real prices - index at 2000 = 100
Final consumption expenditure
Gross capital formation
Exports
Imports
GDP -- Expenditure on
2000
80%
14%
29%
-23%
100%
2008
83%
21%
28%
-32%
100%
2013 ’13 vs. ‘00
88%
7.8%
20%
5.6%
25%
-4.0%
-32%
9.2%
100%
48
GDP (Production side) at basic prices
(2005 prices) – by sector
49
GDP at basic prices (2005 prices) –
by sector
2013 ’13 vs. ‘00
2000
2006
2008
Agriculture, forestry and fishing
3%
2%
3%
2%
-1%
Mining and quarrying
9%
7%
6%
6%
-3%
19%
19%
18%
17%
-2%
Electricity, gas and water
2%
2%
2%
2%
-1%
Construction
Wholesale, retail and motor trade; catering and
accommodation
2%
3%
3%
3%
1%
14%
14%
14%
14%
0%
9%
10%
10%
10%
1%
Finance, real estate and business services
19%
22%
23%
24%
6%
General government services
17%
15%
14%
15%
-1%
7%
6%
6%
6%
0%
100%
100%
100%
100%
Manufacturing
Transport, storage and communication
Other - Community, social & per, services
Gross value-added at basic prices
50
Comment
• “It is now twenty years since South Africa became a democracy in 1994.
The transition to a fully democratic state contributed positively to the
lives of many of its citizens.
• Real GDP per capita has increased by approximately 40% (34% between 1993
and 2013), despite two global financial crises. Living standards have also
improved, with the percentage of people in the LSM 5 - 10 range
increasing from 48% in 2001 to in excess of 75% at present.
• And while our country continues to face challenges such as corruption
and poor service delivery, we can still say that we live in a land of
opportunity.”
• Jannie Mouton, PSG Group Limited, Annual Report 2014. Chairman’s letter
51
Thank you
52
How the tax system respond to the business
cycle
53
Historical tax rates
Ye ar
GST / VAT
Tax Rate s
M ax. PIT
Com pany
STC / WTD
Fue l le vy:
Pe trol
%
%
%
%
c/l
1987
12
50
50
-
23,5
1988
12
45
50
-
22,9
1989
13
45
50
-
31,9
1990
13
45
50
-
31,9
1991
13
44
50
-
46,9
1992
10
43
48
-
54,9
1993
14
43
48
15,0
60,9
1994
14
43
40
15,0
60,9
1995
14
43
35
25,0
62,9
1996
14
45
35
12,5
71,6
1997
14
45
35
12,5
76,6
1998
14
45
35
12,5
86,6
1999
14
45
30
12,5
90,6
2000
14
42
30
12,5
95,6
2001
14
42
30
12,5
98,0
2002
14
40
30
12,5
98,0
2003
14
40
30
12,5
101,0
2004
14
40
30
12,5
111,0
2005
14
40
29
12,5
116,0
2006
14
40
29
12,5
116,0
2007
14
40
29
10,0
121,0
2008
14
40
28
10,0
127,0
2009
14
40
28
10,0
150,0
2010
14
40
28
10,0
167,5
2011
14
40
28
10,0
177.5
2012
14
40
28
15
197.5
54
Incentives for businesses
• Tax incentives
–
–
–
–
–
–
–
–
–
–
–
–
Accelerated depreciation for mining, manufacturing, renewable energy, etc.
MIDP / APDP
Industrial policy - SIP & 12i
Learnership allowance – tax incentive
Employment tax incentive
Research and development
Urban development zones (buildings)
Film incentive
Small business corporations
Energy efficiency savings tax incentive (12L)
International shipping
IDZ / SEs
• On budget allocations – cash grants, DTI
– Manufacturing Competitiveness Enhancement Programme (MCEP)
– The Clothing and Textiles Competitiveness Programme (CTCP)
– Automotive Investment Scheme (AIS) – part of APDP
CTI Revenue (provisional) by Sector
CIT - Provisional: % Share by sector
FINANCE, INSURANCE, REAL ESTATE AND
RELATED SERVICES – including Long Term
Insurers
2001/02
2002/03
2003/04
2004/05
2011/12
2012/13
28%
31%
33%
35%
34%
36%
MANUFACTURING
30%
31%
31%
32%
24%
22%
RETAIL AND WHOLESALE TRADE
8%
7%
10%
11%
11%
11%
TRANSPORT, STORAGE AND COMMUNICATION
8%
6%
6%
9%
8%
8%
MINING AND QUARRYING
18%
17%
11%
4%
11%
8%
SPECIALISED SERVICES
4%
3%
4%
4%
5%
4%
OTHER
1%
0%
0%
0%
2%
4%
AGENCIES AND OTHER SERVICES
1%
1%
2%
2%
2%
2%
CONSTRUCTION
1%
1%
1%
1%
2%
2%
AGRICULTURE, FORESTRY AND FISHING
1%
2%
2%
2%
1%
2%
ELECTRICITY, GAS AND WATER
1%
1%
1%
1%
1%
1%
56
Manufacturing sector:
Employees per GDP & per Fixed Capital Stock per GDP –
R mn, 2005 prices
57
Manufacturing sector
Manufacturing - Real prices (2005)
Real growth per annum
1994 - 2008
2008 - 2012
1994 - 2012
14 years
4 years
18 years
Gross fixed capital formation (I)
6.5%
-2.0%
4.6%
Depreciation of Capital Stock
7.0%
3.0%
6.1%
Fixed Capital Stock
1.9%
-0.3%
1.4%
Gross Value Added - basic prices
3.5%
0.2%
2.7%
-1.0%
-3.0%
-1.5%
Employment
58
Manufacturing employment
59