Confession time. I have always been a nerd. I must have been the only ten-year-old who listened to the national budget speech on the radio. As soon as the new tax on cigarettes was announced, I would run to my mom and tell her by how much the price of cigarettes would increase. Her response was always the same. “That’s it. I am going to give up smoking. Who can afford it at these prices?“
We knew that, twice a year, my mom would abandon cigarettes: at tax time, and on the 31st of December when she would resolve to live clean. It was one of our family traditions.
In 1986, she would have paid R2.75 for a pack of cigarettes. In 2008, it would have cost her R20.13. Today, a pack of Marlboro cigarettes costs R45.35.
Sin taxes are typically added to liquor, cigarettes, and goods that are considered harmful. Because they generate enormous revenue (humanity is a sinful lot!) governments favour these taxes. It is said that society accepts sin taxes because they affect only those who use sin taxed products or engage in sin taxed behaviours. When a government runs into a deficit, a sin tax is generally one of the first taxes recommended by lawmakers to fill the gap.
Over the last decade and a bit the South African ‘sin tax’ has steadily and progressively increased above inflation rates. Its reach was also extended in 2018 to include a ‘sugar tax’ or ‘health promotion levy’. This applies to cool drink with more than 4 grams of sugar per 100ml – the good news is that the first teaspoon of sugar in 100ml is levy free! In 2019, this tax has been hiked from 2.1c per gram above 4 grams to 2.21c per gram.
What does the rest of our taxes look like?
South Africans pay one of the highest rates of personal tax based on our GDP. Of the 115 countries for which data is available, South Africa ranks eighth, just behind New Zealand and Sweden. We pay more tax than the United Kingdom, Australia and Brazil.
However, the quality of service from the state is far lower than the countries mentioned above. To address this, Tito Mboweni, in his Budget Vote Speech for 2019, indicated the following allocations of state funds:
- Of R5.87 trillion in total state spending during the next three years, the most significant distributions are made as follows: education (20%); social development (15%) and health (10%).
- Over R30bn is being allocated to building new schools and maintaining their infrastructure. An additional R2.8bn will be used to replace pit latrines in 2 400 schools. More than R111bn is being invested over the medium term to fund the university and technical college education of 2.8m students from poor and working-class backgrounds.
- In the coming fiscal year, R567bn has been allocated for social grant payments. Old age pensions will rise by R80 a month; monthly grants for foster care will rise R40 and child support by R10.
- More doctors and nurses are needed with R2.8bn reprioritised to a new human resources grant; an additional R1bn is being allocated to interns; and R1bn will be used to raise the monthly pay for community health workers to R3, 500.
In addition, the following allocations are made to support and stimulate growth in the economy:
- R481m to the Small Enterprise Development Agency will support the small business incubation programme.
- R8bn is allocated to implement 262 priority land reform projects over the next three years, with R3.7bn set aside for emerging farmers seeking to acquire land to farm. The Land Bank has set aside R3bn to support small farmers and to leverage partnerships with financial institutions.
- A subsidised help-to-buy pilot is being launched for first time buyers with an allocation of R950m over three years. Funding of R14.7bn has been reprioritised into conditional grants for informal settlement upgrading to ensure the provision of basic amenities.
- SANRAL is being allocated an additional R3.5bn over the next three years to improve non-toll roads.
- Treasury is working with the Department of Justice to support the establishment of a new Investigating Directorate in the National Prosecuting Authority.
- The Infrastructure Fund will accelerate R526bn worth of on-budget projects by bringing in the private sector and development finance institutions. In several instances the private sector will design, build and operate key infrastructure assets. In addition, government will commit R100bn over the next decade.
It is always good to review the whole Budget Speech.
But who, ultimately, contributes the most?
Statistics South Africa has published a breakdown of South Africa’s ‘tax pie’ and who contributes to it. The data shows that personal income tax has become more important as a source of government revenue in recent years, providing over a third of the R1.22 trillion in taxes collected by the national government in the 2017/18 fiscal year.
The second most significant source of tax was Value Added Tax (VAT), which was increased by 1% in October 2018. In third place, the most tax is recovered through 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,” Stats SA said.
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.
Doing your bit
Tax Season 2019 starts on 1 August 2019 for non-provisional individuals. However, you can skip the queues and start filing via eFiling and MobiApp from 1 July 2019. The season ends on the 31st of October 2019 for ‘regular’ filing, but if you use eFiling, it closes on the 4th of December 2019. Provisional taxpayers have until the 31st of January 2020 to file via eFiling.