- The lack of growth in its tax base is attracting the attention of South Africa’s main tax regulator.
To save the country’s dwindling tax base, the South Africa Revenue Service (SARS) is clamping down hard on non-compliant taxpayers.
According to Keith Engel, the chief executive officer at the South African Institute for Tax Professionals (SAITP), the country’s population has increased from 45 million in 2020 to around 60 million in 2022 but its tax base has remained the same.
Engel mentioned that as the rich contribute to a larger portion of the tax base, they are also now taking money offshore or moving overseas.
The tax expert revealed that the richest 2% of the taxpaying population, which contributes more than 30% of individual tax revenue in the country, is assailable and best not pressured too hard by SARS.
According to EY’s chief economist, Angelika Goliger, between the years 2003 and 2012, the number of personal income tax (PIT) taxpayers rose by 7%; however, some of these profits have been wiped by a 2.1% reduction in the number of taxpayers.
He said that Personal Income Tax (PIT) remains the country’s largest source of revenue domestically (39.1%), and it is troubling as there were only 5.2 million taxpayers in 2020, representing 9% of the population and contributing 40% to the country’s overall tax revenue.
SARS mentioned that in 2010, 5.5 million taxpayers were estimated; however, there was a notable reduction to a total of 4.9 million assessed taxpayers in 2019.
Engel further mentioned that the harsh economic times over the past two years have caused the tax base to shrink, as people have moved to lower levels of income.
He said that SARS is in the process of unveiling concealed revenue from a percentage of the tax base with new ways of accessing wealth and tax compliance.
SARS said that it plans to introduce new methods of taxing and tracking funds for wealthy taxpayers. The tax body has formed the High Wealth Individual Unit whose aim is to identify taxpayers who have refused to adhere to tax regulations and/or are individuals with gross assets worth R75 million.
Besides the unit, SARS is also implementing a new initiative to see if it can use legislations that are in place to target unexplained wealth or if it should take an international approach concentrating on a standalone Unexplained Wealth Order (UWO).
A UWO could lead to a court seizing unexplained wealth on the basis that a person or entity’s wealth is unsymmetrical to the legal income earned or declared by the person – and they are not able to reasonably justify it.
Engel mentioned that SARS is dipping into more tax streams, but the easiest way to access a more capacious tax base is to improve the economy. The issue is more an economic problem than a tax one.
OECD’s Recommendation Alongside SARS Implementation
The Organisation for Economic Co-operation and Development (OECD), in its latest Economic Survey for South Africa 2022, recommended that the South African government widen the tax base.
It said that the government could slightly lower the minimum income tax threshold to include some people who earn between the minimum wage and the current income tax threshold.
However, it noted that the country’s progressive Personal Income Tax (PIT) schedule is weakened by deductions that significantly benefit high-income earners.
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