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

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Introduction

• Population of 51.8 million• ± 15.0 million working (formal & informal); • ± 5.0 million unemployed; • unemployment (narrow) = ± 25.0%

• Gini coefficient (2006):– Pre- grants, subsidies & taxes (income only) = 0.69– Post- grants & subsidies = 0.52– Post- grants, subsidies & taxes = 0.47

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“South Africa confronts severe inequality and high unemployment…” Budget Review, 2012

Age Number %0 to 14 15 100 089 29.2%

15 to 64 33 904 480 65.5%65+ 2 765 991 5.3%

Total 51 770 560 100.0%

Real GDP growth (%) – annual average

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Real GDP growth (%) annual

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Real GDP per capita (@ 2005 prices)

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How South African households spend their money: % by main expenditure group

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2. ExpenditureTable 2.40 (%) - Average household consumption expenditure by main expenditure group and expenditure deciles

Expenditure deciles

TotalLower 2 3 4 5 6 7 8 9 Upper

Main expenditure group 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 7.8% 8.6% 8.6% 8.5% 8.1% 7.8% 7.4% 5.6% 4.2% 2.6% 4.5%Housing, water, electricity, gas and other fuels 26.0% 22.5% 22.3% 22.1% 23.2% 25.4% 27.2% 32.4% 33.5% 35.2% 32.0%Furnishings, household equipment and routine maintenance of the dwelling

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% 0.1% 0.1% 0.1% 0.2% 0.1% 0.1% 0.1% 0.1% 0.2% 0.1%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Source: Statistics South Africa, Income and Expenditure Survey, 2010/11

How South African households spend their money: Cumulative % across income deciles

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Table 2.40 (%) - TOTAL household consumption expenditure by main expenditure group and expenditure deciles

R' 000 - TOTAL

Expenditure deciles

TotalLower 2 3 4 5 6 7 8 9Upper

only

Main expenditure group 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 1.7% 5.0% 9.5% 15.2% 22.3% 31.1% 42.6% 56.0% 73.0% 27.0% 100%Housing, water, electricity, gas and other fuels 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

Main Budget: Income & Expenditure as a % of GDP

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Main budget deficit / surplus & debt-service costs as a % of GDP

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Main budget: expenditure, revenue, deficit & surplus

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Consolidated fiscal framework – Budget 2014

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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

Table 3.1 Consolidated fiscal framework, 2010/11 – 2016/17

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

R billion/percentage of GDP Outcome Estimate Medium-term estimates Revenue 762.9 842.3 909.3 1 010.5 1 099.2 1 201.3 1 324.7

27.7% 28.2% 28.4% 29.2% 29.0% 28.9% 29.1%

Non-interest expenditure 804.6 871.3 951.7 1 041.6 1 131.1 1 218.1 1 306.5 29.6% 29.4% 29.9% 30.2% 30.0% 29.5% 28.8%

Interest payments 75.3 81.7 93.5 107.7 121.2 133.5 145.1 2.7% 2.7% 2.9% 3.1% 3.2% 3.2% 3.2%

Expenditure 879.9 953.1 1 045.2 1 149.3 1 252.3 1 351.6 1 451.6 32.0% 32.0% 32.7% 33.2% 33.0% 32.6% 31.9%

Budget balance -117.1 -110.8 -135.9 -138.8 -153.1 -150.3 -126.9-4.3% -3.7% -4.3% -4.0% -4.0% -3.6% -2.8%

Source: National Treasury

Expenditure - Budget 2014

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Real main budget non-interest expenditure growth, 2003/04 – 2016/17

Source: National Treasury

Consolidated expenditure – 2012/13

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2012/13 Rand million %Main budget 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%Consolidated government expenditure

1 045 212 100%

Consolidated Government Expenditure: Functional Classification

2012/13

Rand million %

General Public Services 158 927.3 15% 3

Defence 37 851.0 4% 8

Public Order of Duty 99 905.9 10% 7Economic Services & Infra..: Transport, Energy, etc.. 124 633.9 12% 5

Environmental Protection 7 127.8 1% 10

Housing and Community Amenities 117 227.4 11% 6

Health 127 890.0 12% 4

Recreation and Culture 7 720.0 1% 9

Education 212 316.5 20% 1

Social Protection 151 612.0 15% 2

Total Consolidated Expenditure 1 045 212 100%

Consolidated Government Expenditure: Economic Classification

2012/13

Rand million % %

Current Payments 636 382.2 61%

of which

: Compensation of employees 374 977.2 36%

: Goods & services 167 938.2 16%

: Interest and rent on land 93 466.9 9%

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%

Payments for Financial Assets 4 940.1 0.5%

Total Consolidated Expenditure 1 045 212 100%

Consolidated expenditure: 2007/08 to 2012/13

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Consolidated Government Expenditure: Functional Classification 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Rank12/13 vs.

07/08 General Public Services 14.9% 14.1% 13.1% 14.2% 14.7% 15.1% 3 0.2%Defence 4.9% 4.5% 4.4% 3.6% 3.7% 3.8% 8 -1.1%Public Order of Duty 10.2% 9.9% 9.6% 10.1% 9.9% 10.0% 7 -0.2%Economic Affairs 12.9% 14.2% 15.8% 12.9% 11.1% 10.5% 5 -2.4%Environmental Protection 0.5% 0.5% 0.4% 0.4% 0.4% 0.5% 10 0.0%Housing and Community Amenities 8.3% 8.4% 8.8% 9.7% 10.1% 10.3% 6 2.1%Health 11.0% 11.0% 11.6% 12.1% 12.5% 12.7% 4 1.7%Recreation and Culture 1.5% 1.4% 1.0% 0.8% 0.8% 0.7% 9 -0.8%Education 19.6% 20.0% 19.6% 20.5% 21.4% 21.1% 1 1.5%Social Protection 16.3% 15.8% 15.6% 15.6% 15.2% 15.2% 2 -1.1%Total Consolidated Expenditure 100% 100% 100% 100% 100% 100%

Consolidated Government Expenditure: Economic Classification 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Current Payments 59% 58% 57% 59% 61% 61% of which : Compensation of employees 33.0% 32.7% 33.1% 35.2% 36.3% 35.9% : Goods & services 17% 17% 17% 16% 16% 16% : Interest and rent on land 10% 8% 8% 9% 9% 9%Transfers and subsidies : to Households, Provinces, Municipalities, Public Entities, NGOs, etc. 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%Total Consolidated Expenditure 100% 100% 100% 100% 100% 100%

Allocations - Department of Transport

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R'000 2012/13 2013/14 2014/151 Departmental baseline 23,021,852 28,418,447 29,725,696

SANRAL: National Road Agency: Capital 6,394,541 7,515,300 7,849,560 SANRAL: National Road Agency: Coal haulage 648,910 665,498 696,111 PRASA: Passenger Rail Agency of SA 7,481,110 10,710,959 13,865,547 Compensation of employees 381,322 405,748 430,101 Other 8,115,969 9,120,942 6,884,377

2 Conditional Grant to Local Government 5,589,135 5,912,264 6,184,228 Public Transport: Infrastrcuture & Network Operations

3 Conditional Grant to Provincial Government 13,093,000 13,735,539 14,367,374 Provincial Road Maintenance 8,540,479 8,952,830 9,364,661 Public Transport Operation 4,552,521 4,782,709 5,002,713

4 Net additions (e.g. PRASA) 571,313 156,960 3,100,381 5 TOTAL 42,275,300 48,223,210 53,377,679

Transport - National - Budget Allocations

• 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

Why taxes ?

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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)

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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.

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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

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)

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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.

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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.

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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

• 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 – non-

renewable generation• Air Passenger Departure Tax• Plastic Bag Levy• Tax on incandescent light

bulbs

• CO2 Motor vehicle CO2 emissions tax

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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

Main tax revenue instruments

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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%

Tax / GDP ratio

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PIT, VAT (prior to 1991 /92 GST) & CIT as a % of GDP

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Direct and Indirect tax revenues

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Longer-term tax revenue trends

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Nominal tax revenue collections, 1994/95 – 2012/13

R million CAGR1 R million CAGR1 R million CAGR1 R million CAGR1

1994/95 44 973 13 591 29 288 113 775

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 9.0 159 259 -1.0 215 023 8.6 813 826 6.8 1. Compound annual growth rate (percentage)

Individuals Companies Value-added tax Total tax revenue

Tax revenue – 2013/14

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Tax Revenue Estimates for 2013/14 (R million)2013

Budget Review

2013 MTBPS

2013 MTBPS vs.

2013 Budget

2014 Budget Review

2014 Budget vs.

2013 Budget

Actual 2013/14

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 242 990 242 500 -490 239 286 -3 704 237 781 -1 506 4. Secondary Tax on Companies / Dividend Withholding Tax 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

of which: Mineral and petroleum royalties 5 900 6 189 289 6 500 600 6 439 -61

Less SACU -43 374 -43 270 104 -43 374   -43 374 0

Total budget revenue 877 958 869 683 -8 274 886 167 8 209 886 250 84

1:Includes - transfer duty, STT, estate duty, and other indirect taxes          

Personal income tax tables

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Table 4.1 Personal income tax rate and bracket adjustments, 2013/14 – 2014/152013/14 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 above R174 550

R258 751 - R358 110 R53 096 + 30% of the amount R272 701 - R377 450 R55 957 + 30% of the amount

above R258 750 above R272 700

R358 111 - R500 940 R82 904 + 35% of the amount R377 451 - R528 000 R87 382 + 35% of the amount

above R358 110 above R377 450

R500 941 - R638 600 R132 894 + 38% of the amount R528 001 - R673 100 R140 074 + 38% of the amount

above R500 940 above R528 000

R638 601 R185 205 + 40% of the amount R673 101 R195 212 + 40% of the amount

above R638 600 above R673 100

Rebates 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

Personal income tax - distribution

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Table 4.2 Estimates of individual taxpayers and taxable income, 2014/15

Taxable bracket Number % R million % R million % R million % R million %

0 - R70 0001 8 835 791 194 445 11.5 25 – 25 – – –

R70 001 - R150 000 2 758 078 43.0 288 161 17.0 18 092 5.2 1 740 18.9 16 351 4.9

R150 001 - R250 000 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

Total 6 419 200 100.0 1 693 908 100.0 345 169 100.0 9 225 100.0 335 944 100.0

Grand total 15 254 991 1 888 353 345 194 9 250 335 944

1.Registered individuals with taxable income below the income tax threshold

Income tax payable after relief

Registered individuals Taxable income Income tax payable before

relief

Personal income tax relief

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) by 1 percentage points from 19% to 18%

• 2 by 5 percentage points from 30% to 25%

• 3 by 9 percentage points from 39% to 30%

• 4 by 8 percentage points from 43% to 35%

• 5 by 6 percentage points from 44% to 38%, and• 6 (top) 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

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Personal Income tax rates

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      Taxable Income            

      PIT bracket Marginal personal income tax rate for the six brackets

  Budget Tax year Bottom 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%

Personal income tax brackets & rebates

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Personal Income Tax Taxable Income Taxable Income

      Income tax threshold Rebate PIT relief PIT bracket PIT bracket

  Budget Tax year < 65 65 and > 75 and > Primary Secondary Tertiary R billion 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    

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.

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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

40

1995/96, 35.0%

1999/00, 30.0%2005/06, 29.0%

2008/09, 28.0%

1985/86, 6.0%

1993/94, 2.6%1999/00, 2.5%

2008/09, 7.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

1983

/84

1984

/85

1985

/86

1986

/87

1987

/88

1988

/89

1989

/90

1990

/91

1991

/92

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

CIT Headline rate (lhs) and CIT as a % of GDP (rhs)

CIT Rate

CIT: % of GDP

“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)

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Decile PITCIT

(s/holders: consumers = 1:1)

VAT (% of HH exp)

Excise (% of HH exp)

1 0.0% 6.1% 8.8% 0.6%2 0.0% 6.4% 8.7% 0.6%3 0.0% 5.3% 8.5% 0.7%4 0.1% 5.1% 8.8% 0.7%5 0.5% 5.1% 9.0% 0.9%6 1.4% 5.5% 9.2% 0.8%7 3.4% 5.1% 9.0% 0.9%8 6.0% 5.3% 8.8% 0.7%9 11.6% 6.8% 8.6% 0.6%10 23.9% 6.5% 8.4% 0.4%

(Source: Woolard et al., 2005, Tax Incidence Analysis)

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

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GDP: Demand side (Expenditure) Y= C+G+I + (X-M)

(2005 real prices - index at 2000 = 100

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  2000 2008 2013 ’13 vs. ‘00

Final consumption expenditure 80% 83% 88% 7.8%Gross capital formation 14% 21% 20% 5.6%Exports 29% 28% 25% -4.0%Imports -23% -32% -32% 9.2%GDP -- Expenditure on 100% 100% 100% 

GDP (Production side) at basic prices (2005 prices) – by sector

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GDP at basic prices (2005 prices) – by sector

50

  2000 2006 2008 2013  ’13 vs. ‘00

Agriculture, forestry and fishing 3% 2% 3% 2% -1%

Mining and quarrying 9% 7% 6% 6% -3%

Manufacturing 19% 19% 18% 17% -2%

Electricity, gas and water 2% 2% 2% 2% -1%

Construction 2% 3% 3% 3% 1%Wholesale, retail and motor trade; catering and accommodation 14% 14% 14% 14% 0%

Transport, storage and communication 9% 10% 10% 10% 1%

Finance, real estate and business services 19% 22% 23% 24% 6%

General government services 17% 15% 14% 15% -1%

Other - Community, social & per, services 7% 6% 6% 6% 0%

Gross value-added at basic prices 100% 100% 100% 100% 

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

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Thank you

52

How the tax system respond to the business cycle

53

Historical tax rates

54

Year GST / VAT Max. PIT Company STC / WTD Fuel levy: Petrol

% % % % 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 10,0 177.52012 14 40 28 15 197.5

Tax Rates

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

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CIT - Provisional: % Share by sector 2001/02 2002/03 2003/04 2004/05 2011/12 2012/13FINANCE, INSURANCE, REAL ESTATE AND RELATED SERVICES – including Long Term Insurers 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%

Manufacturing sector: Employees per GDP & per Fixed Capital Stock per GDP – R mn, 2005 prices

57

Manufacturing sector

58

Manufacturing - Real prices (2005)

  1994 - 2008 2008 - 2012 1994 - 2012

Real growth per annum 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%

Employment -1.0% -3.0% -1.5%

Manufacturing employment

59