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South Africa: You Worked Two Extra Days for Taxman This Year
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Business Day (Johannesburg)
9 May 2008
Posted to the web 9 May 2008
Sanchia Temkin
Johannesburg
DESPITE recent tax cuts, South African taxpayers will celebrate this year's Tax Freedom Day on Monday, two days later than last year, according to the Free Market Foundation's calculation, meaning the country's overall tax burden has gone up.
The extension by two days, despite significant tax relief, might be due to bracket creep or fiscal drag as a result of inflationary effects on income earned, professional services firm PricewaterhouseCoopers said yesterday. "It may also be explained by changes in the tax laws, such as limiting deductions or exemptions.
"The economy has been growing steadily in the past two years," said Charles de Wet, PricewaterhouseCoopers tax director, "and growing incomes are pushing people into higher tax brackets.
"When this happens, tax collections grow faster than taxpayers' incomes.
"Despite the tax cuts, taxpayers will spend more on taxes collectively than they will spend on the increasing costs of food, fuel, clothing and housing."
Tax Freedom Day is the day on which the average taxpayer has earned enough money to cover this year's tax bill and can start spending money on himself or herself. In effect, the total earnings of the average taxpayer from January 1 to May 11 are equal to the total taxes that they have to pay for the year.
"This means that 132 days have been spent working for the government and only from May 12 do individuals start working for themselves and their families and have the opportunity to decide what their discretionary spend is," said Garth Zietsman of the Free Market Foundation.
Foundation director Eustas Davie said: "SA rated at 5,6 out of 10 in the 'size of government' category (of which tax is a component) in the latest Economic Freedom of the World ratings." SA ranks 89 out of the 141 countries rated in the study. The size of government category measures the extent to which a country relies on choice and markets rather than state budgets and political decision-making.
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"SA could achieve higher growth rates by reducing taxes and government involvement in the economy," Davie said.
The reduction in the tax rate for individuals totalling nearly R100bn in the past five years has reduced the tax burden, as has the reduction in the corporate tax rate.
A recent study by PricewaterhouseCoopers on the largest companies in SA disclosed that their contribution to taxes totalled R49,6bn, which represents 10% of total government receipts. Last year the average Tax Freedom Day for companies taking part in the study was April 29.
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