South Africans’ money disappears into the state coffers

27 October 2023

South Africa’s tax system is crippling its economy.

This is what a newly released report from the Solidarity Research Institute (SRI) on value-added tax (VAT) in South Africa indicates. 

While South Africa’s VAT rate of 15% is relatively comparable to that of many other countries, those countries usually offer flexibility to taxpayers with lower personal or corporate income taxes.

According to Theuns du Buisson, economic researcher at the SRI, the South African state exacts high taxes on all fronts – and this from an already punch-drunk taxpaying population.

“This can be explained by means of an example of a consumer spending R1 at a business of which 27% is then taxed as corporate tax.

“Next, the company uses the remaining 73c to pay a middle-class employee’s salary. Such an employee must then again pay income tax of 26%.

“And should the salary earner then spend the remaining 54c in a shop, VAT of 15% comes next. What is left? Only 45c of the original R1,” Du Buisson said.

He believes this serves as an example not only of how people’s disposable income disappears but also of why economic growth in South Africa is not possible.

“New cycles of this nature simply cannot commence because no money is left to spend or to invest. Far more than 50% of each R1 ends up in the state’s coffers which is often a bottomless pit,” Du Buisson said.

The report highlights that even if comparable VAT rates are generally higher in Europe, these rates are mitigated by a reduction of other taxes.

In South Africa the list of tax-exempt items is also noticeably short. Medicines are subject to VAT, and this includes chronic medication which is a life-sustaining necessity for patients.

Meat, cooked meals and processed food are not exempt from VAT.

“This means that poor people who do not have the means to cook meals must also pay VAT, no matter how poor they are,” Du Buisson said.

“As VAT cannot be calculated according to a sliding scale as is the case with other taxes, the 15% applies to all, be they rich or poor. VAT is particularly detrimental to the poorer part of the population because very few products are exempt from VAT.

“VAT is also but a part of the problem. In South Africa we are paying high taxes. No matter what, corporate tax, personal tax and VAT are high. South Africans are totally overtaxed and can no longer afford to line the state’s coffers.”

Solidarity also believes that any talk of a further increase in VAT in the upcoming medium-term budget would be outrageous and ignorant of the reality of South Africans’ existence.

Read the full SRI report here.

Issued by Theuns du Buisson, Economic Researcher: Solidarity Research Institute, 27 October 2023