How South Africa’s tax rates compare to Australia, the UK and other countries

Data from the latest 2022 Taxing Wages report from the Organization for Economic Co-operation and Development (OECD) shows that average personal income tax in South Africa is relatively low compared to the rest of the world – but the devil is in the details.

According to the South African Revenue Service (SARS) tax statistics for 2020/21, South Africa’s average tax rate for all taxpayers is 22.4%.

Using the latest OECD comparative tax tables for 2021, South Africa’s average tax rate is in the lower bracket compared to partner countries – with the OECD average standing at 24 .5%.

Like many countries, South Africa has a progressive tax system where the more you earn, the more tax you pay.

The country’s highest marginal tax rate is currently 45%, which is comparable to several developing countries, including the UK, China, Australia, Switzerland and South Korea.

This is relatively high compared to Canada (33%), the United States (37%) and Brazil (27%). It is also higher than the maximum for neighboring African countries, such as Namibia (37%), Botswana (27%), Mozambique (32%) and Zimbabwe (40%).

At first glance, these figures suggest that the South African tax system is neither better nor worse than the majority of other progressive tax systems around the world.

However, the tax burden for South Africans is significant – and ranks among the highest in the world.

To illustrate this, consider the tax-to-GDP ratio, which shows how much citizens are taxed relative to the overall productivity of the country.

According to the World Bank, a higher tax-to-GDP ratio means good things for the government, as it has a larger budget to execute its spending programs. He suggests that a minimum level of 15% is necessary to achieve social objectives.

The tax-to-GDP ratio in South Africa fell from 23.8% in 2019/20 to 22.5% in 2020/21, largely due to the Covid-19 pandemic. In its latest annual report for 2021/22, the South African Revenue Service recorded the country’s tax-to-GDP ratio at 24.6%. The ratio is expected to increase further in 2022/23 to around 25%.

The South African Institute of Chartered Accountants (SAICA) said in a presentation earlier this year that it is clear that tax money is not being spent on making the country more productive and that taxpayers get very little out of it. taxes they pay.

“It has become evident that South Africa’s tax revenue has (on average) increased despite weak economic growth,” SAICA said. “A high tax-to-GDP ratio is not a problem when taxpayers get what they pay for; however, this is currently not a reality in South Africa.

Hidden taxes

The OECD data tracks tax wedges which include many instances of social security costs covered by individual taxpayers and their employers, which ultimately drives up the average tax rate in many countries from quite significantly.

Belgium, which has the highest average tax rate, can see its tax burden climb even higher – to more than 50% – if these social charges are taken into account.

While countries like Belgium, Germany, Italy, Austria and Denmark have some of the highest tax rates in the world, their respective residents benefit from well-run public services – including public health care, education, medical aid, transport and pension contributions. .

Because South African taxpayers don’t get much for the taxes they pay – with a slumped health and energy sector, crumbling roads and infrastructure, and ineffective police and security – Apart from the SARS tax burden imposed on South Africans, economists have highlighted several “hidden” taxes to which taxpayers are subject in the country.

These take the form of many additional costs – such as value added tax (VAT), a sugar tax and fuel taxes – that households have to pay while using private health care, private education and private security to compensate for the poor delivery of public services.

Local taxpayers must turn to private institutions to obtain similar levels of services as in other countries, effectively leading to double taxation on these services.

For example, South Africa’s public health services are criticized for being under-resourced, understaffed and incompetent. This means that the average South African – those who can afford it – spend thousands of rands every month on private health care. The result is the same for education, with many taxpayers paying high fees for private education.

In addition, around 30% of the price of petrol is tax, while South African consumers also pay an additional 15% on almost everything they buy due to VAT – excluding zero-rated goods which are considered a necessity.

Read: Warning on shrinking tax base in South Africa

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