September 29, 2009 - Business Report - By Ethel Hazelhurst
South Africans, with a top marginal tax rate of 40 percent, are relatively heavily taxed. A survey of 86 countries by KPMG International shows that the average top tax rate is 28.9 percent.
Vedika Andhee, a partner at KPMG Tax and Legal, said, in addition, the marginal rate of tax in South Africa took effect "at a relatively lower income level than a lot of other countries. As a result, individuals in South Africa remain among the higher taxed in the world."
The study showed a "general decline in top personal income tax rates" globally, over the past seven years.
Beric Croome, a tax executive at Edward Nathan Sonnenbergs, said in South Africa the top marginal tax rate was reduced from 42 percent to 40 percent in the 2001 budget - from a high of 45 percent in 1996.
There has been no subsequent cut in the top marginal rate but the average rate of individual taxpayers has fallen, among other reasons because of adjustments to tax brackets.
He said that tax rates should not be seen in isolation. "There is a question of value for money to taxpayers - whether money is being spent efficiently."
Among the highest taxed countries are Denmark with a top rate of 62.3 percent and Sweden with 56.7 percent. However, these countries have sophisticated and extensive welfare systems.
South Africa with its relatively small tax base of a little over 5 million individual taxpayers and a population close to 50 million has a limited ability to provide a social safety net.
A handful of countries levy no taxes on individuals. Many of them are oil producers who derive their income from oil companies while others are tax havens, which rely on other sources to fund the fiscus.
KPMG predicted a reversal in the downward global trend next year, as governments attempt to shore up revenue collection. Huge fiscal stimulus packages and reduced revenue in recessionary times are producing double-digit budget deficits in many countries. It will be an estimated 12 percent of gross domestic product (GDP) in the US and more in the UK.
And many governments will hike taxes to fill the gap.
In South Africa, where the government has budgeted for a deficit equal to 4 percent of GDP, the shortfall between revenue and spending is likely to be between 7 percent and 8 percent, according to economists. But, after many years of falling average tax rates, tax practitioners do not expect the finance ministry to raise tax rates in next year's budget, according to Billy Joubert, a tax director at Deloitte.
KPMG in its report suggested alternative methods of increasing revenue.
"With the increased pressure being placed on the SA Revenue Service (Sars) to meet collection targets, they are, by their own admission, becoming more focused and more aggressive."
Steps currently being taken by Sars, said Andhee, included looking closely at medium to small-sized businesses "from an audit perspective; increased analysis of taxpayer affairs, especially high net worth individuals; and implementation of stricter penalty and interest charges for non-compliance".