There are only two mistakes one can make along the road to truth; not going all the way, and not starting.
On Monday SARS released the 2012 Tax Statistics bulletin. The bulletin provides an overview of tax revenue collections and tax return information for the 2008 to 2012 fiscal years. The report contains some impressive figures.
According to the report over the last 18 years SARS has made tremendous progress in raising the levels of tax compliance and in broadening the tax base. The number of registered individual taxpayers increased from 1.7 million in 1994 to more than 6 million in 2009/10. This number increased to 13.7 million individuals by 31 March 2012 due to a policy change that registered all individuals in the country who are formally employed.
Revenue growth in the country has increased progressively over successive fiscal years from R113.8 billion in 1994/95 to R742.65 billion 2011/12. This represents total growth of almost 550% since 1994, at an average rate of 11.6% per year.
According to a Business Day report SARS believes that the statistics showed the effects of the country's progressive tax system, which ensured that lower-income earners paid less tax than high earners.
In 2011, the top 9.7% of assessed taxpayers were liable for 57% of personal income tax, whereas 42.4% of assessed taxpayers earning less than R120 000 only contributed 3.3% of the assessed tax. 221 corporate taxpayers with taxable income in excess of R200 million were liable for 50% of the company tax assessed in South Africa. However, only a third of assessed companies declared taxable income, the rest reported losses or zero taxable income.
In contrast to these impressive figures the latest International Finance Corporation (IFC)-World Bank 'Doing Business' report, which was issued on Tuesday, saw South Africa fall to 39th place out of 185 economies. The report is now in its 10th edition and measures business regulations especially for SME's across 185 economies. One of the main findings of the report was that, unsurprisingly "Smarter business regulation supports economic growth. Simpler business registration promotes greater entrepreneurship and ?rm productivity, while lower-cost registration improves formal employment opportunities. An effective regulatory environment boosts trade performance."
South Africa's 39th position is a decline compared to our 2011 position.The overall ranking is a composition of various subcategories and includes: starting a business (53th), dealing with construction permits (39th), getting electricity (150th), registering property (79th), getting credit (1th), protecting investors (10th), paying taxes (32th), trading across borders (115th), enforcing contracts (82th) and resolving insolvency (84th).
It is characteristic of high income countries to have simple and inexpensive regulatory processes combined with strong legal institutions.
From these statistics it is evident that our economy is horribly skewed. A small number of people pay most of the taxes. It is these same people that are the industrious part of the population yet they are also subject to complex and expensive regulations.
The figure that is most disappointing is that South Africa only boast 2 263 persons who earn more than R5m a year. This represents less than 0.005 percent of our population. If most taxes are paid by high income earners then to get more taxes we need more high income earners.
President Zuma recently proposed a "pay freeze" on executive pay. Many economists ditched this idea as it would result in an estimated R5-billion dip in fiscal tax revenue.
The equation is simple: less (but appropriate) regulation means higher income. Higher income means more taxes.
Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.