SA's tax rate below the world average
04 December 2012
Posted by: SAIT Technical
Executive summary (SAIT Technical)
SA's tax rate is well below the world average but this may have to rise according to PWC. SA's tax system is ranked number one among the BRICS economies for efficiency and ease of compliance. Corporate, labour and consumption taxes are below the world average.
Full article (please click here for the graphics)
South Africa's tax system continues to be ranked number one among the Brics' (Brazil, Russia, India China, and South Africa) economies for its efficiency and in easing the compliance burden for taxpayers. Its corporate, consumption and labour taxes are below the world average, see graphic 1.
This is according to the Paying Taxes 2013 study that was issued by PwC, the World Bank and the IFC on Thursday. But PwC's director of tax services in SA, Charles de Wet is not convinced South Africa will be able to maintain these rates in coming years with promises made by government in the health and social sphere that are based on a culture of borrowing. "In future these commitments will have to be funded by tax, and at the moment it isn't," he says.
Paying Taxes 2013 aims to provide analytical data to facilitate the debate on tax policy and tax administration, and encourage tax reform by scrutinising the tax regimes of 185 economies. According to the study, the most common tax reform is the introduction or improvement of online systems for compliance, which occurred in 16 economies.
This year South Africa's (SA's) overall paying worldwide tax ranking rose four points to 32 from 36 out of the 185 economies that took part in the study. The overall rankings combine number of tax payments, time to comply and the total tax rate. De Wet says SA's improved ranking is largely due to the success of electronic filing and the way returns are submitted and paid. Businesses now on average only have to make nine kinds of total tax payments, whereas Africa's average is 37.
Recent reforms to the SA tax system include a dividend withholding tax, which replaces secondary tax on companies (STC), and the promulgation of the Tax Administration Act.
SA's total tax rate is 33.3%, of which 24.3% relates to a company's profits, 4.1% to labour tax (such as the Unemployment Insurance Fund), and 4.9% to other taxes.
The total tax rate measures the burden of all the taxes that a company must pay in relation to its commercial profit. Therefore all kinds of taxes that impose a cost on the business areconsidered, such as property taxes, labour taxes, and other payments that do not require filing, such as a dividend tax, capital gains tax, environmental tax, financial transaction tax, and vehicle and road tax.
Although SA's position improved from 24 to nine for the number of tax payments required each year, there was slight improvement in the time taken to comply with the tax system (200 hours per year), see graphic 2.
Africa has the highest average total tax rate at 57.4%, well above the world average of 44.7%. The cascading sales taxes present in three economies (Comoros, The Gambia and Democratic Republic of Congo) contribute heavily to this rate.
The study shows that Africa has the highest average number of payments of taxes (37) of any region in the world this is largely due to the lack of electronic filing system for labour taxes and value-added tax (VAT).
Over the last eight years, the average time to comply in Africa has fallen by 25 hours.
"Electronic filing and payment reduces paperwork and complexity in tax systems, ultimately increasing tax compliance and reducing the cost of tax administration. The absence thereof may contribute to a compliance time burden in an economy," says De Wet.
In 2011 the pace of reform continued, but the focus was on improving the administrative aspect of the tax systems. The study shows that governments continue to reform their tax systems despite recent economic uncertainty, with 31 economies having taken steps from June2011 to May 2012 to make it easier and cost less for small and medium businesses to pay taxes.
"The fall in the average global tax rate seems to have stalled, which indicates that tax rates may be stabilising as the pressure on public finances grow," says De Wet.
The total tax rate for global companies is 44.7%, see graphic 3. On average they make 27.2 payments, and spend 267 hours complying with their tax requirements. In the eight years since the study began, the time to comply has fallen by 54 hours, almost seven working days, and the number of payments has declined by more than six, while the total tax rate has fallen nearly one percentage point for each year.
The top reformer was United Arab Emirates.