Book paints detailed picture of tax revenue resilience
11 November 2015
Posted by: Author: Hilary Joffe
Author: Hilary Joffe (BDlive)
When the South African Revenue Service (SARS) and the Treasury published the first edition of their new Tax Statistics book early in 2009, it attracted little more than yawns. Almost seven years on, tax statistics are all the rage and the book, which expands and improves each year, has been drawn on to provide everything from French celebrity economist Thomas Piketty’s inequality statistics, to data supporting the #FeesMustFall campaign.
This year’s edition, released on Tuesday, again provides a rich set of tax-collection data that have much to tell about SA’s economy. They show how personal income tax collections have made the running in the post-financial crisis period, dominating the tax mix thanks to above-inflation wage increases at a time when corporate income tax collections have been weak. They also show just how concentrated SA’s tax base is, both individual and corporate. Almost 58% of personal income taxes come from just 9.7% of individual taxpayers, who have taxable incomes of R500,000 or more. SA’s highly concentrated economy shows too in corporate income taxes, where almost 59% of tax comes from as little as 0.2% of the large companies that are profitable enough to pay tax at all. And the trend is there in VAT collections, with two-thirds coming from the largest vendors.
The inequality evident among individual income taxpayers isn’t necessarily unusual — SARS says it’s common internationally for two-thirds of the income tax to come from the top 10% of taxpayers. As Tax Statistics shows though, SA’s income inequality isn’t just about race and class, but also geography, age and access. As much personal income tax is collected from Johannesburg’s 630,000 taxpayers as SARS collects from everyone living in the bottom 219 municipalities.
The stats show too that if you were aged 31-40 in 2004 and have been on the tax register ever since, you’ve seen your taxable income rise by almost 14% a year on average. That has contributed to the resilience of SA’s tax revenue in a tough economy, with growth in household incomes driving growth not only in personal income tax collections, but also in VAT.
But how long can it last? That question is as much about the economy as it is about the tax authority itself. One striking statistic is the "tax buoyancy" ratio, which has been running at above 1 since SA began, in 2010, to recover from recession, indicating that tax revenues have been growing faster than the economy has grown. The ratio peaked at 1.48 last year, but is down to 1.31 for the current fiscal year to date. That’s still a good sign for the fiscus, and is why the government can carry on increasing spending modestly even though the economy is sliding fast.
But in the long term, the buoyancy ratio averages about 1, or just above it, so the economy-beating revenue trend can’t last forever. There are already signs it won’t. Growth in VAT collections has slowed to below inflation for the first time in many years, suggesting households are not going to be the revenue cash cow they have been. Then there is the revenue itself. The tax buoyancy has reflected compliance improvements and closure of tax loopholes in recent years, and SARS’s modernisation drive, which has yielded efficiencies and benefits in terms of swifter and better collections.
With SARS in the midst of a major organisational restructuring that surely has the potential for some disruption in the next while, sustaining its performance will be challenging. But there’s a question mark anyway over how much more benefit modernisation and improved compliance drives can yield.
Combating base erosion and profit shifting by multinationals is all the rage among tax authorities globally and SARS is in there and hoping to extract more. It may also be able to extract some more from smaller companies — PWC’s Kyle Mandy argues, for example, that the "tax gap" isn’t the large companies but rather in noncompliance by cash-based firms and small and medium-sized companies. SARS group executive Randall Carolissen says it plans to deal with compliance levels among smaller companies, as it has with larger ones.
In the end, though, it is precisely the concentration of the tax base that must limit how much more SARS can extract from a relatively small pool of taxpayers. Only higher economic growth can grow the pool and sustain the buoyancy.
This article first appeared on bdlive.co.za.