Tax experts are speculating that South Africa may be reaching the peak of the Laffer Curve, which points to tax compliance and revenue collection beginning to fall rapidly.
The country may be reaching the point in an economic theory that once taxes reach a certain high point, tax compliance and tax revenue collection starts to drop, said Tertius Troost, tax consultant at Mazars.
“The fact that increasing numbers of high net worth individuals seem to be exiting the country – leading to even less income tax being earned – is one indication that South Africa may have surpassed that peak already,” said Troost.
Troost’s comments come after National Treasury and the South African Revenue Service released the 10th annual edition of Tax Statistics, which provided an overview of tax revenue collections and tax return information for the 2013 to 2016 tax years, and the 2012-2013 to 2016-2017 fiscal years.
Finance Minister Malusi Gigaba announced during his medium-term budget statement in October that a R50.8 billion revenue shortfall is expected for the fiscal year. Key points in the 2017 edition showed tax revenue collected amounted to R1.144 trillion, growing year-on-year by R74.1 billion – mainly supported by personal income tax which grew by R36.6 billion.
“Despite tough economic conditions in which GDP increased from 0.5% to 0.7%, the tax-to-GDP ratio stabilised at 26.0% from 2015-16, slightly below the peak of 26.4% achieved in 2007-08.
“Net VAT collections totalled R289.2 billion and grew by 2.9%, compared to the previous year. Domestic VAT, which amounted to R321.5 billion and grew by 8.1%, was the key driver for the aggregate growth in net VAT. VAT refunds totalled R181.6 billion and grew by 8.7%.”
However, the stats show revenue collected from import taxes, import VAT and customs duties declined by 1.0% and 1.5%, respectively, against the previous year.
“Subdued growth levels of merchandise imports, resulting from currency-driven high import costs and muted domestic activity, diminished the overall demand for consumption and capital goods,” said Troost.
“Import VAT accounted for 13.0% of the year’s total tax revenue, with customs duties constituting 4.0%. This resulted in an aggregate 17.0% contribution to total tax revenue, which is a drop from the 18.5% average over the preceding five years.”
Troost pointed to personal income tax making up the largest share of Sars’ total revenue.