Africa-Press – South-Africa. If he were Finance Minister, Dawie Roodt would significantly overhaul South Africa’s tax system to make it simpler, thus making it easier for taxpayers to comply and much less of a burden for SARS to administer.
He would also reorganise the country’s tax system to reduce the burden on personal income taxpayers and individual companies, which are overburdened, and focus on raising revenue through broad-based taxes.
Roodt explained to the State of the Nation podcast that this could significantly boost economic growth and help alleviate some of the government’s financial pressures.
More crucially, lower taxes on companies would make South Africa more competitive globally and attractive for businesses to invest in the country.
As other countries reduce their CIT rates, South Africa’s 27% looks increasingly unattractive, warding off potential investment that would boost economic growth.
“If I were the Minister of Finance, what would I do? I would love to be the Finance Minister,” Roodt said.
“I wouldn’t want to be the Reserve Bank Governor, because there is nothing to fix. The Reserve Bank works very well already and does a very good job.”
Roodt explained that the Finance Minister is in a very difficult position, with government policy dictating significant spending in the form of social grants, bailouts of public companies, and a well-paid public service.
“I would certainly start with the tax regime in South Africa and I would significantly simplify the administration of tax in the country,” Roodt said.
“I will not lower the tax burden to start off with, but I would dramatically simplify the tax system. There are so many things that could be done to make the tax regime cheaper to manage and easier to comply with.”
Outside of this, Roodt explained that the Finance Minister has very little space to introduce major changes, as the National Treasury’s job is quite simply to budget for the government’s agenda.
While Roodt would like the state to spend less, he understands that a significant portion of the country is reliant on the state for income and thus, social grants can’t simply be cut.
Only with significantly faster and sustained economic growth, translating into increased employment, could this be reduced.
“The Minister of Finance can make certain changes on the revenue side of things, but he can’t really say that much on the expenditure side because his colleagues decide what to do there,” Roodt explained.
South Africa’s taxing times
South Africa is over the Laffer Curve with regard to personal income tax (PIT) and corporate income tax (CIT), with a small number of taxpayers footing the majority of the bill.
This means that increases to these tax rates are likely to result in less revenue as individuals and companies look to minimise their tax burden.
Increased tax rates are also likely to result in further reductions in investment, limiting growth, and, thus, state revenue in future.
Roodt told Daily Investor that South African taxpayers are among the most heavily burdened in the world, with a tiny fraction responsible for the majority of tax revenue.
For example, only 2.6% of South Africans pay over two-thirds of the income tax in the country. In absolute terms, 1.6 million individuals pay 76.2% of the R2.2 trillion in PIT collections.
This also extends to companies, with 1,051 companies paying 72.3% of all CIT in South Africa. In other words, companies with taxable income greater than R100 million constituted 0.1% of the total number but contributed 72.2% of taxable income and 72.3% of assessed tax.
Almost 96.7% of all assessed companies with positive taxable income, from R1 to R10 million, paid only 11.3% of the tax assessed in 2024.
Furthermore, South Africa’s revenue collection has weakened significantly due to sluggish economic growth and the hollowing out of SARS during the era of state capture.
This is not due to a lack of tax increases, as personal income tax rate increases and VAT rates between 2016 and 2020 had a limited effect on revenue collection.
Roodt said this is evidence of the country being over the Laffer Curve concerning these two taxes, with any increase likely to result in a decline in revenue.
Conversely, a reduction in these tax rates will most likely boost tax revenue through faster economic growth created by increased investment.
While Roodt said that South Africa is over the Laffer Curve with regards to PIT and CIT, it still has room to increase VAT.
This is because VAT is inherently a broad-based tax, with everyone paying it, giving the state more room to increase it.
Furthermore, South Africa’s VAT rate is relatively low compared to other emerging markets and developed economies.
For More News And Analysis About South-Africa Follow Africa-Press
