The Shaky South African Economy
Some scary numbers being released by the South African Revenue Services highlighting 1.5% responsible for 60.6% of the total tax revenue collected. Value Added Tax known as VAT generates 25.3% of the total tax revenue pot. The 1.5% represents 930K tax payers earning between R1K and R250K per month.
Unemployment is at an unofficial 40-50% and if no more jobs are created the tax revenue will remain stagnant as the taxing levels cannot be increased further. Taxing has reached a point of no return where any more increases will see less revenue being paid. Last year the receiver mentioned they had to find a R80 billion shortage and even at the current rates many tax payers are finding grey areas paying less and still being legal.
The Laffer Curve shown above is actually rather interesting because it highlights the point where tax revenue is maximised and any increases in taxes would see the revenue drop. Reducing the taxes has the opposite effect and often sees the tax revenue increase. The reason behind this is once the public is over taxed people will always look at ways to avoid paying the tax through avoidance or evasion. Reducing the tax percentage will see those who were once avoiding/evading now more willing to pay.
If this is what our head tax man thinks then South Africa has bigger problems ahead. The biggest problem is those who are in charge making decisions are lacking the education and skills required to run these departments. If you have someone who struggles with basic mathematics then how can you expect different results?
Our tax man above has no idea what trouble they are creating and that tax payers including businesses are looking at places like Mauritius to register their companies. This offshore haven allows SA companies registered in Mauritius to save around 25% tax versus 40% in SA. Many have been changing their company license status as they have had enough.
In 2024 900 millionaires left South Africa and this year there is another 600 projected to leave. This is all being fueled by the high tax rates as people have had enough. This is unsustainable as these are the very people who would be business owners now lost for good. This is leaving the country bare of investors which would fuel the economy's growth.
Very few international investors are going to invest in SA due to the forced Black Empowerment rules that require "locals" owning 33% of the company. Those locals are government officials so this is misleading and these so called BEE deals benefit roughly 100 well connected families.
All mt friends who I talk to and are business owners are making future plans to move elsewhere. The biggest worry is the taxing and they are asking themselves is it worth it working the hours knowing you are handing over so much of what you are earning. We are moving accountants to a tax specialist so we can recoup the taxes and pay less whilst remaining legal.
Posted Using INLEO