Practical taxation in South Africa for young professionals.

Very few South Africans pause and think about the taxes that they pay. In this brief two part article I’ll explain by way of example and a rant why you as a young South African should be incredibly pissed off.

Part 1 – Who Pays.

About 5% of the population pays 99% of the taxes. Yes, that’s about 3.5 Million people fund the entire country of 60 Million people. It has been estimated that 1.5% of South Africans pays more than 66% of the taxes; and if you think that 1.5 % must all be the millionaires you’re wrong. 1.5% of the population or about 800 000 people earn more than R 500 000 per year.

No kidding…

Part 2 – The Practical Example.

If you’re a South African Graduate Professional with about 5-7 years of work experience under the belt you expect to earn around R 700 000 annually – That’s an average, some will earn more, some will earn less.  Congratulations! You are deep in to the 1.5% of the elite! This is as high as you are statistically going to rise! Well Done!

For the sake of the model, let’s assume you’ve paid off your car in the last 5 years, and aspire to live in a decent house in a middle class neighbourhood. I am going to assume that you are single and have no kids.

For starters, you’ll pay 40% on your income, that’s R 280 000 income tax.

If you want to put fuel in your car, of the R 12/l you are paying, about R 4.20 is tax, that’s about 33%.  Annually you may spend about R20 000 on fuel, so that’s R 6600 in fuel levies and taxes annually.

You’ll need decent medical aid/insurance and that will cost about R 3000 per month (Discovery comprehensive essential), or R 36 000 annually, because you absolutely cannot use the public health system.

You’ll probably live in a complex or house with some form of private security. Whether your complex has a dedicated guarding service, or you pay for armed response, you’re looking at an average monthly expense of at-least R 600, or R 7200 annually.

So after you’ve been paid R 700 000 and deducted all of the above, you have about R355 000 left. Let’s lump together rent/bond, life insurance and properly insurance at R 11 000 per month + municipal rates and taxes at R1 000 per month or R 144 000 annually.

That leaves you with about R 211 000 in disposable income. I’m not going to pretend that you save any of that, because statistically you don’t. You are going to dispose of your income on “stuff” and stuff (except for bread and some vegetables) has 14% VAT attached to it. For you, that would be R 25 000 annually Value Added Tax.

This brings the annual effective tax that you pay to about R330 000, or just under 50% of your income.

Now, keep in mind that I have ignored a lot of shadow taxes :

  • Import taxes on luxury items.
  • Tolls (Yes, Etoll.)
  • Travel taxes at airports.
  • Taxes on alcohol and cigarets.

AND WHAT DO YOU GET FOR YOUR YOUR MONEY!?

  • Roads with pot holes, a dysfunctional police system, a metro police service that lives on bribary and exploitation, and totally inadequate health care.
  • Nkandla – R 246mil
  • Jacob Zuma’s Legal Fees – R 1bn total
  • VIP security escorts for politicians – R 1.2bn annually 
  • Prasa Trains that can’t use our railway system – R 3.5bn
  • In total , in the last 10 years corruption alone has cost us R 700bn.

It has been estimated that almost 8% of total GDP is disappearing each year due to corruption.

When you review all the news reports the last 5 years and view them as a whole the story is one of a horrifically compromised government that is milking a base of hardworking people for all that they are worth.

As Rolling Alpha put it in a fantastic article:

  1. You cannot indefinitely fine the privileged for being privileged;
  2. If you do it for long enough, then the privileged will just take their privilege elsewhere;
  3. You will alienate your tax base if you’re not offering real tangible benefits in return; and
  4. If you’re relying on 1% of the population to be almost two thirds of your income tax base, then you had best get your spending in order. Because you are vulnerable, and they may leave.

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