The taxman is coming for everything you have left...

Gareth Stokes, FAnews Online Editor

On Monday we cheered short-term insurer Mutual & Federal for revitalising its brand and launching an extensive advertising campaign that focuses on the value that brokers bring to the financial advice process. Today we’re wondering whether consumers will have any money left for insurance purchases, short or long-term – through the broker distribution channel or direct… The reason is South Africa’s mid and high-income citizens are being slowly taxed to death!

In 2010 Tax Statistics Highlights, a joint publication by National Treasury and the South African Revenue Services (SARS), we learn that R598.7bn in tax revenue was collected for the 2009/10 tax year. The three major contributors to National Treasury’s cash windfall include personal income tax, corporate income tax and value added tax (VAT), which together account for around 80% of the total. Capital gains tax (CGT) also weighed in with a sizeable R10.4 billion. It’s the tax burden carried by personal income tax payers that concerns us. There are only 5.9 million individual taxpayers registered with SARS in a country of more than 50 million citizens. And although all citizens contribute VAT, there is a sense that the registered mid and high-income taxpayer is under tremendous pressure to fund government’s expanding social agenda.

The mandatory savings debate gains impetus once more

Average Joe is already making dozens of payments to the state. He contributes income tax (deducted from his salary each month), value added tax (on just about every purchase of goods or services), fuel taxes, municipal rates, import duties on a various luxury goods, sin taxes on tobacco and alcohol – and now there’s more… Soon government will expect him to contribute another tithe for the National Health Insurance (NHI)… And if Joe lives in Gauteng he’s about to get “billed” for using roads he has already been taxed for!

South Africans are taxed to death… And they’re getting tired of the huge disconnect between tax revenues spent versus the service and infrastructure eventually delivered. It is this frustration which National Treasury will have to tackle when it releases a discussion paper (due out next month) on proposed legislation to tighten up the retirement savings environment. “The legislation will introduce some form of mandatory preservation until people retire or are disabled,” said Olano Makhubela, Treasury’s chief director for financial investments and savings. After attending dozens of retirement funding presentations FAnews is behind any steps to improve the preservation of retirement provisioning.

But mandatory preservation is just one of the steps on the way to the previously touted National Social Security System (NSSS). FAnews reckons Treasury will have to implement this plan at a furious pace if they hope to extract any money from South Africa’s double-afflicted citizens. Those in employment are dwindling fast, while this dwindling number of employed people has less money at the end of each month than ever before! Our sentiment was echoed by South African Savings Institute (SASI) deputy chairperson, Dr Sheshi Kaniki, who commented on Fin24.com that rising unemployment and high levels of indebtedness could frustrate plans to force people to save for retirement. And that’s not the only problem.

Forget the whimsical undertone… NHI is another tax on the so-called “rich”

For one thing the NHI proposal is going to lumber Joe Average (and his employer) in the region of 5% each. If you don’t believe me then take a look at how much the average British national contributes for that country’s NHS… A very “middle of the road” earner is already paying away 12% of his gross salary for the healthcare benefits – and the UK has a much bigger base than we do!

Still standing? Here’s another hammer blow for anyone trying to hang onto their job in Gauteng. The department of transport – at the South African National Road Agencies (Sanral) behest – is going to toll the provinces freeway network. After announcing that government would allow a window period for public debate on the issue, the minister of transport came out with all guns blazing, saying the toll would go ahead at the new price announced by government. But there is plenty of resistance, with the Congress of South African Trade Unions (Cosatu) adamant the plan won’t go ahead.

Freeway (sic) tolls and NHI will bump Joe Average’s taxes 32%

We don’t want to get into too much of a debate in today’s newsletter, except to say the collection mechanism for the freeway improvement project is flawed. First – it is inefficient to administer. Contrary to belief South African motorists will not only be repaying the debts incurred by Sanral, but will also be contributing billions each year by way of operating and administration costs to a local subsidiary of an Austrian-listed toll company. Second, it is an unfair tax… The minister argues we should pay for use, and then immediately exempts minibus taxis and buses from the toll, leaving ordinary working citizens and companies to carry the entire burden.

It appears foreigners will also be exempt – after all – how will they be billed? And there’s no mention of how non-Gauteng visitors will pay either! Then there’s the matter of the creaky  information systems operated by the provincial and national traffic departments whereby dozens of number plates are not even linked to a valid address… And we haven’t even mentioned those who will opt out by simply not paying… A much better solution would have been to hit every citizen with 7c (or whatever appropriate) per litre of petrol, ring-fenced for SANRAL road projects nationwide… There would be no additional cost to administer, it would be spread fairly across all road users, and National Treasury could simply perform a fund transfer once per month.

All these taxes will have a huge impact on Joe Average. Let’s consider the situation if Joe were earning R30, 000 per month (ignoring all other deductions or allowances) and had to commute 80km round trip each day to get to work, of which 70km is tolled. Before the new taxes Joe would pay SARS R75 250 plus 35% of the amount above R325 000 (R122 50) less the R10, 755 primary rebate each year. That’s a wage-related tax bill of R76 745 per year, or R6, 395 per month. The bottom line is 21.3% of his gross goes to payroll taxes. After the toll he will be hit with an additional R588 road tax each month (because that is what the toll is) taking his monthly tax burden to 23.2%! Add 5% (or R1, 500 per month) for NHI and Joe Average is suddenly paying R 8 483 per month in taxes, or 28.2% of his monthly wage.

Editor’s thoughts: Nothing is certain but death, taxes and the fact taxes will increase incrementally every year. Social plans such as NHI and NSSS place additional burdens on families already struggling to cope with spiralling debt. What would “tax” increases of the magnitude discussed today do to your client’s finances? Please add your comment below, or send it to gareth@fanews.co.za