2014: 100 years of income tax in South Africa
Income tax in South Africa is 100 years old this year. It was instituted on a limited scale in 1914, but during the past 100 years it has expanded tremendously, to such an extent that it today affects the entire middle class, the Solidarity Research Institute (SRI) said today.
Income tax is typically seen as an inevitable part of modern society. Many people think that this kind of tax has always been with us. This is not the case. Income tax is a relatively new kind of tax in South Africa; and does not date back much more than four generations.
Modern Western income tax originated in Britain 1799 as a temporary levy only to fund the Napoleonic wars. Income tax was abolished in 1815 but was reinstated in 1842.
Almost 200 years after the introduction of income tax, it was still deemed a temporary tax in Britain requiring annual new legislation to maintain it.
In 1914, the first national income tax was instituted in the Union of South Africa through the Income Tax Act of 1914. Before the introduction of income tax, state revenue mainly came from trade levies, user fees, indirect taxes and mine taxes.
In 2012/'13, personal income tax represented 34% of the state's tax revenue.
The income tax rate of 1914
In 1914, income tax was levied on any income higher than 1 000 pounds based on a sliding scale starting at six pence per pound (or 2,5%). The first 1 000 pounds were not taxable.
With the sliding scale adjustment a person's effective income tax rate on 2 000 pounds was only 1,35%. A very wealthy person with an income of 25 000 pounds only had to pay 7,2% of his income to income tax.
Historic salaries and 1914's income tax:
In 1929, remuneration of a senior professor at the University of Stellenbosch amounted to about 950 pounds a year. If this is adjusted to take into account the deflation off the 1920s, a senior professor would have earned 1 550 pounds a year during 1914.
|
|
Income tax calculation |
Effective rate |
|
1 550 pounds; senior professor |
550 x 2,62% = 14,38 pounds per annum (at 6,28 pence per pound) |
0,93% |
Today, a professor in a similar professorial post at the North-West University earns approximately R800 000 per annum. The income tax rate on a salary of R800 000 is significantly higher than it was in 1914.
|
|
Income tax calculation |
Effective rate |
|
R800 000; senior professor |
R173 125 + 40% of the amount above R638,600 = R237 685 per annum |
29,7% |
Therefore, a senior professor today has to cede a much larger part of his remuneration to income tax than was the case 100 years ago. The number of people who initially did not pay income tax also needs to be taken into account.
In 1914, many earned less than 1 000 pounds and were initially exempt from income tax. This state of affairs did not last long. A leap in income tax rates occurred already in 1915, and during the same year the 1 000 pound threshold was also lowered to 300.
Today, the middle class is heavily burdened by income tax. Those with a taxable income of more than R140 000 per annum are responsible for approximately 90% of income tax.
Those who had agreed to income tax in 1914 would surely not have anticipated the high rates that apply today. The 1914 Income Tax Act was a foot in the door to increasingly expand the tax burden during the past century. Today, it applies to the majority of middle class South Africans.
On Sunday, the SRI released an infosheet on the actual number of taxpayers in South Africa. Click here to download it. On Friday, the SRI released an infosheet on the illusory tax relief offered in the 2013/14 tax year. Click here to download it. In the run-up to Finance Minister, Pravin Gordhan's Budget Speech the SRI is releasing a series of infosheets.
Statement issued by Paul Joubert, Senior economics researcher: SRI and Piet le Roux, Senior economics researcher: SRI, February 24 2014
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