A South African family earning R1 million per year get only 3c of value for every R1 they pay in tax

Efficient Group chief economist Dawie Roodt said that a family earning R1 million per year receives only 2 to 3 cents value back from every R1 they pay in tax.

Roodt shared his views on South Africa’s tax regime and government incompetence during an interview with Ernst Roets at the Kragdag Conference.

He argued that South Africa’s public servants are overpaid, underworked, and ineffective, and are putting pressure on the economy.

“State employees represent 3% of the South African population but account for 17% of the economy in salaries,” he said.

Roodt added that a small group of people account for most taxes paid in the country, which creates an unbalanced situation.

Because the state continues to overspend amid weak economic growth, the small group of taxpayers is being squeezed harder.

He said that South Africa is already past its tax capacity limit, meaning higher tax rates are reducing state revenues by triggering emigration, tax avoidance, and capital flight.

Another challenge is that those who pay the most taxes do not benefit from them. This has created negativity from taxpayers.

“The higher a family’s income, the more tax they pay and the less they receive in return,” Roodt said in the interview.

“You pay higher taxes, but you don’t use state healthcare as you have private medical cover or a medical aid.”

“You can’t access state social grants, and you have your own pension fund. You don’t rely on other state services either.”

He cited education, where the children of many wealthy families attend private schools instead of public schools.

This raises the question of how much value these taxpayers received for every rand they paid the South African Revenue Service (SARS).

“A family earning R1 million per year gets back roughly two to three cents from the state in benefits for every rand they pay in tax,” he said.

“That single family earning R1 million per year effectively carries the cost of healthcare, education, policing, and similar services for 20 poor families.”

Tax revolt in South Africa

The widespread mismanagement, corruption, and incompetence in the government mean that people hate paying taxes.

The fact that taxpayers receive virtually no value for the money they pay to SARS creates further negativity towards taxes.

This, Roody explained, has resulted in a tax rebellion. He said that a tax revolt is underway in South Africa.

He said that when clients walk into his office, they ask for two things: taking their money overseas and avoiding paying tax.

“People are managing their tax affairs very aggressively. People are taking their money offshore and engaging in aggressive tax planning,” he said.

“People are using various strategies in their companies and personal structures to pay as little tax as possible.”

In more extreme cases, people are emigrating or choose to stop working because the tax burden has become too heavy.