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​‘Earning R1.5m a year is not rich’

Tax increases announced in last month’s budget speech target the wealthy but, in announcing that a new tax rate of 45% would apply to those who earn more than R1.5-million a year, the progressive tax measures received criticism from unlikely quarters.

Mzwanele Manyi, former head of government communications, and now president of the Progressive Professionals Forum (PPF), tweeted on budget day: “This Budget is pro WMC [White Monopoly Capital] and anti blk Middle Class. Corporate tax isn’t rising but those who earn R1.5-million p/a mostly black pay a whooping 45%.”

His sentiments were shared by prominent advocate Vuyani Ngalwana SC, who tweeted: “Good people, R1.5m a year is NOT rich. Taxing people in that bracket at 45% hits the Black ‘middle class’ mostly, not Sandhurst & Llandudno.”

But numbers disprove this. They show that the overwhelming majority of South Africans who earn more than R1.5-million a year are white.

Although the South African Revenue Service (Sars) said it does not collect demographic data on South African taxpayers, the Bureau of Market Research at the University of South Africa has a database on total income, which distinguishes income by race groups.

Statistics sourced from its 2016 personal income database show that 105 668 South Africans earned R1.5-million or more in 2016. Of these, 69 443, or 65.7%, were white. A further 19 197, or 18.2%, were black. The balance comprised 13 092, or 12.4%, coloured and 3 936, or 3.7%, Indians.

The new tax bracket is expected to bring in an additional R4.4-billion for the 2017-2018 tax year, translating to R41 639 for each of the 105 668 high-earning individuals.

Manyi and the PPF — accused by opposition parties as being aligned to the politically connected Gupta family — have come to the fore in recent months as political tensions and factionalism intensify.

The PPF has been centre stage in calling for the redrafting of the Financial Intelligence Centre Amendment Bill, the continued delay of which poses risks for South Africa’s banking sector. This week it made representations to Parliament on the need for transformation of the banking sector.

Recently, the minister of public enterprises, Lynne Brown, revealed that the PPF had received R840 000 in sponsorships from parastatals Transnet and Eskom. The Democratic Alliance has accused the PPF of being funded to wage “a dirty war” against the treasury. The PPF has denied this.

Manyi’s Decolonisation Foundation last year threatened to lay formal complaints against AngloGold Ashanti and its chairperson, ANC stalwart Sipho Pityana. Pityana has been particularly outspoken about the rot in the ANC and has openly called for President Jacob Zuma to step down. The foundation accused Pityana and AngloGold Ashanti of “promoting anarchy and planting the seeds of regime change”.

In addition to the R4.4-billion the 45% tax rate is expected to bring in, additional measures, such as higher sin taxes and dividend-withholding taxes, are expected to raise R28-billion this financial year.

Progressive tax requires that the more a citizen earns, the more tax they pay. But critics bemoan the choice to hike personal income tax for the affluent rather than a value-added tax hike. That would raise more money immediately, but would mean that a bigger portion of a poor South African’s income would be taxed than that of a wealthy one.

Treasury is advised by the Davis Tax Committee, established in 2012 to look at the appropriateness of South Africa’s tax system. Specifically, it must look at what role the tax system can play in promoting inclusive growth and to narrow the gap between rich and poor.

Speaking to the Mail & Guardian prior to the 2017 budget speech, tax committee chairperson Judge Dennis Davis described attitudes to wealth taxes as appalling.

“I find it shocking there are people telling me we can’t increase estate duty, capital gains tax shouldn’t be higher, that the marginal tax rate shouldn’t increase. Why not? Quite frankly, we should be paying more tax and we should be spending more [on the poor],” he said.

Referring to the narrative of white monopoly capital, Davis said capital knows no race. “People who accumulate vast money and wealth struggle to understand the plight of the heaps under them.”

Davis echoed the sentiments of many who believe that the tax rate is acceptable but the way it is spent must be improved. As such, a VAT hike could be an option but the revenue it raises must be used effectively to improve the lives of South Africa’s poorest citizens.

In December, Finance Minister Pravin Gordhan ordered a probe into Sars, with Davis as the investigator.

Davis recently told a conference on tax evasion, hosted by the Alternative Information Development Centre, that the biggest problem facing the country was the “erosion of the integrity of Sars”. Sars has subsequently called for Davis’s removal.

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