FOLLOW MONEYWEB ON TWITTER
Corporates pay the 2nd highest effective tax
rate among the biggest 60 world economies.
Only four out of ten adults are employed in South
Africa. This is much lower than the 6.5 /10 for the
rest of the world. The local economy therefore has
too few jobs and employers are hard to find.
South Africa’s economy is one of the 25 largest
economies in the world and is strategically very
important. The economy should therefore have a
better track record to attract long-term fixed
Unfortunately, our track record is very poor. A
surprising fact may play a very big role in this:
South Africa’s companies pay the second highest
effective tax rate among the biggest 60 economies
in the world (2009/2010 tax statistics data from
Yet South Africa has one of the smallest tax bases
in the world and has one of the fewest number of
employers and companies paying tax.
Over the past eight years, the average effective tax
rate in developed countries has been less than half
of what South African companies pay.
Effective tax rates are often compared across
countries when companies decide where to expand
to. The effective tax rate has very little to do with
the corporate tax rate and mostly to do with the
actual tax ratio as a percentage of the size of the
The OECD has kept very good tax statistics for
some years now as do some other countries and it
makes for eye popping reading – at least for South
OECD data released at the end of 2011 shows that
the average tax payment as a percentage of GDP in
the developed world is around 3% (2.8 % in 2009).
The highest effective corporate tax to GDP ratio in
2010 was in Norway, where it was 9.7 %.
The SA effective tax rate is 6.2 %. This is double the
average rate of the developed world and has been
the case for the last eight years.
Government has been complaining that the local
economy is getting too few green field projects that
really create jobs. The most notable one that we
have received was in the motoring industry, but it
came at a massive cost – the incentives and
protection for the industry comes at a cost of
nearly 1% of GDP.
Simple fact is that South Africa is chasing away
foreign investment not only through rhetoric, but
also with the high-effective tax rate.
I personally told the Department of Trade and
Industry that taxes are a big factor, but this was
The fact that we are one of only three countries
that have had a consistent effective corporate tax
rate of over 5% of GDP over the last eight years
shows government is not serious about attracting
In effect this strategy results in the perpetuation of
South Africa is the only developing country that I
could find whose effective corporate tax rate is well
The average among most developing countries
seems to be between 1% and 2% of GDP. This
illustrates the pressure on firms and entrepreneurs
to invest and create employment.
Added to the high effective corporate taxes are
other high rates for basic services such as
electricity, water and property rates. Local
businesses also spend more than most other
countries on education of employees.
The reality is that foreign companies do not want
to do business in a country where too much of
their profits go to the government in the form of
taxes. Investment decisions are made on profit
ratios. It is as simple as that.
Another effect is that the talk of nationalisation is
just hot air. If companies pay up to 8% of GDP
into different forms of taxes, how the hell are you
going to pay for nationalising them? The act of
nationalisation will result in the government losing
a third of its tax income. Unless you want welfare
dependency to go cold turkey in a matter of
months and the resultant political riots you had
better leave all talk of nationalisation.
A third factor is that business will have a bigger
voice in the future. Apart from the high effective
tax rate, businesses are required to adhere to
laborious labour and empowerment laws.
If an economy has only a few big corporates, the
government is extremely dependent on them for
This is simple demand (government has a demand
for taxes to pay welfare cheques and salaries) and
supply (the number of companies able to create
wealth who can pay taxes).
While the South African Revenue Service (Sars) has
become more effective, a high effective tax rate
constrains companies from investing in a
meaningful way. I hope Treasury and its
consultants drawing up the National Budget
consider this. Government needs to learn that it
should help companies and that additional costs
will only result in lost investment.
*Mike Schüssler holds a Masters in economics. He
is a successful entrepreneur, owner and employer
at Economists Dotcoza.