Basic Income Grant may push taxpayers out of SA, study says

Implementing a basic income grant in SA, which has been ranked as the world’s most unequal nation, would slow economic growth and is likely to lead to the emigration of taxpayers, Intellidex said in a study.

President Cyril Ramaphosa and social development minister Lindiwe Zulu have said the measure — which would be the biggest of its kind globally if implemented — should be considered to alleviate poverty. Business organisations have cautioned against it, saying it’s unaffordable. 

Borrowing money to finance the payment, which depending on its structure and level could cost anything between R20bn and R2 trillion a year, is unfeasible given the state of SA’s finances, Intellidex said in the July 22 report. That leaves higher taxes as the sole way to raise money, the group said. 

The country’s taxes are paid by a relatively small number of people and companies, while its personal and corporate tax rank as the 24th highest out of 118 countries assessed by the OECD (Organisation for Economic Co-operation and Development).

Most of the proposals for a basic income grant would necessitate raising between R50bn and R100bn a year, the research group said.

“Some taxpayers may withdraw from the tax system altogether by relocating to jurisdictions where taxes are lower and/or where they feel they may receive a better return on the taxes they pay,” Intellidex said. “Emigration is a potentially serious threat to the medium- and long-run stability of the tax system.”

Intellidex estimates personal income tax, the top rate of which is 45% in SA, would need to be raised by between 9% and 19% if it was used as the vehicle to raise the funds.

Value added tax (VAT) would need to be increased by 14% and 29%, meaning an effective increase of about 2-percentage points from its current level of 15%, while corporate tax would need to be increased by between 24% and 47%.

In the 2019/20 tax year, the last year before the Covid-19 pandemic, personal income tax raised R528bn, VAT R347bn and corporate tax R212bn.

Hiking VAT would be the best option as the level is relatively low by international standards, Intellidex said.

More than half of SA households already get some of welfare payment and the country is ranked as the most unequal, for which data is available by the Thomas Piketty-backed World Inequality Lab.

Business Unity SA, the biggest business group, warned against the imposition of a basic income grant in a separate release.

“An unaffordable basic income grant, or one that undermines our very fragile growth path, will be self-defeating,” it said.

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