Income Tax – Background:

We are told that income tax was first introduced to the world in In the year 10 CE, by Emperor Wang Mang of the Xin Dynasty in China but was overturned with his overthrow thirteen years later. The next we hear of income tax was the Saladin tithe of Henry II in 1188 to pay for the Third Crusade.  But modern income tax was began, it is said, by William Pitt the Younger in 1798 to pay for weapons and equipment for the Napoleonic wars. The tax was repealed in 1816.

Income tax was re-introduced in Britain in 1842.  In America an income tax act was passed in 1862 and then repealed in 1872.  In 1913, the 16th Amendment to the US Constitution enable the imposition of a Federal Income Tax.   In South Africa, following the formation of the Union of South Africa in 1904, the Income Tax Act 28 (1914) was promulgated.    

The point is that while Emperors, Sultans, Kings and Governments have been collecting taxes throughout history, income tax per se is a relatively new innovation.  In 2012, income tax is only 172 years old in the UK, and 99 years old in the USA, and 98 years old in SA.  If income tax were set in concrete, historically speaking the concrete would barely have set.  In our opinion income tax is invasive, unfair and does not meet the requirements of a fair tax system, which should be to tax all equally according to the benefits they receive from and the use they make of society and the economy.  Income tax and a plethora of other taxes need to be replaced. 

TEAL:  

The Direct Democracy Forum (the DDF) will implement a Total Economic Activity Levy (TEAL).  Simply put:

  • TEAL:
    • levies the flow of money through the banking system.
    • will be levied at an expected rate of between 1/2% and 1% of all deposits and withdrawals.
    • is collected by the banks, from their clients, on behalf of the state.
    • will replace all other forms of state income
    • will satisfy all the logistical and social financial demands required of government
  • You may read more of TEAL at the TEAL web site.

 Background:

This is what we wish to replace:

The tax system in South Africa seems a bit like an onion, with many layers.

Back in the nineteen sixties and seventies, economics courses taught that double taxation (being taxed twice for the same thing) was a no-no, yet the suspicion of nearly everyone in South Africa today is that taxes are confusingly difficult to understand and pretty much anything goes, including thinly disguised double taxation.

As an example, in April 2012 the South African government is steamrolling through the E-Tolling system (an electronic tolling system on SA’s major motorways), yet government already has taxes in place (fuel levies) that are supposed to cover the cost of road development and maintenance.  Many goods are taxed at source (import and excise duties) and again during conversion processes (payroll taxes, land taxes, fuel levies & etc) and then again on distribution (payroll, fuel levies and vat).  It is said that South Africans pay as much as 60% of their income in direct and indirect taxes.  That has to make South Africa one of the most heavily taxed countries in the world.

Let’s examine the 60% tax claim:

  • The Gross Domestic Product is also the Gross Domestic Income, namely, the total income received by all sectors of an economy within a nation. It includes the sum of all wages, profits & etc see Gross Domestic Income.  According to the CIA World Fact Book, South Africa’s GDP/GDI in 2011 was said to be $554.6 billion at R7.164 = $1 = R3.973 trillion.  The revised National Expenditure for 2011/12 was R0.895 trillion, so that doesn’t stack up to 60%, probably because taxable amounts are net amounts and not the same as the GDP/GDI and worse still, the national expenditure is more than the state’s revenue.  
  • A more promising approach is to compare state income derived from taxes and from other sources. In 2009 SA revenue from other sources was 43.3% and from tax sources 56.7%   (see Tax Base in South Africa).  Assuming that whatever the state receives must come out of taxpayers pockets, it would be fair to say that on average the tax paid by a taxpayer is actually 176.4% of the direct taxes paid, so, someone paying direct taxes of say 35% of income actually pays 61.74% of his income in direct and indirect taxes together, assuming an equal spread of indirect taxes across all tax payers.  The reality is that there is probably a quite unequal spread with the burden being born by the top 10% of income earners who, by the above logic, probably pay a lot more than 61.74% of taxable income.  In fact, also in 2009, 9.4% of assessed taxpayers contributed  54.6% of all assessed income tax (see Tax Base in South Africa) .
  • We are looking for other and better proofs of the 60% tax rate perception.

Objectives and Strategies: