PROVIDE Project Technical Paper 2005:1
calculated and compared with the actual tax rate reported. In columns 1 and 2 of Table 6 the
reported total expenditure and tax expenditure are listed.
February 2005
The IES 2000 total expenditure of R415,526 million (2000 prices, including current
expenditure, income tax and savings) is about 1.57 times lower than total current income of
households before tax, consumption and transfers reported in SARB 2000 (R651,675 million,
column 4). Unfortunately the SARB 2000 does not have data on the distribution of this
income between deciles. Thus, assuming that the income distribution reported in the IES
2000 is correct, each decile’s total expenditure can be increased 1.57 times so that the total
income adds up to R651,675 million. Similarly, according to the SARB 2000 data total
income tax was R90,296 million in 2000, almost three times as much as reported in IES 2000.
The entries in column 5 are calculated by multiplying each decile’s reported tax expenditure
by a factor of 2.89. The ‘expected’ decile-specific average tax rates are now calculated
(column 6) and compared with the reported tax rates (column 3). Given the way in which the
expected rate is calculated the expected rate is exactly 1.84 (2.89 divided by 1.57) times the
reported rate.
Table 6: Tax rates reported in IES 2000 (R millions)
|
Total |
Total tax (IES |
Tax rate (IES |
Total |
Total tax |
Expected tax |
Total |
Total tax (IES |
Tax rate (IES | |
|
Decile 1 |
3,132 |
_________0 |
0.01% |
4,912 |
______________1 |
0.02% |
3,132 |
_________0 |
0.01% |
|
Decile 2 |
5,955 |
__________3 |
0.05% |
9,340 |
__________8 |
0.08% |
5,955 |
__________3 |
0.05% |
|
Decile 3 |
8,175 |
_________9 |
0.11% |
12,821 |
________25 |
0.19% |
8,175 |
_________9 |
0.11% |
|
Decile 4 |
11,006 |
_______22 |
0.20% |
17,260 |
________65 |
0.38% |
11,006 |
_______22 |
0.20% |
|
Decile 5 |
14,527 |
________87 |
0.60% |
22,782 |
251 |
1.10% |
14,688 |
249 |
1.69% |
|
Decile 6 |
19,641 |
289 |
1.47% |
30,804 |
835 |
2.71% |
20,199 |
847 |
4.19% |
|
Decile 7 |
27,399 |
771 |
2.82% |
42,970 |
2,228 |
5.19% |
28,134 |
1,507 |
5.36% |
|
Decile 8 |
40,616 |
1,522 |
3.75% |
63,699 |
4,397 |
6.90% |
41,656 |
2,562 |
6.15% |
|
Decile 9 |
71,692 |
4,664 |
6.51% |
112,435 |
13,473 |
11.98% |
73,494 |
6,466 |
8.80% |
|
Decile 10 |
213,384 |
23,890 |
11.20% |
334,653 |
69,013 |
20.62% |
222,452 |
32,958 |
14.82% |
|
Total |
415,527 |
31,257 |
7.52% |
651,675 |
90,296 |
13.86% |
428,892 |
44,622 |
10.40% |
Possible reasons for the under-reporting of tax were given in section 2.4.2. In short,
households could simply have understated the amount of tax paid relative to the income or
expenditure level reported. Also, many households reported zero taxation, either in error or
because they did not want to disclose the information. In the latter case the variable should
have been coded as missing. When many households report zero taxation, the average within
deciles is dragged down. The large number of households that report zero taxation suggests
that this second reason is perhaps an important reason for the low average tax rates within
deciles.
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