Something is badly wrong with our tax system

Imagine you have a married couple, Jack and Jill, and that you have two possible scenarios for how they earn income:

In Scenario A, Jack earns R20,000 a month and Jill earns R20,000 a month.

In Scenario B, Jill earns R40,000 a month and Jack quits his job to be a stay-at-home dad.

Let’s look at how they would pay income tax in each scenario:

Scenario A (both earn R20,000).

 Annual Tax: R40,890 each, or R81,780 together. 

Scenario B (Jill earns R40,000, Jack R0)

 Annual Tax: R123,109

Wait a minute… That’s a difference of more than R40,000!

Jack & Jill are paying R40,000 a year in tax simply because, as a team, they are able to add the same amount of value to the economy. 

What’s the reasoning behind this? Is it to punish them for not both working towards SA’s GDP metric? 

Shouldn’t there be recognition that Jack will play a vital role as a teacher and role model for his kids which will lead to a healthier economy and country in the long term?

Or am I missing something here? Is there a way for them to get that R40,000 back? I would think that in some countries there would be tax breaks to counter this exact situation.

If not, I’d say that this is another proof that sliding scale tax systems are badly broken.

 

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Figures calculated using Old Mutual Income Tax Calculator available here

4 thoughts on “Something is badly wrong with our tax system

  1. I’m no tax expert, but I would imagine that in the second scenario, Jill could employ Jack to look after the kids. If done properly, this would be a tax write off for her, so she would pay much less tax. Jack would have to pay tax on his earnings. If done right, you could probably end up with figures close to Scenario A. (I think)

  2. I think there are options to combine married couple’s tax-free income in the UK, but I’m not 100% certain. It definitely seems like it makes sense. It makes more sense to me that two people, married or not, could combine their taxes.

  3. At the risk of stating the obvious: Ignore the different tax rates for the different tax brackets. The ‘anomaly’ then occurs mainly due to the first R57 000 tax free income that each person is allowed to receive. Any alternative approach (e.g. pooling) would complicate the tax system even more. SARS had made it quite clear that it’s trying to simplify the whole process. It would also open many many loopholes. If pooling for married couples is allowed, then soon there would be pressure to apply it to long-term relationships as well. It’s an administrative nightmare.Your R40 000 & R0 / month scenario is rather exceptional and at more realistic lower levels the difference is much smaller. For those who do earn that much, you’d expect them to have the knowledge to ‘contract out’ the work to the other party to benefit from the current tax structure.

  4. @igitur I think it’s pretty common to have one breadwinner in a married couple, especially when having young children and the mother stops working to look after the kids fulltime.So the tax knock is the worst exactly when you need money the most. One could look at better tax breaks specifically for couples with young children then.

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