Many South Africans focus on the tax deducted from their salaries each month, but financial experts say the actual tax burden is far greater than what is earned (paid) as a salary and is putting even more pressure on already overburdened taxpayers.
Speaking on 702/CapTalk, Sean Kelly, director of Parity Wealth Managers, said that indirect taxes such as VAT, fuel levy, transfer duty and property duty add significantly to the amount consumers pay to the state each year.
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hidden taxes add up
Kelly said South Africans face taxes in almost every spending decision they make.
He pointed to VAT, which is levied on a wide range of goods and services, as well as fuel duty which is factored into the price motorists pay at the pump.
According to Kelly, a person earning around R30,000 per month can assume that their effective tax rate is based primarily on PAYE deducted from their salary.
However, once VAT on household spending, fuel duty and tax on discretionary purchases are considered, the total annual tax contribution can be significantly higher.
He said many South Africans underestimate how much tax they pay because indirect taxes do not always show up like PAYE deductions.
pressure on domestic budget
Kelly said the issue comes as families face rising costs across a range of categories including fuel, groceries, school fees, medical aid, insurance and electricity.
He also highlighted the effect of bracket creep, which occurs when wage increases push taxpayers into higher tax brackets without actually improving their purchasing power.
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As a result, he said, effective financial planning is becoming increasingly important for South Africans trying to manage their finances and reduce unnecessary tax risk.
Tax planning is becoming more important
Kelly said retirement annuities are one of the most effective tax-planning tools because contributions are tax-deductible. He also highlighted the benefits of tax-free savings accounts, where investment growth and withdrawals are not taxed.
Apart from savings and investments, he said, estate planning is another area that South Africans should not overlook.
Kelly warned that families could face huge costs and delays if financial matters are not properly structured before death, particularly where there is no valid will.
He urged South Africans to ensure that their estate plans are up to date and seek professional advice where necessary.