A person earning R226 000 and less is in the 18% marginal income tax bracket. When this person invests in equities, and receives dividends, they will be paying 20% on those dividends. This is more than what they are currently paying to SARS on their income.
According to the world inequality database, any person earning more than R226 000 is in the top 15% of earners in South Africa. 15%!
This begs the question, should one be investing in equities at these 'low' income levels? You would probably achieve better tax efficiency if you instead invested in improving your income earnings, or investing via methods that offer exemptions, e.g. interest income.
In the 18% income tax bracket, there is a 2% tax deficit when compared to dividend tax. Once your income jumps to the next-level tax bracket, 26%, dividend tax starts becoming a more tax efficient way of generating income. Here your tax benefit is 6%
The higher your tax bracket, the better the tax gap for you as an investor. Someone in the 45% income tax has the greatest benefit from earning via dividends. A tax benefit of 25% is mouthwatering.
Easy to see why the rich get richer, and equity investing is somewhat a 'sport for the rich'.
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