OECD Recommends Revenue Raising Measures For South Africa

South Africa has a “well-balanced, modern tax system” but additional revenues will be needed in the coming years to expand social spending and infrastructure, the Organisation for Economic Cooperation and Development (OECD) has said in a new report.

The report, entitled How can South Africa’s tax system meet revenue raising challenges?, said that there is some scope to raise further revenue, particularly through broadening the income tax and consumption tax bases.

The OECD said that South Africa’s income tax system relies on narrow tax bases. Although the personal income tax is the most important single source of revenue, just 30 percent of the working-age population is employed in the formal sector and the distribution of wage income is highly skewed, it said. In addition, company tax bases have been narrowed by deductions and incentives, among other things.

Regarding the value-added tax (VAT), the OECD said South Africa should broaden the base by reducing the number of goods and services that benefit from preferential treatment, strengthen compliance, reduce the registration threshold, and simplify registration and payment for small firms.

The report also called on the Government to proceed with its plans to introduce a carbon tax.