Strengthening the tax system to reduce inequalities and increase revenues in South
Africa
The Covid-19 crisis has exacerbated the already deteriorating fiscal situation in
South Africa. The current consolidation strategy, based on spending cuts and reprioritisation
of spending items, has reached its limits and is insufficient to stabilise the debt
ratio in the medium term and fund unmet public services needs. The tax-benefit system
needs to be redesigned to create fiscal space in the years to come to finance growth-enhancing
reforms and to reduce inequalities. The challenge is to generate additional revenues
without generating inefficiencies or exacerbating inequality. Income taxes represent
around half of total tax revenues, but are levied on small tax bases, partly reflecting
the unequal distribution of income. Only the value-added tax has a relatively broad
basis combined with a moderate tax rate. There is some scope to raise revenues further
while reducing existing tax distortions, notably by broadening the base of corporate
and personal income taxes, as well as consumption taxes. Taxes with a less harmful
impact on growth, such as property taxes, are limited by the inefficient municipal
rates system. There remains scope to further increase environmentally-related taxes.
Published on December 22, 2022
In series:OECD Economics Department Working Papersview more titles