South Africa’s government should increase taxes on wealthier individuals to help boost revenue needed for the nation’s growing demands, the Organization for Economic Co-operation and Development recommended.
“The tax base is narrow and revenues are too small to meet future spending needs,” the Paris-based group of 34 developed nations said in its Economic Survey on South Africa, released on Friday. “The public sector will face considerable resource needs in the years ahead to expand social and economic infrastructure. Meeting these needs will require increased revenues.”
South African Finance Minister Nhlanhla Nene raised taxes on middle- and high-income earners for the first time in two decades in February to help bolster revenue in the face of sluggish economic growth. He is seeking to narrow the budget deficit to 2.5 percent of gross domestic product in the year through March 2018 from an estimated 3.9 percent this year.
The government began a review of its tax system last year, led by Judge Dennis Davis. The panel recommended in a report this month that the government raise value-added tax rather than lifting personal and corporate taxes.
Removing tax deductions and allowances and exemptions will help improve the equity of the tax system, while higher levies for wealthier individuals will make it more progressive, Angel Gurria, secretary-general of the OECD, told reporters in Johannesburg on Friday.
South Africa’s government will consider the OECD’s recommendations along with those of the Davis tax committee, Nene told reporters.
“It’s a combination of all these initiatives that I think would take us close to raising adequate resources,” he said. “There are no holy cows” in the tax system.
The government has boosted tax receipts to 26.1 percent of gross domestic product in the year through March 2014 from 22.9 percent in 1995, according to the South African Revenue Service. Personal income tax accounts for more than a third of tax earnings.
The OECD said South Africa should proceed with the implementation of a carbon tax to align the nation’s climate change policy stance over time with those in most OECD countries and reduce the economy’s dependence on carbon-intensive production.
The government has delayed the tax on the amount of carbon emitted by companies since it was announced in 2012. Nene said in February that draft legislation will be published later this year.