Abstract:
South Africa changed its tax system from a source-based to a resident-based
system in 2001. This change is in line with tax reforms worldwide. However,
over the last two decades, personal income tax reforms have not resulted in a
noticeable increase in tax revenue worldwide, even though governments find
themselves hard-pressed to maintain or increase their expenditure.
The aim of this study was to compare the South African tax base, which relies
on taxing individuals, with the tax base used in another developing country,
namely India, as well as to those applied in two developed countries, namely
the United Kingdom (UK) and the United States (US). This comparison
identified similarities and differences between the countries, and highlighted
possible improvements to South African tax legislation in order to broaden the
country‟s tax base and potentially increase tax revenues. For the purposes of
the study, a tax base can be defined as the total income of an individual, after
allowing for specified deductions, allowances and other adjustments, on which
tax is levied.
It was determined that the tax base used in South Africa is similar in some
respects to those used in India, the UK and the US. An improvement that South
Africa could adopt is the inclusion of the annual value of house property, as
specified in the Indian tax system. The employment abroad exclusion from
income could be replaced by a foreign-earned income exclusion, as applied in
the US tax system. It was also determined that permitting certain deductions
could in fact increase the tax base, as these deductions could entice taxpayers
to register for tax, therefore increasing tax compliance and ultimately increasing
tax revenue. By adopting any of the advantages of the other tax systems, South
Africa can broaden its tax base and generate additional tax revenue to support
the government‟s needs.
