Personal Income Tax reform to secure the South African revenue base using a micro-simulation tax model

Abstract

English: The purpose of the study is to analyse tax reform measures to secure the tax revenue base, in particular the personal income tax structure of South Africa. The main objectives are: firstly, to identify personal income tax reform interventions so as to align the personal income tax structure in South Africa with international best practices. Secondly, the impact of tax reforms on revenue collection, given optimal economic growth levels, is determined. Thirdly, to determine the best tax reform scenario which could minimise the individual tax burden and maximise its efficiency. Lastly, the impact of the suggested tax reforms on fairness as a principle of a good tax system is evaluated. A static micro-simulation model is developed from survey data and used to simulate the proposed tax reforms. Different tax reforms were selected from a study of international tax reform trends and an analysis of the South African personal income tax structure. The literature provides clear margins for the structuring of tax bands and threshold margins. Tax elasticities are estimated in order to explain the methodology for determining the impact of tax reforms. These elasticities include the elasticities for determining the progressiveness of the PIT structure, determining the deadweight loss (tax efficiency) and also to determine the optimal levels of taxes and economic growth and revenue maximisation. The different tax reform scenarios take the economy closer to or further away from optimum growth and optimum revenue. The results show that as far as marginal rates are concerned, a lowering in rates to levels on par with South Africa’s peers offers potential for improved levels of efficiency with the tax burden equal to or even below the optimal tax ratio from an economic growth point of view. Although such a ratio is below the optimal revenue ratio the results suggest that the loss in revenue could be minimised over time through a resultant increase in productivity and economic growth. By adjusting the non-taxable thresholds and taxable income bands according to the algorithm defined in the best practice scenario, more taxpayers will be included into the tax net but with a net decrease in tax liability. As a result the tax/GDP level also declines to a level below the optimal growth level but tax efficiency increases. The resultant loss in revenue will have to be recouped through increases in other than individual income taxes but improved levels of tax morality because of the lower margins for each tax band and increased productivity might also contribute to increased revenue performance. The tax structure is also more progressive which contributes towards the “fairness” of the tax regime. Regarding tax expenditure reforms, the analysis shows that medical tax credits offer a more equitable form of relief than medical deductions which substantiate this kind of reform as already implemented by government and which is to be fully phased in over the next couple of years. Tax liability is slightly lower in the case of medical credits compared to medical deductions but the difference is only marginal as far as net revenue and optimal growth and efficiency is concerned. However, a medical credit which increases disposable income at the lower end of the scale and discriminates against higher income groups also improves progressiveness of the tax regime and therefore the fairness thereof accordingly. Finally, the demographic impact of the suggested reforms also shows some important trends. Better education improves skills levels which seems to be positively correlated to taxable income levels. As far as age is concerned, the analysis shows that a substantial number of taxpayers in the categories below the age of 24 and above 65 fall within the lower taxable income groups. Those are also the most vulnerable groups from a subsistence point of view. Thus, tax reform that specifically improves their levels of disposable income should be prioritised in order to address equity and fairness as objectives for a “good” tax structure.

Sepedi: Maikemišetšo a dinyakišišo tše ke go sekaseka magato a peakanyoleswa ya metšhelo go hwetša motheo wa letseno la motšhelo, kudukudu go sebopego sa letseno la motšhelo wa batho ka Afrika Borwa. Maikemišetšomagolo ke: sa mathomo, go tseba ditsenogare tša peakanyoleswa ya metšhelo ya letseno ya batho go realo e le go amantšha sebopego sa motšhelo wa letseno la batho ka Afrika Borwa le ditiro tše kaone tša boditšhabatšhaba. Sa bobedi, seabe sa dipeakanyoleswa tša motšhelo go kgoboketšo ya letseno, ka lebaka la maemo a magolo a kgolo ya ekonomi, se a tsebja. Sa boraro, go tseba seemo se sekaone sa peakanyoleswa ya metšhelo fao go ka fokotšago morwalo wa metšhelo ya batho le go oketša go šoma gabotse ga yona. Sa mafelelo, seabe sa dipeakanyoleswa tša metšhelo tšeo di šišintšwego go toka bjalo ka molawana wa tshepedišo ye kaone ya metšhelo se a sekasekwa. Mokgwa wa go se fetoge wa tlhohleletšo ya ekonomi ye nnyane o a hlongwa go tšwa go diphatišišo ebile o šomišwa go hlohleletša dipeakanyoleswa tša motšhelo wo o šišintšwego. Dipeakanyoleswa tše di fapafapanego tša motšhelo di kgethilwe go tšwa go dinyakišišo tša mekgwa ya peakanyoleswa ya metšhelo ya boditšhabatšhaba le tshekatsheko ya sebopego sa metšhelo ya letseno ya batho ka Afrika Borwa. Dingwalwa di fa molwane wo o kwagalago wa go beakanya magoro a metšhelo le mellwane ya magomo a metšhelo. Go fetofafetoga ga metšhelo go akanywa ka nepo ya go hlaloša mokgwa wa go tseba seabe sa dipeakanyoleswa tša metšhelo. Go fetogafetoga fa go akaretša go fetogafetoga ga go tseba go tšwelapele ga sebopego sa PIT, go realo e le go tseba tahlegelo ya morwalo wa go se šuthe (go šoma gabotse ga motšhelo) le gape go tseba maemo a godimo a metšhelo le kgolo ya ekonomi le koketšo ya letseno. Maemo a dipeakanyoleswa tša metšhelo ao a fapafapanego a iša ekonomi kgauswi le goba kgole kudu le kgolo ye e lekanego le letseno leo le lekanego. Dipoelo di laetša gore mabapi le dikelo tša fasana, go theoga ga dikelo go ya go maemo a go lekana le tša balekane ba ka Afrika Borwa tšeo di fago kgonagalo ya maemo ao a kaonafetšego a go šoma gabotse le morwalo wa metšhelo wo o lekanago le goba o lego fase ga rešio ya motšhelo wa godimo go ya ka maemo a kgolo ya ekonomi. Le ge e le gore rešio yeo e ka fase ga rešio ya letseno la godimo dipoelo di šišinya gore tahlegelo ya letseno e ka fokotšwa ge nako e dutše e sepela ka koketšego ye e tšwelelago ya tšweletšo le kgolo ya ekonomi. Ka go fetoša mellwane ya letseno ya go se lefišwe motšhelo le magoro a letseno la go lefišwa motšhelo go ya ka alekorithimo yeo e hlalošitšwego ka seemong sa tiro ye kaone, balefamotšhelo ba bantši ba tla akaretšwa ka go palomoka ya motšhelo eupša fao go nago le phokotšego ya palomoka ya letseno ka go tefišo ya motšhelo. Ka lebaka la se maemo a motšhelo/a GDP le ona a theogela fase go ya go maemo a ka fase ga kgolo ya godimo eupša bokgoni bja metšhelo bo a oketšega. Tahlegelo ye e tšwelelago ya letseno e tla swanelwa ke go hwetšwa leswa ka koketšego go feta metšhelo ya letseno la batho eupša ka maemo ao a kaonafetšego a maitshwaro a makaone a go lefa motšhelo ka lebaka la mellwane ya fase ya legoro le lengwe le le lengwe la motšhelo gomme tšweletšo ye e oketšegilego le yona e ka tsenya letsogo go go šoma fao go oketšegilego ga letseno. Sebopego sa motšhelo le sona se na le kgatelopele kudu gomme se se tsenya letsogo go "toka" ya lenaneo la metšhelo. Mabapi le dipeakanyoleswa tša tshenyegelo ya metšhelo, tshekatsheko e laetša gore diputseletšo tša motšhelo wa kalafo di fa tsela ye e lekalekanyago ya kimollo go feta diphokoletšo tša kalafo tšeo di fago mabaka a mohuta wo wa peakanyoleswa ka ge o šetše o tsentšwe tirišong ke mmušo gomme o swanetše go tsenywa tirišong ka botlalo mo mengwageng ye mmalwa ye e latelago. Sekoloto sa motšhelo se fase gannyane go diputseletšo tša kalafo ge se bapetšwa le diphokoletšo tša kalafo eupša phapano ke ye nnyane fela mabapi le palomoka ya letseno la motšhelo le kgolo ya godimo le mabapi le go šoma gabotse ga motšhelo. Le ge go le bjale, putseletšo ya tša kalafo yeo e oketšago letseno leo le šomišwago mafelelong a fasana ga legoro ebile e kgethologanya dihlopha tša go hwetša letseno la godimo le gape le kaonafatša kgatelopele ya lenaneo la metšhelo le gape toka go ya ka maleba. Sa mafelelo, seabe sa dipalopalo ka ga batho sa dipeakanyoleswa tšeo di šišintšwego le sona se laetša diphetogo tše bohlokwa. Thuto e kaone e kaonafatša maemo a mabokgoni ao go bonagalago gore a amana gabotse le maemo a letseno ao a lefišwago motšhelo. Mabapi le mengwaga, tshekatsheko e laetša gore palo ya godimo ya balefamotšhelo ka go magoro a ba ka fase ga mengwaga ye 24 le ka godimo ga ye 65 ba wela ka gare ga dihlopha tša letseno la fasana tšeo di lefišwago motšhelo. Bao gape ke dihlopha tšeo di lego kotsing kudu go ya ka boitirelo. Se se ra gore, peakanyoleswa ya motšhelo yeo e kaonafatšago kudu maemo a bona a letseno leo le šomišwago e swanetše go bewa pele ka nepo ya go rarolla tekatekano le toka bjalo ka maikemišetšo a sebopego se sekaone sa "motšhelo".

Afrikaans: Die doel van die studie is om belastinghervormingsmaatreëls te ontleed om die belastinginkomstebasis te verseker, veral die persoonlike inkomstebelastingstruktuur van Suid-Afrika. Die hoofdoelwitte is: eerstens, om persoonlike inkomstebelastinghervormingsintervensies te identifiseer om die persoonlike inkomstebelastingstruktuur in Suid-Afrika in lyn te bring met internasionale beste praktyke. Tweedens, om die impak van belastinghervormings op inkomste-invordering, gegewe optimale ekonomiese groeivlakke, te bepaal. Derdens, om die beste belastinghervormingscenario te bepaal wat die individuele belastinglas kan minimaliseer en die doeltreffendheid daarvan kan maksimeer. Laastens word die impak van die voorgestelde belastinghervormings op billikheid as 'n beginsel van 'n goeie belastingstelsel geëvalueer. n Statiese mikrosimulasiemodel word ontwikkel uit opnamedata en gebruik om die voorgestelde belastinghervormings te simuleer. Verskillende belastinghervormings is gekies uit 'n studie van internasionale belastinghervormingstendense en die Suid-Afrikaanse persoonlike inkomstebelastingstruktuur is ontleed. Die literatuur bied duidelike marges vir die strukturering van belastingbande en drempelmarges. Belastingelastisiteite word beraam om die metodologie vir die bepaling van die impak van belastinghervormings te verduidelik. Hierdie elastisiteite sluit die elastisiteite in vir die bepaling van die progressiwiteit van die PIT-struktuur, die bepaling van die dooiegewigverlies (belastingdoeltreffendheid) en ook om die optimale vlakke van belasting en ekonomiese groei en inkomstemaksimering te bepaal. Die verskillende belastinghervormingscenario's neem die ekonomie nader aan of verder weg van optimale groei en optimale inkomste. Die resultate toon dat wat marginale koerse betref, 'n verlaging van koerse tot vlakke gelykstaande aan Suid-Afrika se eweknieë die potensiaal bied vir verbeterde vlakke van doeltreffendheid, met die belastinglas gelyk aan of selfs onder die optimale belastingverhouding vanuit 'n ekonomiese groei-oogpunt. Alhoewel so 'n verhouding onder die optimale inkomsteverhouding is, dui die resultate daarop dat die verlies aan inkomste oor tyd geminimaliseer kan word deur 'n gevolglike toename in produktiwiteit en ekonomiese groei. Deur die niebelasbare drempels en belasbare inkomstebande aan te pas volgens die algoritme wat in die beste praktyk-scenario gedefinieer is, sal meer belastingbetalers in die belastingnet ingesluit word, maar met 'n netto afname in belastingaanspreeklikheid. Gevolglik daal die belasting- en (of) BBP-vlak ook tot 'n vlak onder die optimale groeivlak, maar belastingdoeltreffendheid neem toe. Die gevolglike verlies aan inkomste sal verhaal moet word deur verhogings in ander belastings as individuele inkomstebelasting, maar verbeterde vlakke van belastingmoraliteit as gevolg van die laer marges vir elke belastingsband en verhoogde produktiwiteit kan ook bydra tot verhoogde inkomsteprestasie. Die belastingstruktuur is ook meer progressief, wat bydra tot die "billikheid" van die belastingstelsel. Wat belastinguitgawehervormings betref, toon die ontleding dat mediese belastingkrediete 'n meer billike vorm van verligting bied as mediese aftrekkings, wat hierdie soort hervorming staaf soos reeds deur die regering geïmplementeer en wat oor die volgende paar jaar ten volle ingefaseer sal word. Belastingaanspreeklikheid is effens laer in die geval van mediese krediete in vergelyking met mediese aftrekkings, maar die verskil is slegs marginaal wat netto inkomste en optimale groei en doeltreffendheid betref. n Mediese krediet wat besteebare inkomste aan die onderkant van die skaal verhoog en teen hoër inkomstegroepe diskrimineer, verbeter egter ook die progressiwiteit van die belastingstelsel en dus die billikheid daarvan dienooreenkomstig. Laastens toon die demografiese impak van die voorgestelde hervormings ook 'n paar belangrike tendense. Beter onderwys verbeter vaardigheidsvlakke wat positief gekorreleer blyk te wees met belasbare inkomstevlakke. Wat ouderdom betref, toon die ontleding dat 'n aansienlike aantal belastingbetalers in die kategorieë onder die ouderdom van 24 en ouer as 65 binne die laer belasbare inkomstegroepe val. Dit is ook die mees kwesbare groepe vanuit 'n bestaansoogpunt. Dus moet belastinghervorming wat spesifiek hul vlakke van besteebare inkomste verbeter, geprioritiseer word om billikheid en reverdigheid as doelwitte vir 'n "goeie" belastingstruktuur aan te spreek.