An Empirical Dissemination Of The Personal Income Tax Regime In South Africa Using A Microsimulation Tax Model

This article is primarily concerned with the profile of the tax liability of individual taxpayers in South Africa as well as the impact of tax reform policies since the mid-nineties on the progressivity of their tax liability using a static microsimulation tax model. Using the 2005/06 Income and Expenditure survey data from Statistics South Africa, the revenue base had to be determined and aligned to the official figures published by the South African Revenue Services and the National Treasury. This exercise required substantial manipulation of the data but the outcome is surprisingly close to the official R104 billion compared to the published SARS figure of R96 billion. The model allows for the dissemination of individual taxpayers by income groups, gender, educational level, age group, etc. Testing for progressivity, the results show that although still more progressive than most other tax structures world-wide, the level of skewness has marginally declined over the past few years with the share of those in the lower income groups gradually increasing. This phenomenon is also enhanced by relatively more taxpayers entering the tax net at this level. With the top marginal rates already at the current high levels little can be done at the higher end of the scale to expand the revenue base and therefore the solution lies in raising the contribution of those in the lower but especially the middle income groups. As far as gender is concerned, disparities in the labour market require an examination of tax policy that may contribute towards a more equal distribution of individual tax on a gender basis. The results also show that tax policy adjustments that contribute towards the improvement of the quality of education would also be a positive investment for future revenue collection.