Tax revenue mobilisation: Estimates of South Africa’s personal income tax gap

Abstract

Background: Tax evasion is one of the factors impeding tax revenue mobilisation. Although there are efforts to reduce non-compliance, the extent and nature thereof remain fairly unknown in many developing countries, including South Africa. To adequately address tax evasion, it is imperative to determine the tax gap (i.e. the difference between the theoretical tax liability and the actual tax revenue collected). Aim: To estimate the extent and nature of South Africa’s personal income tax gap, disaggregating the gap by the type of income (salaried and non-salaried). Setting: The study looks at the South African personal income tax system. Methods: This study employs a micro-simulation approach using data from the Income and Expenditure Survey of South Africa for the periods 2005/2006 and 2010/2011. Results: The findings reveal that South Africa lost tax revenue of R60.1 billion in 2005/2006, and R26.2 bn in 2010/2011 (in 2017 prices). Of the total compliance gap in 2005, 28.5% emanated from taxpayers with salaried income, and 71.5% from non-salaried income taxpayers. In 2010, salaried income taxpayers contributed 1.1% to the total compliance gap. Conclusion: Despite an overall improvement in the individual compliance rate, non-salaried income taxpayers (self-assessment reporting) are the main contributors to South Africa’s personal income tax gap.

Keywords

• Tax gap
• non-compliance
• tax evasion
• personal income tax
• micro-simulation
• salaried income
• non-salaried income.