More than a quarter-century after the apartheid system of governance that disadvantaged the black majority ended, South Africa ranks as the world\u2019s most unequal nation.<\/p>\n
While presidents from Nelson Mandela on have expanded the welfare system and undertaken affirmative-action policies to create a substantial black middle class and lift millions out of poverty, inequality continues to be exacerbated by ineffective spending on one of the world\u2019s poorest education systems.<\/p>\n
The country\u2019s progressive personal income tax schedule is undermined by deductions that largely benefit high-income earners, the OECD said.<\/p>\n
Raising levies on fringe benefits, cutting allowances for travel expenses and exercised share options, reducing relief for pensioners and lowering deductions for medical expenses could solve the problem, it said. South Africa should also broaden its estate tax base by cutting exemptions for life insurance, trust and pension savings, it said.<\/p>\n
\u201cReforming the personal income tax has to strike a balance between strongly reducing inequalities and preserving work incentives for middle to high-income earners,\u201d the OECD said.<\/p>\n
South Africa\u2019s value-added tax rate of 15% is relatively low and lifting it by 2 percentage points could raise its contribution to revenue by about 1% of GDP, according to OECD estimates.<\/p>\n Increasing the tax, which the government has done only twice since 1991, is unpopular within the ruling African National Congress because it is seen affecting the country\u2019s poorest people hardest.<\/p>\n \u201cTo mitigate any potentially adverse distributional effects and to increase the political acceptability of a further VAT rate reform, it is preferable that any increase in the standard VAT rate be accompanied with increased transfers to low-income households and that efforts are increased to reach all low-income households,\u201d the OECD said.<\/p>\n \u201cIf in the future, the social relief grant covering all the unemployed working age people is permanent, it will allow for a further tailoring of the support to poor people when increasing the VAT rate.\u201d<\/p>\n The so-called social relief of distress, or SDR, grant was first introduced in response to the pandemic and has since been extended to March 2023. It added more than 10 million people to the welfare net in a country where there are twice as many social support beneficiaries than taxpayers.<\/p>\n![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2022\/08\/Bloomberg-4.jpg\")
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