Browsing by Author "Dare, Chengetai"

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    Tax revenue mobilisation : estimates of South Africa’s personal income tax gap
    (AOSIS, 2019-07-15) Dare, Chengetai; Du Plessis, Sophia; Jansen, Ada
    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.
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    Tax revenue mobilisation : improving personal income tax compliance in South Africa
    (Stellenbosch : Stellenbosch University, 2018-12) Dare, Chengetai; Du Plessis, Sophia; Jansen, Ada; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Economics.
    ENGLISH SUMMARY : South Africa, like any other country, strives towards greater domestic tax revenue mobilisation. As such, a lack of tax compliance is disconcerting, given its implications for the provision of public goods and services. The government has instituted various enforcement measures, such as audits and penalties, and provided reprieves (amnesties and voluntary disclosure programmes) to delinquents who voluntarily disclose their previously unreported income. However, evidence on the efficacy of these measures show mixed responses in developed countries, making it imperative to analyse these policy measures in more depth for developing countries. A further complication is that, even though there have been continuous efforts to improve compliance, authorities do not have precise knowledge of the scale and scope of non-compliance (i.e. the tax gap). The tax gap is the difference between the potential and the actual tax revenue collected. Against this background, this study used micro-simulation models and household income and expenditure survey data from Statistics South Africa to estimate the size of the country’s Personal Income Tax gap. The findings revealed that South Africa lost significant revenue because of taxpayer non-compliance, particularly from provisional taxpayers. The study also employed controlled laboratory experiments to investigate the behavioural responses of salaried and non-salaried individual taxpayers, in respect to tax audits and penalties. The results confirmed the findings from the tax gap analysis, that taxpayers evade more on their share of non-salaried income than on salaried income. The results also established that both salaried and non-salaried taxpayers increased their compliance levels when subjected to higher audit rates or higher penalty rates. However, audit rates had a relatively larger impact, suggesting that the authorities may need to consider increasing the frequency of audits to improve compliance. These findings suggest that, although deterrence measures are effective, themanner in which they are applied must be given careful consideration. The study further examined taxpayers’ behavioural responses to once-off and permanent voluntary disclosure programmes. A once-off voluntary disclosure programme is a temporary window where delinquents are allowed to report their unpaid taxes at no penalty. In contrast, a permanent voluntary disclosure programme is open-ended (it has no deadline). Using laboratory experiments, the study established that both once-off and permanent voluntary disclosure programmes are effective in increasing compliance in the short-term, and only when they are accompanied by increased enforcement measures. The results also showed that both once-off and permanent voluntary disclosure programmes (with or without increased enforcement) had insignificant long-term effects on compliance. Furthermore, a once-off voluntary disclosure programme was more effective than a permanent voluntary disclosure programme in stimulating compliance. As such, it is recommended that authorities avoid permanent voluntary disclosure programmes.