The Organization for Economic Cooperation and Development has urged South Africa to increase taxes on the wealthy, tighten up on corporate and personal tax allowances and broaden the valued-added tax base in order to raise the resources it will need to fund development.
The OECD’s 2015 economic report released on Friday acknowledges strides made by South Africa in reducing absolute poverty through social grants and the provision of social services to the poor. However, it states that economic growth has not been inclusive and job creation is being stifled by regulatory barriers and uncompetitive markets and a rigid labor market, BDLive reported.
The report notes the limitations power outages had imposed, predicting that this will limit growth to 1.9% for the year.
Among its key recommendations are: the removal of obstacles to job creation, targeted investment in social and economic infrastructure, the promotion of competition through reducing regulation and the elimination of barriers for new entrants into the economy.
Most of these recommendations have been made repeatedly by the OECD and similar multilateral organizations. However, the recommendations on taxation are new and of particular interest as South Africa contemplates restructuring its tax regime and the Davis Tax Committee explores various options.
The OECD says although there will be public resistance to higher taxes, particularly in the face of government inefficiency and corruption, more revenues will nonetheless be required to meet the costs of South Africa’s infrastructural projects as well as the contemplated National Health Insurance.
At less than 30% of gross domestic product, South Africa’s tax revenues are below the average of OECD emerging markets, which is around 35%.
