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The Organization for Economic Cooperation and Development (OECD) has called on South Africa to significantly broaden its tax base by reducing generous deductions, exemptions, and reliefs that it says are weakening fiscal capacity and fueling public debt.
In its latest economic review, the OECD emphasized that South Africa’s current tax architecture, while progressive in structure, is riddled with tax expenditures that disproportionately benefit higher-income groups and reduce overall efficiency.
“Limiting tax expenditures could improve equity, raise much-needed revenue, and restore fiscal space,” the report stated.
Debt Crisis Mounting
South Africa’s national debt stands at over 74% of GDP and continues to rise due to stagnant growth, high unemployment, and persistent social spending demands. The OECD projects debt to breach 80% of GDP by 2027 unless fiscal reforms are enacted.
Despite strong institutions like the South African Revenue Service (SARS), revenue mobilization has fallen short of the government’s growing expenditure needs. Much of this, the OECD suggests, stems from overly narrow taxation policies that leave billions in potential revenue uncollected.
Policy Recommendations
The OECD’s primary recommendation is a phased reduction of tax expenditures, particularly:
- Corporate tax exemptions that erode the effective tax rate
- Personal income tax deductions disproportionately benefiting high earners
- VAT zero-ratings on non-essential goods that reduce progressivity
Instead, the OECD suggests redirecting these funds into targeted social transfers, healthcare, and infrastructure.
It also recommends revisiting capital gains tax thresholds, introducing wealth or property tax frameworks, and digitizing tax administration to improve compliance and reduce avoidance.
Political and Economic Implications
While the South African Treasury has acknowledged the importance of widening the tax base, reform proposals often face political pushback. With general elections on the horizon in 2026, analysts expect the government to proceed cautiously, fearing backlash from middle-class voters and business groups.
However, tax analysts warn that inaction could result in credit downgrades, higher borrowing costs, and long-term economic instability.
“There’s a narrow window to act,” said Thuli Madonsela, a Johannesburg-based public finance expert. “A broader tax base is no longer just a reform goal. It’s a fiscal survival strategy.”
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