Assessing the feasibility of replacing the current income-based tax system with a consumption-based tax system for individuals in South Africa

Abstract

In South Africa, a small and continuously declining individual taxpayer base is a significant issue. For the 2018 tax year-end, 4,337,923 taxpayers were assessed.1 Relative to an estimated population of 59,620,0002, a small portion bears a disproportionate tax burden. Unfortunately, South Africans have gained notoriety for spending while saving very little.3 Therefore, this research examines the feasibility of replacing the tax system from income-based to consumption-based. The current income-based tax system is assessed regarding its equity, the costs to comply, and the extent to which tax evasion is prevalent. Against this, a consumption-based tax system is assessed to understand its ability to sustain existing tax revenue and positively impact tax evasion while addressing its most significant critique (i.e., being regressive). The outcomes of this research suggest that this proposed change will exacerbate South Africa’s disproportionate distribution of wealth, and the current political climate in South Africa will probably prevent any meaningful support