Public revenue

Presentation: SA-TIED at the IIPF conference

JUNE 2024

Ada Jansen presents SA-TIED Working Paper, "A Reform Option for Pension Fund Contribution as Tax Expenditure in South Africa," at the International Institute of Public Finance (IIPF) Conference from August 21-23, 2024, in Prague. The conference theme is "International Tax Sheltering and Inequality.

The paper explores whether redistributive gains can be achieved by restructuring expenditures within South Africa's personal income tax system. South Africa has a progressive, broad-based personal income tax system with relatively few tax expenditures. The most significant of these are medical contribution tax credits and deductions for retirement contributions. Jansen's research analyses the redistributive implications of converting the tax deduction for retirement contributions into a tax credit. This reform builds on the gains from the medical tax credit system introduced in 2012. Using a static microsimulation model based on 2019/20 tax year data, the paper assesses the tax revenue impacts and distributional effects of this reform.

Key findings indicate a high concentration of retirement contributions among lower- and middle-income earners, whose contributions are relatively low compared to higher-income earners. The paper recommends a conversion rate that considers the current distribution of taxpayers contributing to retirement funds. Converting the pension contribution deduction to a tax credit would raise additional revenue and make the tax system more progressive, benefiting low-income earners. The revenue gained could provide increased fiscal space for social expenditure or reduce government debt.