In 2017, South Africa raised the top marginal tax rate for annual incomes exceeding R1.5m from 41% to 45%. The change affected the top 0.6% of earners. Announced just days before implementation, the reform prevented income shifting to the previous tax year's lower rate. To prevent revenue leaks due to corporate owners evading taxes by paying dividends to their shareholders, the government raised the dividend tax rate as well.
How rate increases influence revenues depends on how taxpayers’ behaviour responds and, of course, also on how broad the tax base is. In South Africa, it is very broad. It lacks many common international deductions such as those for children, student loan interest, or mortgage interest, which people may exploit to reduce their tax bill. Public finance analysts commonly expect that, in income tax systems with broad tax bases, opportunities for tax avoidance are kept at bay and rate increases should therefore increase revenue...
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