South African Journal of Economic and Management Sciences
On-line version ISSN 2222-3436
MAROUN, Warren; TURNER, Magda and SARTORIUS, Kurt. Does capital gains tax add to or detract from the fairness of the South African tax system?. S. Afr. j. econ. manag. sci. (Online) [online]. 2011, vol.14, n.4, pp. 436-448. ISSN 2222-3436.
This research adds to the existing body of knowledge on the perceived impact of capital gains tax (CGT) on the fairness of the South Africa tax system. Building on the largely qualitative work done by Vivian (2006) and Smith (1776), the research makes use of an extensive literature review followed by a correspondence analysis to complement the existing body of research in this area. The literature review discusses the fairness criteria advanced by Smith (1776) (Smith's tax canon) and the identified 'unfairness characteristics' of CGT. The correspondence analysis only tests the theories advanced in the literature review and reveals that there are potential sources of unfairness inherent in the Eighth Schedule to the Income Tax Act No. 58 of 1962 (the Eighth Schedule). These include the possibility that CGT gives rise to double tax and imposes a high burden on taxpayers' ability to bear the tax load. The findings are relevant in practical terms in that they may have policy implications for subsequent revisions to the Eight Schedule. Theoretical contributions are made by exploring the perceived fairness of CGT using the theory of tax fairness advanced by Smith (1776).
Keywords : fairness; inflation; 'bunching'; lock-in; equity; correspondence analysis.