forecast by the National Treasury (2014) to rise even higher. Given a more constrained fiscal environment going forward and the government’s mediumterm budget plan that aims to consolidate the overall deficit and stabilize the debt burden, the contribution of fiscal policy to reducing market-determined levels of inequality and poverty has particular relevance.

<!-- Start of picture text --> Figure 1. Composition of Taxes<br>(percent of GDP, ranked by GNI per capita)<br>30% 16000<br>14000<br>25%<br>12000<br>20%<br>10000<br>15% 8000<br>6000<br>10%<br>4000<br>5%<br>2000<br>0% 0<br>Direct Tax 1/ Indirect Tax GNI per capita (2011 PPP, right axis)<br>Share of GDP GNI per capita<br><!-- End of picture text --> On the revenue side, the tax system in 0% 0 South Africa generates considerable resources for potential redistribution by middle-income country standards. Just over half of South Africa’s general government tax collections of 27.1 percent of GDP in 2010/11 came from Direct Tax 1/ Indirect Tax GNI per capita (2011 PPP, right axis) direct taxes: the Personal Income Tax (PIT), Corporate Income Tax (CIT), and Source: Armenia (Younger and Khachatryan, forthcoming), Bolivia (Paz et al, 2014), Brazil (Higgins and Pereira, 2014), Ethiopia (Woldehanna et al, payroll taxes in the form of forthcoming), Indonesia (Jellema et al forthcoming), Mexico (Scott, 2014), Peru unemployment insurance and the skills (Jaramillo, 2014), Uruguay (Bucheli et al, 2014), Lustig (forthcoming) based on development levy (table 1). South Africa Guatemala (Cabrera et al, 2014), Costa Rica (Sauma et al, 2014) and El Salvador relies relatively more on PIT and less on (Beneke et al, 2015, and own estimates for South Africa based on IES 2010/11. indirect or consumption taxes than other 1/ Direct taxes include Corporate Income Tax collections in addition to PIT./ Direct taxes include Corporate Income Tax collections in addition to PIT. Direct taxes include Corporate Income Tax collections in addition to PIT.porate Income Tax collections in addition to PIT.orate Income Tax collections in addition to PIT. CEQ countries (figure 1), a welcome feature of its tax system (in terms of equity, that is)<sup>12</sup> since PIT tends to be more progressive than consumption taxes (as we shall see below).

Source: Armenia (Younger and Khachatryan, forthcoming), Bolivia (Paz et al, 2014), Brazil (Higgins and Pereira, 2014), Ethiopia (Woldehanna et al, forthcoming), Indonesia (Jellema et al forthcoming), Mexico (Scott, 2014), Peru (Jaramillo, 2014), Uruguay (Bucheli et al, 2014), Lustig (forthcoming) based on Guatemala (Cabrera et al, 2014), Costa Rica (Sauma et al, 2014) and El Salvador (Beneke et al, 2015, and own estimates for South Africa based on IES 2010/11. 1/ Direct taxes include Corporate Income Tax collections in addition to PIT./ Direct taxes include Corporate Income Tax collections in addition to PIT. Direct taxes include Corporate Income Tax collections in addition to PIT.porate Income Tax collections in addition to PIT.orate Income Tax collections in addition to PIT.

Table 1. South Africa General Government Revenue Collections, 2010/11

||2010/11<br>(% of GDP)|Incidence<br>analysis<br>(% of GDP)|
|---|---|---|
|**Total general government**|||
|**revenue**|**30.9**|**17.5**|
|**Tax revenue**|**27.1**|**17.5**|
|_Direct taxes_|_14.3_|_8.5_|
|Personal income tax|8.5|8.5|
|Corporate income tax|5.6|...|
|Other direct taxes|0.1|...|
|_Indirect taxes_|_10.4_|_9.0_|
|VAT|6.9|6.9|
|Specific excise duties|0.9|0.8|
|General fuel levy|1.3|1.3|
|International trade taxes|1.0|...|
|Other indirect taxes|0.3|...|
|_Other taxes_|2.5|...|
|**Nontax revenue**|3.8|...|

Sources: Statistics South Africa, 2012b,. “Financial statistics of Consolidated General Government,” November 22, 2012 for totals. Line items under direct and indirect taxes are from 2013 Budget Review, National Treasury.

> 12 Of course, equity is not the only criterion by which a tax system should be evaluated. Direct taxes can constrain economic growth which in turn limits the ability of the fiscal system to reduce inequality in the future.

4