The manufacturing sector is an important source of productivity growth and exports. Manufacturing firms are generally more productive than firms in the agricultural or services sectors and are an important source of job creation. Little is known about the productivity performance of the sector and its drivers in South Africa. The recent availability of firm-level tax administration data has made it possible to measure and analyse the productivity of manufacturing firms in South Africa for the first time. In this paper, we use firm-level data for the period 201013 to estimate total factor productivity in the South African manufacturing sector. We examine differences in the level and growth of productivity across manufacturing sub-sectors and examine the heterogeneity in productivity levels within sectors. Our analysis paves the way for future research into the factors driving productivity growth of manufacturing firms that will contribute to the evidence base of the reasons for the significant heterogeneity in measured firm performance, even within narrowly defined sectors and size groups.

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Total Factor Productivity in South African Manufacturing Firms

South Africa's Employment Tax Incentive, launched in 2014, aimed to address low youth employment by reducing the cost of hiring young workers. We make use of anonymized tax administrative data from the 2012-2015 tax years to examine the effect of the Incentive on youth employment. We match firms claiming the subsidy with similar firms not claiming the subsidy and observe their hiring behaviour before and after the implementation of the policy. We find no statistically significant impact on youth employment on average. We see a positive and statistically significant effect on youth and non-youth employment in firms with fewer than 200 employees. However, we cannot distinguish whether the increase is due to the policy or to employment growth within the firm.

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The effects of the Employment Tax Incentive on South African employment

This paper uses newly available firm-level tax data to evaluate the market structure in South African manufacturing sectors in the period 2010-2012. To describe the market structure, we compute markups for South African manufacturing firms and concentration indexes for 4-digit manufacturing sectors. We find both significant markups and significant concentration across most sectors. We compare computed markups and concentration with early estimates in South Africa and with other international benchmark countries. We then examine the market structure based on the concentration, firms size and entry and exit dynamics to rule out some potential explanations for relatively high markups. We find that the relationships are not monotonic and point to the importance of specific barriers to entry in explaining the relationship between these three characteristics.

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Markups and Concentration in South African Manufacturing Sectors: An Analysis with Administrative Data

Labour market analysis in the South African context provides a relatively robust understanding of the individual characteristics that influence wage differentials across workers (i.e. supply-side characteristics), but provides relatively little insight into the firm-level characteristics influencing these differentials (i.e. demand-side characteristics). This is largely due to the relative paucity of firm-level data in South Africa. Therefore, the availability of micro firm-level data derived from anonymous corporate and individual tax data, presents an opportunity to explore this relatively uncharted and important territory in the South Africa labour market. Therefore, this paper examines the firm-level (demand-side) characteristics that explain wage differentials across formal private sector workers in South Africa. Using the FEiLSDVj method, we measure the relative contribution of firm (demand-side) and individual (supply-side) characteristics in explaining wage formulation in the South African formal sector labour market, which advances the existing literature by including a developing country case. Consistent with results for the French and Austrian labour markets, approximately 61 per cent of wage variance is due to individual effects, while at least 13 per cent is due to firm-level effects. Overall, our results suggest that firms that are profitable, older, more capital-intensive, more productive, and involved in international trade pay higher wages, on average. Interestingly, and contrary to the literature, our results indicate a negative relationship between firm size and wages.

/pdf/firm-level-determinants-of-earnings-in-the-formal-sector-of-257s6lyd0w.pdf

Firm-level determinants of earnings in the formal sector of the South African labour market

Lowering high levels of unemployment and inequality are amongst the largest challenges facing South Africa. More entrepreneurs and thriving small businesses would contribute to inclusive growth. Measures of entrepreneurial activity are lower in South Africa than in other emerging economies. Barriers to entrepreneurship include bureaucratic procedures and licensing, which are also an ongoing burden on small firms. Public procurement is being used to overcome the dominance of large incumbents, but so far its net effect on small firms is not clear. An education system that better equipped students with basic skills as well as entrepreneurial skills would grow the pipeline of entrepreneurs. New forms of financing are slowly emerging in a system that is dominated by banks. A better evidence base is crucial for more effective financial and non-financial support programmes to boost start-up rates and small firms’ growth.

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Lowering barriers to entrepreneurship and promoting small business growth in South Africa

The South African Revenue Service and National Treasury Firm-Level Panel is an unbalanced panel data set created by merging several sources of administrative tax data received during 2015. The four data sources that constitute the panel are: (i) company income tax from registered firms who submit tax forms; (ii) employee data from employee income tax certificates submitted by employers; (iii) value-added tax data from registered firms; and (iv) customs records from traders. These data sets constitute a significant and unique source for the study of firm-level behaviour in post-apartheid South Africa. We review the key data sources used to construct the panel, highlight some important questions that arise as a result of panel construction, discuss the biases in the resulting data, compare key aggregates in the panel to other data sources, and provide a descriptive overview of the tax records.

/pdf/introduction-to-the-south-african-revenue-service-and-3h442166fu.pdf

Introduction to the South African Revenue Service and National Treasury Firm‐Level Panel

Introduction to the South African Revenue Service and National Treasury firm-level panel

Can we empirically show the benefits of improving the practices and characteristics of tax administration agencies for revenue collection? While many country experiences suggest a strong link, there is little systematic empirical evidence on the matter. This paper analyzes the association between tax collections and tax administrations, using the novel dataset (ISORA). We find that tax performance is positively and strongly associated with the operational strength of tax administrations. Among emerging and low-income economies, countries at the top 25 percent (in terms of the operational strength) collect substantially larger tax revenues (by 3¼ percent of GDP) than countries at the lowest 25 percent, assuming other conditions are equal. Our results also suggest that adopting key administrative practices such as compliance risk management and use of third-party data is associated with stronger tax collections. Furthermore, larger staffing of a tax agency improves tax revenue up to a point. These findings have important policy implications, particularly during the unprecedented global pandemic situation.

https://www.imf.org/-/media/Files/Publications/WP/2020/English/wpiea2020142-print-pdf.ashx

Elizabeth Gavin

Papers

Introduction to the South African Revenue Service and National Treasury Firm‐Level Panel

Introduction to the South African Revenue Service and National Treasury firm-level panel

Raising Tax Revenue: How to Get More from Tax Administrations?