On the first day of the 2016 Tax Indaba, South African Revenue Service (SARS) commissioner Tom Moyane called for "tax morality", bringing to mind the well-known saying, "be careful what you wish for".
Fast-forward to today, and "tax morality" has a very different meaning. More and more, taxpayers are asking themselves if they can, in good conscience, pay taxes in the same manner as they have done in the past.
Larissa-Margareta Batrancea of the Babes-Bolyai University in Romania and others in a 2012 paper entitled Understanding the Determinants of Tax Compliance Behaviour as a Prerequisite for Increasing Public Levies argue that politics determines the morality of taxpayers.
"The structure of a tax system can hinder taxpayers’ willingness to comply, if they perceive the system as being too bureaucratic, with a high tax burden and a high number of taxes. In the same vein, an inefficient fiscal policy mirrored in squandering of public funds and low quality of public goods makes taxpayers think twice before paying the entire share of their tax liabilities."
Many of these political determinants of non-compliance are present within the South African tax context. Individuals have a high tax burden and there are a high number of taxes.
Apart from all of SA’s existing taxes — such as income tax, capital gains tax, value-added tax, pay-as-you-earn, mineral royalties, transfer duty, donations tax, estate duty and securities transfer tax — the Budget Review 2017 confirmed that taxpayers should expecta new sugar tax, carbon tax, national gambling tax and acid mine drainage tax.
South African taxpayers were asked recently to give submissions to the Davis Tax Committee on several potential wealth taxes. In addition, the magnitude of the misuse and abuse of funds by government is staggering. The squandering of public funds is a matter of general knowledge.
Tax resistance has a long history. In his book, The Economic Psychology of Tax Behaviour, Erich Kirchler states: "it has been suggested that tax resistance has played a significant role in the collapse of several major world orders, including the Egyptian, Roman, Spanish and Aztec empires."
Viewed in this context, if taxpayers believe that the use of government funds is wrongful, and also believe that tax resistance would play a role in the collapse of this order, how would one conclude that funding the government order is the moral choice?
Society’s moral outrage against state capture, and against fruitless and wasteful expenditure by government employees and at parastatals, has been harnessed against SARS, the collector of government funds.
Apart from the crisis of confidence in the government, trust in SARS itself has been eroded over the past year, with multiple allegations in relation to SARS staff and leadership. This is important because trust is a critical factor in voluntary tax compliance.
Society’s moral outrage against state capture, and against fruitless and wasteful expenditure by government employees and at parastatals, has been harnessed against SARS, the collector of government funds
In the circumstances, one would expect SARS to rather focus on the legality of paying taxes, rather than the morality — since it is clear that the government and SARS do not have the moral high ground, in the views of taxpayers.
Nowadays, when South Africans pay taxes to SARS, they may potentially be caught in a crisis of conscience in relation to their part in financing a corrupt system through tax payments.
Engaging in a tax revolt would be an act of civil disobedience and would be unlawful. While society has felt the need to engage in this type of behaviour in various contexts in the past, this is the exception rather than the rule.
Upholding the rule of law is paramount in society and there are other manners of engaging in tax resistance that would not be unlawful, such as engaging in legitimate tax planning. The effects of this form of tax resistance would typically only be properly felt by the fiscus over the medium term.
SARS has already expressed concerns around "a disturbing trend whereby tax compliance levels are beginning to deteriorate". A knee-jerk reaction by SARS may be to impose higher penalties.
However, various studies have found that higher levels of tax-related penalties are counterproductive in cases where there is limited trust or perceived unfairness. In these circumstances, perceived "unfair" penalties result in higher levels of tax aggressiveness by taxpayers.
What is needed from SARS is not a show of power, but rather a show of service
What is needed from SARS is not a show of power, but rather a show of service. Whereas the law would not allow SARS to condone a tax revolt, the organisation should understand that tax resistance is a legitimate expression of dissatisfaction with the status quo. SARS should ensure that any taxes sought are clearly set out in the relevant legislation and avoid the heavy-handed policing of tax laws.
It should treat taxpayers respectfully and apply penalties in a restrained manner. SARS should also commit to a service charter that is more than mere compliance with legal minimums.
Tax rules should be enforced against all (including the politically connected), not only the "soft targets" and people who are voluntarily compliant.
• Williams is a tax dispute resolution expert at Bowmans.
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