Wastage affects willingness to pay

Taxpayers don’t typically feel it’s ‘right’ to finance government spending if this is perceived as being squandered.

Draft tax legislation published this month aims overwhelmingly at stemming tax structuring in favour of the taxpayer and tax avoidance, reflecting more non-compliant behavior.

Bowmans partner Patricia Williams says it’s important to differentiate between “tax morality” and “willingness to pay taxes”.

The South African Revenue Service (Sars) routinely equates the two and appears to be of the view that adopting tax avoidance strategies is somehow “immoral”.

“In contrast, given our current economic and political climate, many taxpayers may be of the view that adopting tax avoidance strategies is not only commercially sensible, but also highly moral,” says Williams.

Organisation Undoing Tax Abuse (Outa) chair Wayne Duvenhage says South Africans’ public support and participation in paying taxes is generally high. However, it’s coming under significant attack.

“The impact on the contract between the state and its taxpayers is immense if the state squanders and does little to hold transgressors to account,” he says.

It gives license to the public to begin to question government’s conduct and act in a manner which reduces state funding which can be wasted. This gives rise to civil society action which leads to litigation and protest action to put the state under pressure to correct itself, says Duvenhage.

Des Kruger, South African Institute of Tax Professionals committee member, says taxes are fundamental to the state’s functioning.

“Everyone who benefits from living in that state is duty bound to ensure its smooth operation, and the overwhelming majority of most citizens understand that social contract,” he says.

Taxpayers are still mindful of their obligations under the various tax laws and the undesirable outcome if they fail to meet them.

“That said, one certainly hears a lot of talk of a tax revolt because of the perceived misuse of tax monies, but I have not experienced the talk being actioned,” says Kruger.

Williams believes there shouldn’t be an expectation of an overriding concept of “tax morality” that requires action beyond or different from what the tax legislation requires.

“If the fiscus seeks specific behaviour from taxpayers, this should be clearly conveyed to taxpayers in tax legislation, interpretation notes and guides.”

Williams says non-compliance in the form of resistance represents defiant and aversive taxpayers; disengagement in the form of taxpayers who don’t want to be part of the system; and game-playing where taxpayers seek “loopholes” or other avoidance strategies. She’s experienced a significant increase in all three.

Kruger says tax avoidance and even evasion rises in direct proportion to the level of taxation.

The phenomena is known as the Laffer curve – as taxes rise, collections rise, but there comes a point where increased taxes result in less revenue. The individual tax rate (45%) is probably at its maximum before taxpayers will seek to earnestly evade or avoid their tax obligations.

“That said, it is important for the future of tax collection in South Africa that taxpayers believe they are getting value for their contribution or talk of a tax revolt could become a reality,” says Kruger.

Participation in paying taxes is generally high.