There seems to be increasing concern that South Africa could be heading for a tax revolt.
This comes amid an outcry against corruption, wastage of taxpayer money and the fact that the country’s deteriorating fiscal situation will in all likelihood trigger tax hikes next year.
In November, judge Dennis Davis, who heads up the committee tasked with a comprehensive review of South Africa’s tax system, warned that the greater the level of corruption in South Africa, the less tax integrity the country would have and the greater the possibility of a tax revolt.
Kyle Mandy, tax policy leader for PwC South Africa, says while there is always a risk of a tax revolt, one also has to face the facts: A tax revolt is not an event and does not happen overnight.
“It is a creeping trend that starts to happen in terms of a breakdown in tax morality and reduced levels of compliance and it will happen as a process over a period of time, if it happens at all,” he says.
But whether the country is really heading for a tax revolt, may be a question of semantics. For some, taxpayers speaking out against corruption and wastage already hint at the start of a tax revolt, while others believe taxpayers would have to engage in large-scale tax evasion or stop paying taxes altogether for it to really be considered a tax revolt.
Of course, in a system where most individuals’ taxes are withheld by employers and paid to the South African Revenue Service (Sars) on their behalf there is limited scope to really take significant action. Considering the potential reputational damage corporates could face in the wake of such a step they will most likely be highly reluctant to engage in any concerted effort to intentionally stop paying taxes – even on behalf of others in the case of employees’ tax or value-added tax (VAT).
The system that facilitates payment of personal and corporate income tax and VAT is already entrenched, and will be difficult to circumvent. This makes it different from the e-Toll system, which had to be set up afresh, arguably making it easier to boycott from day one.
Efforts by global revenue authorities to facilitate the automatic exchange of taxpayer information also mean that taxpayers may soon have nowhere to hide.
But taxpayers are progressively being squeezed by economic pressures and any potential tax hikes in an environment where there seems to be limited political will to address wastage and corruption will only add insult to injury.
Mandy says on the one hand taxpayers face an increasing tax burden and on the other there is a growing concern around how tax revenues are being spent.
“Naturally there would be a risk that compliance levels will decrease as a result. Where is it likely to happen? It is not going to happen in big business. Big business as a general proposition will comply with all tax law.”
Where reduced levels of tax compliance is likely to materialise, if it happens at all, is in relation to small and medium business, he says.
While there has been a significant focus on base erosion and profit shifting (BEPS) and the role multinationals have played in contributing to the tax gap by shifting profits from South Africa, Mandy says in his view this is not where the major tax gap lies, but rather with small and medium business and in the informal cash economy.
Mandy says because some of these businesses in many respects fly below the radar, it may be relatively easier for them to evade tax. It is more difficult for large corporates because they are visible, Sars knows where they are and how to find them. Large corporates also tend to have up-to-date records, which may not exist in the informal economy.
Nazrien Kader, Deloitte Africa tax leader, does not expect a full-blown tax revolt.
A small pool of high net worth individuals that generally account for the biggest portion of revenue from personal income tax is unlikely to engage in active protests. Kader says to her a tax revolt suggests that taxpayers stop paying tax until they get the delivery they demand and it is unlikely that it will come to that.
“On the other hand a tax revolt, which is just a voice demanding certain things, that is happening as we speak.”