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How South Africans fork out billions in ‘taxes’ collected by stealth

Feb 22 2016 12:52
* Robert Vivian

“The profile of tax collections is expected to mirror that of previous years with individuals likely to retain the highest level of contribution, VAT a close second and company taxes, third in line,” said Nazrien Kader. (iStock)

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That failure of Operation Masakhane had such a negative impact on hidden taxes that Robert Vivian, Professor of Finance and Insurance at the University of the Witwatersrand, now calls it Masakhane tax...

SOUTH AFRICA has an unaccounted tax. By unaccounted I mean it is a tax which does not appear anywhere in the government accounts, including local government. I call it the "Masakhane" tax.

Billions are garnered via this tax every year, making the tax burden on the South African public considerably higher than appears from official government figures. Determining the total tax burden is a complex exercise. But one component – the national government total gross tax revenues – increased from 18% of GDP in 1979 to 26% in 2008.

South Africa has a strange situation. Most middle-class taxpayers pay high taxes, but receive virtually no benefits. They end up attempting to purchase the same services which should have been provided out of their taxes. Examples include security services, education and medical care.

It is on some of these services that the hidden Masakhane tax appears. This breaches most well-established constitutional principles that stretches back to the Magna Carta: only parliament can impose taxes and must appropriate revenues and exercise oversight.

Origins of the Masakhane tax

When the now-governing African National Congress (ANC) was trying to get into power it encouraged wholesale non-payment of municipal charges. In this it was successful. People stopped paying.

Once the ANC got into power, it wanted payment to restart so it could pay its supporters now on the government payroll. It then launched Operation Masakhane to encourage the resumption of payment. It was a failure.

The party discovered it was easier to get people to stop than start paying. Many in any event cannot afford to pay. So, in the end, the ANC gave up and resigned itself to forcing those who pay to pay more to cover the costs of those who do not pay. The additional amounts paid to subsidise those who do not pay is what I call the Masakhane tax.

The Mashakhane tax has been operational for 20 years. It runs into many billions of rands, as is clear from debts such as written-off or outstanding electricity debts.

The operation of the Masakhane tax can be illustrated by looking at the recent bid by the state electricity utility Eskom for an increase in electricity prices. Eskom has argued it needs the additional rate increase to compensate for the stagnant consumption. As the price of electricity has gone up fewer can afford it, and so consumption has stagnated.

Those unable to afford it will stop paying, some joining those being supported by the payers: the Masakhane payers. There will be a diminishing pool of payers paying ever-increasing amounts to cover the costs of those not paying.

For those who cannot afford to pay but are getting free electricity, the Masakhane tax is a welfare transfer. It is thus a form of socialism.

Private and individual socialism

The existence of the Masakhane tax is also an indication of a more far-reaching change taking place in South African society. Socialism is evolving to produce a new form: in the absence of a better name, I call it private and individual socialism. This distinguishes it from the traditional form, which I call state socialism.

In state socialism the state provides the services, or money. For example, the state provides education in the form of public schools, medical care in the form of public hospitals, old-age pensions, and so on. These are paid for out of state revenues, the products of state socialism.

Private and individual socialism is where the costs are imposed directly, using state power, on one group of individuals for the benefit of others. The costs are sometimes imposed not on groups but individuals.

The Masakhane tax is simply one way of funding the transfers from one group to the others. So, those who do not pay for services are funded by the group who do pay. One group of private individuals is forced to subsidise another. Hence my term private socialism. This has become so pervasive that it is now taken for granted.

What has faded into insignificance is the fact that they are private individuals, involving private property, protected by a constitution. Neither the tax nor the its appropriation is subject to the oversight of parliament.

There are a few more examples of what I have called private or individual socialism.

Medical schemes tried to introduce a community rating system by way of everyone supposedly paying a flat rate, which is not linked to any risk factors. It varies only by the number of dependents – with a cap on the number of dependents – and income.

The idea was that wealthy members, from an income point of view, would pay a great deal more to subsidise the lower-income members for the same benefits. The Masakhane tax would be imposed on high-income earners. It has not worked out that way.

And then there’s public schooling. In the dying days of apartheid, a number of funding options were introduced. One was the Model C option, under which public schools were granted a significant measure of independence – allowing them to impose school fees. They quickly gained a reputation for providing better education.

Initially it was made clear to these schools that although fees could be levied, every child had a constitutional right to an education. This meant that no child could be expelled or discriminated against for non-payment.

So, what was to happen to those who could not afford school fees? The idea was – even if only by default – that those who could afford should pay more to cover the costs of those who could not afford the fees. The Masakhane tax in operation.

Increasingly, the socialist agenda is being pursued via private and individual socialism. The distinction between public and private is becoming more and more blurred. The Masakhane tax falls outside the control and oversight of parliament. It is taxation without consent, appropriation, or oversight. As such it is manifestly unconstitutional.The Conversation

Robert Vivian, Professor of Finance & Insurance, University of the Witwatersrand

This article was originally published on The Conversation. Read the original article.

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education  |  medical aids  |  tax  |  tax evasion



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