Tax resistance a legitimate show of unhappiness - expert

Cape Town - South African taxpayers could be caught in a crisis of conscience in relation to playing a part in financing a corrupt system through tax payments, according to an expert in tax dispute resolution. 

Patricia Williams from Bowmans says in a company note that the magnitude of misuse and abuse of funds by government and parastatals (state-owned entities) is staggering, but already in the public eye and therefore general knowledge. 

Williams says tax resistance has had a long history. Quoting from a book by Erich Kirchler, The economic psychology of tax behavior, she says tax resistance has played a significant role in the collapse of major world orders, including the Egyptian, Roman, Spanish and Aztec empires.

“Viewed in this context, if one believes that the current use of government funds is wrongful, and one also believes that tax resistance would play a significant role in the collapse of this order, how would one conclude that funding the current government order is the moral choice?” she asked.

READ: Taxpayers cough up R136m for suspended govt employees 

Apart from the crisis of confidence in government, Williams says, trust in the South African Revenue Service (SARS) itself has been eroded over the past year. 

“[There are] multiple allegations in the public eye in relation to SARS staff and leadership. This is important because trust is a critical factor in voluntary tax compliance.”

Given these circumstances, one would expect SARS to focus on the legality of paying taxes rather than the morality, since it is clear that government and SARS do not have the moral high ground, in the views of taxpayers.  

“Nowadays, when one pays one’s taxes to SARS, one may potentially be caught in a crisis of conscience in relation to one’s part in financing a corrupt system through tax payments,” Williams says. 

High tax burden 

South Africans have a high tax burden and a large number of taxes, such as income tax, capital gains tax, value-added tax (VAT), pay as you earn tax (PAYE), mineral royalties, transfer duty, donations tax, estate duty and securities transfer tax. 

READ: Taxes: Feeding an incompetent state? 

In addition, the 2017 Budget Review confirmed that a new tax on sugary drinks, carbon tax, national gambling tax and acid mine drainage tax could be implemented. “Then we have been asked recently to give our submissions to the Davis Tax Committee on various potential wealth taxes,” Williams says.

Tax revolt vs tax resistance 

Williams points out that engaging in a tax revolt would be an act of civil disobedience, and would be unlawful.  

“Although society as a whole has felt the need to engage in this type of behaviour in various contexts in the past, this would really be the exception rather than the rule.”

She says 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.  

READ: Govt's crisis of legitimacy fuels tax revolt - OUTA

“The effects of this form of tax resistance would typically only be properly felt by the fiscus over the medium term.”

SARS has already said it is concerned about deteriorating levels of tax compliance. Williams notes that a knee-jerk reaction from SARS could 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.”

She believes that SARS should not engage in a “show of power”, but rather a “show of service”. 

“Whereas the law would not allow SARS to condone a tax revolt, SARS should understand that tax resistance is a legitimate expression of dissatisfaction with the status quo."

What SARS should do

Williams suggests that SARS: 

- ensures that any taxes sought are clearly set out in the relevant legislation;
- avoids heavy-handed policing of tax laws;
- treats taxpayers respectfully, and applies penalties in a restrained manner;
- commits to a service charter that is more than mere compliance with legal minimums; and
- enforces tax rules against all persons (including the politically connected), not only the “soft targets” and people who are voluntarily compliant.

In particular, all available law relating to base erosion and profit shifting should be properly applied to collect taxes that are legitimately due, without over-burdening individual taxpayers, Williams says.