Here is a revolutionary idea for reform and simplification of the tax system. Tax is the greatest source of resentment between the government and the governed. However stoutly we defend taxes as a means of redistribution, a source of government revenue for social purposes and a proud mark of our citizenship, we resent having to sit down and work out what we owe, and pay a chunk of our hard-earned income.
It is not just a matter of personal taxes ? now a little less than they were, but still hard for low-income earners. If you are in business, you also have at least 12 separate calculations to make and forms to fill in. Are you sitting comfortably? Then I will list them.
There is Site (standard income tax on employees); PAYE (pay as you earn); PAYE on company directors (different from ordinary PAYE); VAT (value added tax) UIF (Unemployment Insurance Fund); workmen?s compensation; rates, SDL (skills development levy); STC (standard tax on companies? dividends); capital gains tax; provisional tax; and ordinary common or garden company tax.
But that is not the whole story of what we pay the government. There is the fuel levy, and lots of other ?sin? taxes. And increasingly we are being asked to pay the full costs of services and facilities, which used to be seen as ?commons? that should come as subsidised basic rights, like schools, health, post offices and roads. And, of course, we all pay VAT on everything we buy, including food.
Can you imagine a system that replaces all of these with one tax for which no forms are needed? Imagine paying 14% less for everything you buy, having no dealings whatever with the revenue service, and none with tax lawyers or accountants. And imagine that nevertheless the government collects the same amount of revenue as it does now. Sounds like heaven?
A group in Gauteng has come up with a scheme that would do just that. It is called the total economic activity levy (Teal). Teal is a small transaction tax that would be levied on both sides of all transactions routed through banks and other financial institutions. That is, everything that goes by way of cheques, ATMs, credit cards and the like.
This is what would happen. I give you a cheque for R100. If the levy were set at 0,5%, I would be debited by the bank with R100,05; and you would be credited with R99,95. Each of us would lose five cents. The 10c would go directly to the Treasury. Government revenue would be collected in that way with no intermediaries, no assessments, as a steady stream that could be relied upon throughout the year.
I have used a 0,5% levy, because it is reckoned this would bring in roughly the same revenue as the government now gains from all other taxes.
A Teal would be highly progressive. Those whose transactions are the largest would pay most. But consider the gains. First, the market would immediately expand, as consumers have more money to spend, following abolition of VAT and other taxes.
Second, ask any director of a large company about the fees, the time and effort expended in using tax accountants to evade ? sorry avoid ? tax. Savings here would offset, if not reduce, their costs associated with tax, even though increasing the government?s take. The only losers would be to the tax lawyers, who would be freed to use their skills in more constructive activities.
Could it be evaded? Not easily, unless we all carried suitcases of notes and coins to pay all our bills in cash ? thus risking a field day for armed robbers. Even that wouldn?t work, because notes and coins now make up some 8% of the money in circulation. Also, a consequent massive fall in bank turnover would enable quick detection of evasion through examination of the cash flow in the accounts of companies. This would attract heavy penalties, like all tax evasion.
You can find out more from [email protected].
Margaret Legum is with the South African new Economics Foundation in Cape Town