Should South Africans protest against state capture by not paying their taxes? Well, this may not be necessary as some economists think we already are in an indirect tax revolt.
In a Twitter post over the weekend, Western Cape Premier Helen Zille suggested a tax revolt in order to get “effective action on corruption”, which included prosecution, conviction and jail.
“The entire point of a #Taxrevolt is to get effective action on corruption: prosecution, conviction, jail. What else has worked? How else can we stop the theft of money meant for the poor,” Zille tweeted on Sunday after an interview on radio station Eyewitness News (EWN).
According to Zille, there was over 80 cases of “impactful tax revolts” globally.
Did you know that, in the 21st Century, there have been over 80 case studies of impactful tax revolts. More than double that in the 20th C. But given that we are only in first fifth of this Century, the trend is clearly escalating because it introduces ACCOUNTABILITY in govt.
— Helen Zille (@helenzille) January 26, 2019
Econometrix’s Azar Jammine said Zille may have been referring to a study by US economist Arthur Laffer during Ronald Reagan’s presidency which looked at the relationship between tax rates and the revenue generated by government through taxation.
Laffer noted that the higher the tax rate, the less income was generated; while the lower the tax rate, the more tax was generated.
South Africans are proving this study true, Jammine says. In December, the South African Revenue Service (Sars) noted that revenue collected from personal income tax between 2017 and 2018 grew by R37-billion, but at a lower rate compared to previous years.
According to Sars, personal income tax made up 38.1% of the total tax revenue collected in the 2017/2018 financial year.
The decline in percentage revenue collected, Jammine says, began when individuals in the highest-income bracket (which is about 100 000 taxpayers earning over R1.5 million a year each) were taxed 45% of their personal income, up from 41% in March 2017.
He says this shows that taxpayers in the middle-to higher-income brackets have already begun participating in an indirect tax revolt.
This is a problem, says Professor Ingrid Woolard, of tax immorality.
“If top earners failed to pay their personal income tax obligations in full, the tax burden would be moved to indirect taxes such as VAT (value-added tax) which is not a progressive form of taxation.”
Akin to a tax revolt, economists say South Africa has seen a payment revolt where residents have challenged the relationship they have with their municipalities by not paying for their water and electricity.
Economist Mike Schussler pointed out that the majority of municipalities in the country are already in a “payment revolt” by budgeting for debt impairment for the following financial year.
In the last three years R52 billion was impaired. The impairment costs meant that services charges had to be at least 8% higher. Also means older assets are left to be impaired (not printed seperately) – think electricity outages at municipal level. 3/10
— mike schussler (@mikeschussler) January 28, 2019
Stats SA reported last year that total municipal debt in South Africa grew to R225.8-billion during the 2016/2017 financial year, a 6.8% increase from 2015/2016.
The debt was owed to Eskom and water boards, Stats SA noted, making up 43% of the total municipal debt for 2016/2017.
Woolard says tax compliance in South Africa is high as most taxpayers fear repercussions from Sars.
Tax non-compliance has several penalties. If a taxpayer understates their taxes, they can be penalised up to 150% of the amount they understated depending on the severity of their understated earnings. While taxpayers who are found guilty of failing to return submit their tax returns will end up with a criminal record. It is a criminal offence to fail to submit a tax return or value-added tax return under the Tax Administration Act and Value-Added Tax legislation.
The crux of the issue, says senior lecturer at the University of the Witwatersrand Lumkile Mondi, is how to hold the government accountable.
Referencing the Western Cape Premier’s tweets over the weekend, Mondi said: “Zille is espousing a debate over liberalism”. Zille was asking the broader question of “how do you punish a corrupt state which is not fulfilling its mandate?”
But, for Woolard, if some taxpayers were to punish a government, they would be hurting all citizens as the revenue lost in personal income tax would mean the taxpayers were are paying tax would have to do so at a higher rate.
“Zille’s call for a tax revolt seeks to undermine tax morality… Tax administrations all over the world acknowledge that taxes are quasi-voluntary; enforcement can take one only so far, one also needs a culture of tax morality to ensure high compliance,” Woolard explained.
“If tax morality is undermined then the compliance gap will widen, meaning that tax rates will go up to compensate for the fact that not everyone is paying their fair share. That’s a highly undesirable situation and very hard to reverse once it has taken hold.”