Government warned that more tax hikes will lead to tax revolt in South Africa
Freedom Front Plus leader Pieter Groenewald says that a loss of trust in government’s fiscal capabilities will make revenue collection even harder in 2021.
Speaking in the debate on the State of the Nation Address in parliament on Wednesday (18 February), Groenewald said that billions of rands in taxpayer revenue have been stolen by government officials before and during the Covid-19 pandemic, further eroding trust.
This lack of faith in the government, combined with any further tax hikes in finance minister Tito Mboweni’s 2021 budget, will lead to a tax revolt in the country, he said.
A report published by business interest group Sakeliga in 2020 found that the Covid-19 lockdown has had a direct impact on taxpayers, and a breakdown of trust between citizens and government has led to an inclination towards tax immorality.
A survey conducted by the group showed that:
- 95% of respondents said that the lockdown decreased their willingness to pay tax;
- 90% indicated an inclination to delay tax payments for as long as legally possible;
- 60% would even consider illegally withholding tax if encouraged to do so.
The respondents were also asked to indicate whether they would support a campaign that encourages people to – as far as is legally allowed – defer payments of taxes and other government bills as a way to protest against the current Covid-19 restriction measures.
Slightly more than 88% of respondents indicated that they would support such a campaign. Only about 3% would definitely not support it.
Tax revolts
Economists and analysts have pointed out in the past that South Africa’s tax laws and collection methods make an all-out tax revolt practically impossible – especially without widespread support, particularly from corporates.
Key to this fact is that citizens are subject to a large number of indirect taxes – through VAT, fuel levies, etc – which are unavoidable.
However, milder forms of tax protest have been taking place in the country for years.
This is has come in the form of millions of drivers refusing to pay e-tolls, for example, or through emigration, capital outflows and general disinvestment.
More recently, residents in small towns have been engaging in local ‘tax diversions’, whereby rates that would usually be paid to municipalities are instead being redirected to private companies to deliver services that local governments have failed to provide.
A recent report by Moneyweb identified several regions across the country that are doing this, or something similar – such as holding rates ‘ransom’ until municipalities fulfilled their service delivery obligations.
Where municipalities have failed in their constitutional obligations to deliver services, the country’s courts have even supported communities taking measures into their own hands.
These kinds of ‘mini’ tax revolts were predicted by economists back in 2019 – with warnings that an increasing tax burden on ratepayers would spur further action.
The taxman is coming
Whether tax increases come next week or not, analysts have warned that the South African Revenue Service (SARS) will clamp down on taxpayers in the coming months.
Despite a lack of clarity about how much additional enforcement capacity currently exists in SARS, some taxpayers can expect a more adversarial relationship with SARS as it pulls all the levers of its powers to enforce compliance to bridge the ‘tax gap’, said Ekow Eghan, EY’s South Africa tax leader.
The tax gap is the difference between the true amount of taxes owed in any given tax year and the amount that is actually paid on time.
“We expect an uptick in audits, plus a more rigorous application and interpretation of tax law. This will inevitably result in more disputes as compliance behaviour comes under the spotlight,” Eghan said.
“Taxpayers should gear up for more regular ‘settlement’ negotiations with SARS as well as a greater willingness to go to court.”
He added that a poorly-coordinated or overly aggressive enforcement programme by SARS risks eroding the remaining trust and cooperation between compliant taxpayers and the tax administration.
SARS has already implemented a more aggressive tax collecting regime, with new tax laws making it impossible for taxpayers to claim ignorance on their tax affairs, while also digging deeper into seemingly ‘tax safe’ assets like cryptocurrency trades.
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