South Africa’s tax issues are a serious problem that need to be resolved urgently before the country can move forward to achieve its potential, says Judge Dennis Davis, who was speaking at PSG’s Think Big webinar on Tuesday.
Low economic growth is not helping matters, he said, but an inefficient tax system further complicates South Africa’s tax revenue challenge. Solving this, however, will solve other issues too.
“While many South Africans pay their fair share, many are also guilty of tax evasion, making the tax base far smaller than it should be and putting a higher burden on those who do pay their fair share,” he said.
“Every time I talk about this topic, people worry that I’m coming after them,” said Davis. “But if you are paying your fair share of tax, and your neighbour is paying absolutely nothing, aren’t you worried about that too?”
“There is a significant number of people and companies who are completely exploiting the system, whether it be evasion of customs duty, the manipulation of the VAT system or simple evasion of tax or transfer pricing and similar shenanigans which companies deal with. That’s where the real problem lies,” said Davis.
“According to our tax tables there are only 5,000 people who have taxable income over R5 million a year in South Africa. Now if you just drive around and count the houses in suburbs like Sandton, Bryanston and Bishopscourt, you’ll quickly realise that something doesn’t add up,” said Davis.
He believes that ordinary South Africans who are tax compliant should be supporting any moves to overhaul and rehabilitate the country’s tax system, including lifestyle audits for those who are purchasing big-ticket items like Ferraris or expensive properties.
Where lifestyles and spending don’t match up to declared earnings, we need to investigate, and we need to prosecute where needed. Davis believes that making an example out of a few prominent individuals, and ultimately having them end up in jail, would be a highly effective deterrent to illegal tax evasion.
“As a constitutional lawyer who is concerned about corruption, I am absolutely convinced that the Al Capone strategy is the best way to deal with this,” said Davis.
The Al Capone strategy is basically that you need just one or two provable facts. For example, if you look at somebody’s bank statement and there is an element of cash flow that can’t be explained, you know a crime has been committed. In the case of Al Capone, it was tax evasion, rather than his other crimes, that eventually landed him in jail.
“If you have people in the revenue committee who are deeply committed to honouring the right principles – which there are – it’s absolutely possible to make this strategy work in SA,” said Davis.
“The other thing that always comes up when we talk about increasing tax revenue collection is the issue of state corruption,” he said.
“I would like to think that the vast majority of South Africans understand the levels of inequality in our country and will gladly pay tax to help bridge the divide, provided the money goes towards the upliftment of the people who really need it. Therein lies a big problem,” said Davis.
As the extent of state corruption is revealed, people are more likely to say, ‘why should I hand over my money to government, it’s just going to be stolen anyway, so it is better off with me’.
“The only way to change that mindset is through improved service delivery,” he said.
Despite the challenges, Davis remains optimistic and believes that The South African Revenue Service under Edward Kieswetter is going to make a positive difference to the country.
The webinar was hosted by Gerhardt Meyer, head of technical support within PSG’s distribution team. Meyer said there is a big need for the country to have a comprehensive and trusted tax plan in place and that it needs to be a plan that can be properly executed and policed when necessary