Tax Indaba shows major drop in tax confidence

According to Solidarity’s latest newsletter, major concerns about taxpayer morale were raised at the 2019 Tax Indaba in Gauteng.

The new commissioner of the South African Revenue Service (SARS), Edward Kieswetter, said that there had been a drastic drop in individuals’ and businesses’ confidence in SARS. An increase in tax avoidance and tax fraud were found which in the end saw billions of rand withheld from the government. Years of corruption had dealt  a serious blow to confidence in the government, resulting in a tax rebellion.

Kieswetter warned that because of years of corruption, South Africans are beginning to withhold their tax payments. This could force the country to apply for a bailout from the International Monetary Fund (IMF). Since 2015, tax income had fallen sharply due to poor economic growth and mismanagement.

Independent economist Thabi Leoka told Bloomberg: “The IMF is used as a scare tactic to make the government aware that if we don’t implement the necessary policies, we may be forced to turn to them.”

Deputy Finance Minister Dr David Masondo said at the Indaba that this period of instability coincided with growing shortages in tax revenue. “From a shortfall of R7 billion in the tax year that ended in 2015, the under-collections had consistently increased to the latest shortfall of R57 billion. And this had happened over a period where tax rates were increasing, with higher personal income tax rates across the income distribution and a new top rate of 45% on incomes over R1,5 million. Higher capital gains tax and dividends tax rates, increases in fuel levies and an increase in the rate of value-added tax, did not bode well with tax payers.”

According to Masondo, the success of South Africa’s tax system depends on three things.

Good tax policy: Firstly, we need to determine whether our tax policy design is suitable for the future, based on the key principles of good tax policy design.

Political leadership: Secondly, we must ensure that we have a strong, capable and technologically proficient revenue authority. SARS suffered immensely from governance failures in recent years – to the detriment of staff morale, and tax payer morale and tax revenue collections.

Effective tax administration: Thirdly, we must spend more effectively and derive visible value for the revenue we collect. The developmental impact of our spending legitimises our taxes.

Masondo said that taxpayer morale would improve automatically if the government spent tax money more effectively and produced visible value from it.

(Edited for style and length by Alex Rose-Innes.)

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