South Africa

Details

  • Service: Tax
  • Type: Business and industry issue
  • Date: 2014/02/20

Fight graft by taking leaf from tax books of Ancient Greeks 

This article first appeared in BDLive, 14 February 2014

 

The tax debate, internationally and in South Africa, is progressively focusing on closing perceived tax loopholes (in order to boost collections) and increasing self-assessment through vigorous auditing by the tax authorities.

In pursuing this goal, Finance Minister Pravin Gordhan has appointed Judge Dennis Davis as the chairman of the Davis Tax Committee.

 

Davis has been quoted as saying that the challenge for the committee is to design a tax system that, among other things, achieves "the spending needs of the government and its distributional ambitions".

 

The collection of taxes is important but addresses only one part of the equation.

 

Taxpayers are constantly told by Gordhan, the South African Revenue Service and by tax practitioners that paying their taxes is the moral thing to do and, in this way, they contribute to uplifting our country and, to some extent, redressing the wrongs of the past.

 

What is not being addressed effectively is the public perception of rampant corruption and the misuse of public funds, which often runs into the billions or rand. Perceived levels of corruption remain unacceptably high.

 

The global organisation Transparency International ranked South Africa 72nd out of 177 countries last year.

Public Protector Thuli Madonsela, in her annual report presented on October 15 last year, was quoted as saying: "All that I can say to this nation and this committee is corruption in this country has reached crisis proportions."

 

Gordhan, at a recent Discovery Invest Leadership Summit, described corruption as "a disease of the system that needs to be stamped out".

 

Public mistrust is seen in a number of ways, such as in the level of outrage expressed in the form of service delivery protests. It is understandable that many people respond with anger to increased taxes and toll fees if they perceive that the existing taxes are wasted.

 

It is a recognised fact that taxpayers are happy to pay their taxes when distribution and expenditure are transparent and accounted for.

 

Many South African taxpayers have been comfortable to pay taxes on the basis that they were being used to uplift previously disadvantaged areas and services. Thus, if the perception is that this is not the case, evasion may increase.

 

Despite efforts by the government to deal with corrupt politicians, such as those by Gordhan in last year’s budget speech and medium-term budget policy statement, not enough is seen to be done.

 

Perhaps the Davis Tax Committee should take a tip from the ancient Greeks. Their governments used a system of liturgies, which required the rich to pay for certain government projects — instead of paying tax.

 

Surprisingly, the rich often spent more on these projects than required, tacitly acknowledging that as they had benefited from their society, they had an obligation to give back. Extending this principle to South Africa, the suggestion would be for the government to extend public-private partnerships to public works.

 

In brief, this is how it could work.

 

The Tax Act would contain an annexure of approved projects, such as hospitals, schools, public roads, etc.

Taxpayers could apply, instead of paying the tax due over to the government, to actually build the hospital, school or road, which could then bear their names.

 

In this way, tax morality would increase — pride in completing the project and uplifting the community and ensuring that taxpayers’ funds are used appropriately, avoidance of corruption, etc — and taxpayers’ funds would reach their intended destination. The principle should be available to corporate and high-net-worth individuals.

 

It has been said that you do not fight corruption by fighting corruption. Traditional methods of investigation and prosecution need to be accompanied by efforts to instil an attitudinal change and to bring about a new culture of accountability and transparency.

 

As ridiculous as the suggestion of taxpayers undertaking public work projects may sound, the satisfaction, social recognition and legacy that a completed project would bring to the taxpayer is more than any money could buy.

 

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Contact
Roula Hadjipaschalis
Director
Corporate Tax
Tel: +27 (0)83 289 6510