Alexander van der Merwe says citizens’ means to pay revenue should be taken into consideration, and the tax burden should be equitably distributed.
Durban - In the run-up to the May 7 elections, my interest was caught by a government minister’s radio advert of what the ruling party, through the government, achieved in terms of service delivery and social grants.
His assurance that the benefits would continue to flow if voter support for the party could be counted on struck me as gratuitous.
While it is easy to portray oneself as the avuncular dispenser of tax revenue largesse, it is more difficult to convince taxpayers to keep forking out, especially if they perceive the benefits of doing so to be less than the value of tax paid.
Taxes will always be paid grudgingly, because the perception of subjects is that they are forced to give up hard-won earnings without receiving visible benefits in return.
The justifications for requiring tax payments are well documented by the original economist, Adam Smith, in The Wealth of Nations, published in 1776. These include the need to fund services that yield public benefits, such as national defence and the provision of education.
Taxation has remained a contentious issue since at least the time of Christ, when the religious leaders of the day asked him whether the Jews should pay taxes to Caesar (Mathew 22:15-22).
Tax morale (the willingness to pay tax) affects tax compliance and thus tax revenue collection.
Tax revenues provide governments with funds to invest in development, relieve poverty, provide services and build the physical and social infrastructure required for long-term growth. It is important to preserve, and preferably improve, tax morale as a keystone of a productive, modern economy.
French politician Jean Baptiste Colbert (1665) observed that “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”.
Philosopher and economist Smith identified four principles of taxation that should guide tax policy to preserve the goose’s modesty and keep it from feeling kicked for its efforts. Possibly the most important of these is that a tax should be perceived as fair.
A tax should take into account one’s means to pay it and the taxpayer should be convinced that fair value has been received for taxes paid. The tax burden should also be perceived to be equitably distributed.
According to economics researcher Paul Joubert (2013), only about 3.3 million taxpayers in 2011 accounted for 99 percent of income tax. About 2.3 million paid 93 percent and 1.5 million were responsible for 84 percent.
By virtue of the fact that income taxpayers are also – by far – the main contributors to other tax revenues, virtually the entire weight of the state rests on the weary shoulders of a few.
The reality of the skewed distribution of the tax burden as a threat to national tax morale is likely to be compounded by taxpayers’ perceptions that they may not be receiving full value for taxes paid.
What bang are taxpayers getting for their tax buck? For a start, the draft Defence Review released in 2012 concludes that South Africa is no longer able to “fully deliver its constitutional responsibility to defend and protect South Africa and its people” since it does not have an adequate operating budget.
As for the justice system, Lancaster (2012) notes that, due to a lack of reporting mechanisms between departments, it is impossible to gauge its performance meaningfully and there seems little political will to remedy this circumstance.
The most reliable finding with respect to the performance of the criminal justice system dates from a 2001 study by the South African Law Commission.
At that time, for every 100 violent crimes reported to the police, the perpetrators were convicted in only six cases and after more than two years. The SAPS service is generally perceived as incompetent and corrupt.
In my middle-class suburb, electricity outages and water breaks occur monthly, if not weekly. Potholes are a feature of virtually every road, verges are uncut and pavements unkempt. This is the national experience, with the 1 882 violent service delivery protests between April 2012 and April last year.
Despite education enjoying the lion’s share of national budget allocations, South African literacy and numeracy rank near the bottom of every international marker for these basic life skills.
A lack of capacity, evidently largely owing to the practice of cadre deployment – along with wasteful public expenditure and corruption – have been implicated in the state’s failure to deliver value for tax money. A study has found that KwaZulu-Natal taxpayers are paying 53 percent of their income on services their taxes are meant to pay for – medical aid, private security, school fees, increased rates and road tolls among 41 different types of “levies” designed to provide income for the burgeoning public sector.
South Africa, by some estimates, rivals Sweden as the world’s most heavily taxed country. This dubious distinction gives South African taxpayers the right to know how their tax money is disbursed. It is unfortunate, therefore, that the government has opted to employ taxpayers’ money to legally challenge the public’s right to know how its tax funds are employed (City Press, May 18).
According to a recent Adcorp report, households are failing to declare up to 30 percent of their income. The value of unpaid e-tolls is R620 million and growing. These developments may be harbingers of change in the mood and willingness of taxpayers to comply. Tax morale is not an easy thing to rebuild.
* Van der Merwe teaches economics at Durban University of Technology’s Pietermaritzburg campus
** The views expressed here are not necessarily those of Independent Newspapers