Should you join the tax revolution?

Helen Zille, Premier of the Western Cape, sparked a spirited debate when she tweeted that she would organise a tax revolt if those who are involved in state capture are not prosecuted and convicted in a reasonable time.

Tax revolts have played a huge role in bringing about changes in countries like America and France.

To help you decide if you want to be part of the tax revolt, Justmoney investigated what the implications of the revolt would be.

How will a tax revolt be carried out in South Africa?

“A tax revolt could only succeed if all taxpayers decide to revolt at once,” says Ferdie Schneider, national head of BDO Tax South Africa.

It would require big businesses, that pay most of the taxes – such value added tax (VAT), personal income tax (PAYE), and company tax – to participate by withholding the payment of these taxes to government, explains Wayde Duvenage, CEO of the Organisation Undoing Tax Abuse (OUTA).

According to Duvenage, these taxes respectively account for 25%, 18%, and 5% of the government tax revenue, which amounts to over R1.2 trillion when the fuel levy is included.

Schneider says that the most likely tax revolt would be by those taxpayers in the informal sector; such as those who are not in SARS’ books, or who can avoid prosecution.

How much damage would a tax revolt cause?

In a country where 86% of government revenue comes from taxes, a tax revolt can have dire consequences.

According to Duvenage, it would almost be impossible for the government to run the country. The government would not be able to pay its debt and civil servants’ salaries, and social grant beneficiaries would suffer. Salaries and social grants take up to R600 billion of the government’s revenue.

“Even 10% less tax income due to a tax revolt would result in R240 billion less revenue,” says Duvenage.

The impact of a failed government would hurt the very people calling for the tax revolt but the biggest suffers would be the poor, he says.

He points out that the ability of a country to recover from a sustained and substantive tax revolt is painful.

Schneider adds that a tax revolt would lead to severe revenue shortages to pay for national, provincial, and local infrastructural and operational expenditure.

“The country will potentially be able to rely on and increase debt in the short term, but very quickly the cost of debt will become unaffordable and the country will fall into complete chaos,” says Schneider. 

With all that said, Schneider says it would be very difficult to orchestrate a tax revolt because directors and the boards of the companies have fiduciary responsibilities to their shareholders to act in a legal manner; abide by the laws of the country, and act in the best interest of its shareholders.

Deciding on a tax revolt and, as a result, not paying its taxes due, will mean that they neglect all their duties towards their shareholders, he says.

If these companies decide to revolt, without being representative of the major tax revenue generators in South Africa, SARS will have the capacity and will indeed prosecute, which will place a tremendous cost burden on these companies and SARS.

Schneider says personal income tax is the only possibility for a revolt but is also difficult in case of taxpayers employed by corporates, who have the duty to collect Pay As You Earn (PAYE) on a monthly basis and submit payment to SARS.

What impact will this revolt have on the future of tax morality of the country?

“It is more likely that a tax revolt will be caused by low tax morality, and not necessarily the other way around, although a tax revolt may push tax morality down further,” says Schneider.

According to him tax morality is caused by these factors:

• Lack of education by government on the reasons why taxes are imposed, should be honoured, and should be paid.
• It is also a result of tax payment on the one hand questioning the value for money on the other.

“If the taxpaying community does not perceive value for its hard-earned tax money and perceives government to be conducting wasteful or fraudulent activities, this will negatively impact tax morality,” says Schneider.

Duvenage says that the revolt is already underway.

“More deals are being traded in cash to avoid VAT, people are declaring as little revenue as possible. Less people pay SABC TV Licences, and E-Tolls have 75% non-compliance,” says Duvenage.  

He says if government squanders tax payers’ money, the tax payers will do all they can to avoid paying taxes.