Tax Collection and Tax Activism : QUO VADIS?
08 July 2012
Posted by: Author: Stiaan Klue
Tax Collection and Tax Activism : Quo Vadis?
A mass public campaign against e-tolling, mounted over what was seen as exorbitant toll fees, resulted in a successful interdict application in the North Gauteng High Court last month that stopped the launch of e-tolling, pending a full court review of the system.This action driven largely by the Opposition to Urban Tolling Alliance (OUTA) should give all taxpayers and civil society food for thought. It demonstrates how society, in a vibrant democracy, can effectively review certain policy decisions by the State.
It is interesting to note that no opposition was raised against the principle of taxation per se, or the fact that the user should pay for the services rendered.By far the biggest gripe was against the inefficient policy implementation.
However, in an unusual move this week, the minister of finance and others applied directly to the Constitutional Court to review the decision rather than appealing the decision with the High Court.The minister argues that government is "prevented from collecting revenue that it was empowered by law to collect”.The minister further argues that the user-pay principle is the best way to levy this tax.
Without getting into the political minefield of separation of powers ... the potential impact of the interdict, however, on the user pay principle is fundamental.
The User-Pay Principle Versus the Subsidy Principle
The user pays, or beneficiary pays, is a pricing approach based on the idea that the most efficient allocation of resources occurs when consumers pay the full cost of the goods that they consume.The basic idea is that those who do not use a service should not be obligated to pay for it. As long as the beneficiary aligns exactly with the user, the user-pay principle works.As an analogy, we all accept that those who do not go to a movie are not obligated to pay for someone else to attend.
This method of collection is mooted for the Gauteng e-toll system.However, in public goods, beneficiaries and users often do not align.The divergence of user and beneficiary occurs when production and consumption have external effects.The driver, who purchases fuel for example, may believe they are paying for the full cost [user pay] of using the fuel, except that greenhouse gases are produced.This imposes costs on the environment and is believed to contribute to climate change.The beneficiaries must bear costs not paid in the purchase of the fuel.In this case, the user-pay principle results in the use of the road not paying the full or social cost of using the road, which creates a strong argument for additional tax to maintain the road.A fuel levy therefore includes costs of maintaining roads and unforeseen social costs such as pollution.
The minister of finance argues, according to media reports, that the e-toll system is designed on the principle of the user pays.The argument is that the person that uses the service should pay for the service. This is an interesting argument that should be further explored. It begs the question whether it is possible that all taxes could be levied based on the user-pays principle.
The biggest portion of the South African budget is allocated to education and training.Can the user-pays principle apply here? Or is it better to use other taxes, like income tax, to subsidise schools? Recently it was announced that South Africa will launch its own system of social security and national health insurance.Will the user-pays principle apply here? Or will we use an indirect tax like VAT to pay and subsidise the system?
The interim relief awarded to taxpayers by the North Gauteng High Court is significant because it provided taxpayers the right and the confidence to question the efficiency in collecting and spending taxes collected.It is clear South African civil society is starting to take a strong stand against the fiscus.
Now that the taxpaying public are aware of the minister’s view of user pay, perhaps the next question taxpayers will ask is: Can I also apply this principle of user pay to national health insurance or education?
The minister has opened Pandora’s Box as to how tax policy should be applied.A new debate on tax collection is needed.This should not be limited to the e-toll system. If the principle of the user pays is thought to be the best for the e-toll system, then perhaps it should be applied to all other tax forms.
Only time will tell the outcome of this conundrum. Taxing times indeed.
Source: By Stiaan Klue Chief Executive of the SA Institute of Tax Practitioners (TaxTALK)