On Morality,Patriotism And Prosperity For All
01 July 2007
Posted by: Author: Adv. Pierre du Toit
On Morality,Patriotism And Prosperity For All
In an interview on Summit TV’s Tax Issues earlier this year tax lawyer Pierre du Toit spoke about the current highly dynamic tax environment. TAXtalk interviewed Pierre about his views on the South African tax landscape and about the prevailing anti-avoidance rules.
What did you mean when you talked about a "highly dynamic tax environment”
There are two major areas of our tax scene that continue to increase in dynamics and intensity.The first is in tax administration, in terms of the capacity,expertise and healthy morale of SARS.Since the founding of SARS and their gaining independence from the Public Service Commission, huge amounts of energy and investment have gone into organisational restructuring, the buy-in of expertise, introduction of real electronic and other physical capacity and utilisation and flowing from that, a strong morale throughout the organisation.
Was this a good thing for business?
It’s a very good thing - for all South Africans.Ineffective tax collection always favours the dishonest at the expense of the honest.By 1994 the Revenue Services were dangerously close to operational collapse and by get ting this right Commissioner Gordhan and his people have contributed materially, in fact critically, to the survival and success of our young democracy. At the same time,of course, there has also been a plethora of amendments to tax legislation in the last decade, very many of which had an anti-avoidance character.
And the new general anti-avoidance rules, or GAAR as it is known?
All developed tax systems have some form of general anti-avoidance regime,some statutory, some not. We too needed a clear-up or clean-up of ours. I’m not sure that this objective has been fully achieved, but we should see the new GAAR as a healthy development in principle.An important perspective,however, is that the new GAAR brings less change in law than it is likely to bring in the form of an invigorated SARS assertiveness in enforcing general anti avoidance.This derives from the fact that SARS, if anything, had under-utilised the old section 103 provisions, but will be much more confident under the new regime.
But many fear the new GAAR?
Only those who mistake tax as their business rather than also managing the tax dimension of their business with care and energy need to fear the new or old or any GAAR.Of course, new legislation combined with new confidence on the part of the tax collector will result in some attempted applications which may have to be tested and honed in our courts, but informed responsibility on both sides will soon enough settle down the new regime.
What do you say to those who suggest that our courts are slowly drifting into an anti-taxpayer mode?
It’s nonsense. Our bench is as good as ever and, if anything, is slowly drifting into a greater awareness of the rights of the citizen, individual or corporate,especially as regards administrative law.Indeed, they are compelled to do so by our world-respected constitution. To emphasise, with the courts as opposed
to a sovereign parliament now constitutionally carrying the ultimate authority, business should approach the new dynamics confident in the knowledge that, if need be, they can enforce their rights where they encounter some unreasonable fall-out. This fall-out is itself an inevitable side-effect in any fast maturing system such as our tax environment.
How do you see the oft-used phrases of morality or patriotism in the tax context?
There is an absolute and uncompromising morality about tax and that is the law.At the same time I happen to think that business morality should go way beyond tax, in the form of active social investment
– that is not only good morality but, for the more cynical, good business. We must be careful, however, both as tax collectors and taxpayers not to obfuscate the tax system with well-meaning but extra-legal desires or expectations. As our country slowly deracialises and class contest intensifies between unlimited public need and very finite economic resources (the latter converted into production mainly by the private sector),the survival of our democracy depends critically on tax as the legally reinforced bridge between wealth and need. Neither side has the right to risk the tax system’s authority and durability by fudging the law as the sovereign arbiter between state and citizen.Beyond that, then, not only wise self-interest, but also compassion, morality and patriotism must move us to relevant, durable, practical and beneficial social investment, in cash and in kind, - way beyond our narrow tax liability.Both are necessary prerequisites for our own survival and a better life for all.
When you talk like this you are really addressing the boards of corporate South Africa?
It goes for us all, but yes, we look towards our corporate boards to lead the way.We must keep in mind also that even in a strict legal sense boards are between the proverbial rock and a hard place.While it is their responsibility to ensure that their companies pay every tax cent due, it is equally their fiduciary responsibility under company law to manage their companies, right down to the after-tax bottom line. Failure to manage the company’s tax affairs with the same combination of legality and frugality as they do in all other areas of their business, would expose them to legal sanction, as well as render their businesses uncompetitive. While a strong SARS removes the unfairness of having to compete with tax evaders, a weak board will not survive neglecting their legal obligation towards legitimate and effective tax management.
What then do you see as the boards’ responsibility in handling these opposing forces in a tough tax
Boards have to act on several fronts.Externally they must participate actively in our much more open and consultative tax legislative process. Internally they must not only have tax as a board priority,but they must build strong internal tax management resources, and support these with access to external expertise.Internal tax management must participate at the highest level of corporate governance. Boards must oversee and drive the propagation throughout their organisations of a culture of uncompromising tax legality and compliance.Yet parallel with that, create a culture of active but legal management of the corporate burden in all taxes.These two cultures are not in conflict, they are complimentary.Through legality and the fullest compliance with our tax laws,boards must ensure that their companies make their democratically determined fiscal contribution to the prosperity of all our citizens. Through defending the tax system against attempts to replace the law with either greed by the taxpayer, or extra-statutory reach by a few tax officials,however well-intended, they act in partnership with the tax collector in protecting a system critical to the survival of democracy.Through managing their companies, including also the tax dimension, with absolute legality, energy and commitment, they help create the national wealth, the jobs, the opportunities and expertise without which there is no future for anyone.Then, while this longer term building process goes on, through actively pursuing responsible, generous and constructive social investment, they give hope to those who cannot afford to wait for the long-term reconstruction of our deeply scarred society, thereby bringing hope for all.
As I suggested in the Summit interview,in the above sense morality and patriotism includes, but goes far beyond the tax system. Corporate prosperity is not aright, it is an obligation towards the total society with and within whom corporate South African must help grow it to the benefit of all.By following this formula of legality, energy and morality, all can share a better life, and all, yes, all South Africans enjoy prosperity with pride.
Source: Adv. Pierre du Toit (TaxTalk)