Print Page   |   Report Abuse
News & Press: Opinion

On South African tax compliance, tax morality and taxpayers’ freedom to do tax planning

05 February 2014   (0 Comments)
Posted by: Author: Johan van der Walt
Share |

Author: Johan van der Walt (DLA Cliffe Dekker Hofmeyr)

On South African tax compliance, tax morality and taxpayers’ freedom to do tax planning – Canada, Ireland and South Africa are not worlds apart

The upcoming Budget Speech comes against the backdrop of a depressing South African growth rate, stubbornly high unemployment, a depreciating Rand (with more US tapering still to come), continued strikes in the mining sector, deadly service delivery protests and declining tax revenues.

On a more positive note: In November 2013 Minister Gordhan pointed to the continued growth in tax compliance by South Africans and said: "the ability to collect tax revenue to finance the provision of public services and socioeconomic infrastructure has been a cornerstone of our democracy these 20 years.”

Commentators question, however, whether such compliance gains are sustainable in light of wide-spread wasteful and fruitless State expenditure. There have been headlines warning that "Taxpayers’ pockets are not bottomless” (BusinessDay,15 Nov 2013), that "Profligacy threatens legitimacy of the tax system” (BusinessDay, 25 October 2013) and that "It is indeed an emergency when government throws away the tax revenue that could be fixing real problems” (Financial Mail, November 22 – 27, 2013).

The SARS Strategic Plan 2013/14 – 2017/18 recognises the risk:

"Research and empirical evidence show that taxpayer’s attitude towards compliance, and their willingness to comply, is influenced by how they perceive public funds to be utilised. Concerns about corruption in the public sector remain an issue. Recent surveys show that corruption has replaced crime as the number one issue concerning South African citizens.”

Despite the above, SA taxpayers should expect to hear, during Budget time, continued references to the notion of "tax morality”, urging each one to pay his or her "fair share”. As explained by the previous SARS Commissioner: "In SARS, we have for many years promoted the notion that there is a moral component to tax compliance and this has seen us at odds with some tax advisors and professionals who insist tax is simply a cost to be reduced wherever possible."

What should SA taxpayers’ take on this be?

A recent Canadian tax case complemented the litigants for sticking to tax fundamentals and for keeping tax morality arguments out of the proceedings.

The judgment in Mckesson Canada Corporation (Appellant) and Her Majesty The Queen (Respondent)(heard in the Tax Court of Canada in December 2013 (2013 TCC 404; 2013 Can. Tax Ct. LEXIS 323)) is both lengthy and complex. It deals with transfer pricing. But it makes the following observations regarding tax morality versus a taxpayer’s freedom to do tax planning:

  • "The Crown did not directly or indirectly raise any fair share or fiscal morality arguments that are currently trendy in international tax circles. It wisely stuck strictly to the tax fundamentals: the relevant provisions of the legislation and the evidence relevant thereto. Issues of fiscal morality and fair share are surely the realm of Parliament.” [par 167].
  • "There is certainly nothing wrong with taxpayers doing tax-oriented transactions, tax planning, and making decisions based entirely upon tax consequences (subject only to GAAR which is not relevant to this appeal). The Supreme Court of Canada reminds us regularly that the Duke of Westminster is alive and well and living in Canada.” [par 275].
The last quotation might as well have come from SA case law.

In CSARS v NWK Ltd [2011] 2 All SA 347 (SCA) Lewis JA held:

"It is trite that a taxpayer may organise his financial affairs in such a way as to pay the least tax permissible. There is, in principle, nothing wrong with arrangements that are tax effective.” [par 42]

The footnote to the abovementioned passage mentions that the SA taxpayers’ freedom to do tax planning was based on, and had been affirmed, in the Duke of Westminster, Ladysmith and Conhage cases.

A reminder: In Inland Revenue Commissioners v. the Duke of Westminster (1936) AC 1, Lord Tomlin proclaimed:

"Every man is entitled, if he can, to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.”

It seems that the Duke of Westminster is alive and well and (also) living in South Africa.

At a major Global Tax Policy Conference (held in Dublin, Ireland during October 2013) Josephine Feehily who is the chair of the Irish Revenue Commissioners and chair of the OECD Forum on Tax Administration opined on the topic of tax morality. She stated that that tax morality was not the issue, but rather the enforcement of the correct tax payable. Such enforcement should be based on the laws made by government, and through reasonable and purposive interpretation of those laws rather than through tax morality that is difficult to enforce. She further said that, should the tax laws be abused, alternatively their intent and purpose not be clear, they should either be amended to clarify them or referred to the courts for interpretation. [Refer Conference feedback as reported in TaxTalk Journal, January / February, 2014 edition, at p. 14].

Clearly Canada, Ireland and South Africa are not worlds apart in saying that 'fair share' and 'tax morality' concepts belong in the realm of Parliament and that a taxpayer’s tax liability should be determined with reference to the applicable statutory provisions.

This article first appeared


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

Membership Management Software Powered by®  ::  Legal