SARS has reached its limit of effective collection
23 January 2015
Posted by: Author: Loane Sharp
Author: Loane Sharp (BDlive)
In a new series of TV
advertisements called "Paranoia", the South African Revenue Service
(SARS) warns people: "We’re closing in on you." The character in the
advert is jumpy and sweaty. For good reason. Presumably SARS has picked the
low-hanging fruit — the 4 per cent of personal income taxpayers who, being
easily audited, contribute 41 per cent of all personal income taxes.
But the public isn’t
stupid. It knows personal income tax receipts have grown at a compound annual
rate of 10.7 per cent (double the rate of inflation) since the 2008 global
financial crisis; that the ratio of taxes to gross domestic product has
increased from 22.9 per cent to 26.1 per cent since 1994; that public servants’
wages devour 88 per cent of state spending; that 16-million social grants
consume 76 per cent of the income taxes paid by the upper middle class; and
that at least one-third of all personal income taxes are evaded.
An internet search for "how
to evade tax in SA" yields 380,000 highly readable results. SARS’s ads are
an inducement, not a warning.
In a previous campaign,
"SARS Thanks You", the agency took a different tack, by showing its
gratitude to taxpayers for the difference they make to individual lives. One
expensive three-minute advertisement inadvertently shows long queues,
antiquated equipment and soiled bed linen in a state hospital, with a doctor
who calls the scheduled cataract surgery "nerve-wracking". But
cataracts are routinely removed in a 30-minute procedure in a private hospital
or ophthalmologist’s rooms with a 99.8 per cent success rate.
It was cold comfort for
taxpayers that, according to the advert, R442bn would be spent on state health
services. The private healthcare system, with just 12 per cent of the
resources, serves about the same number of people as the public healthcare
system, with vastly better outcomes. The adverts quickly became a laughing
advertising campaign involved amnesties for wayward taxpayers. Amnesties in
1996, 2004, 2006 and 2011 covered business and personal income tax, value-added
tax, pay-as-you-earn (PAYE), exchange controls, and sundry excises and duties.
It is no coincidence that, over the period 385 000 taxpayers "took advantage"
of the amnesties, and 440 000 taxpayers disappeared into the so-called informal
sector, the characteristics of which are income-tax evasion and circumvention
of labour laws.
While a little
compliance did stem from the amnesties, it became an embarrassment to SARS that
only 5.2-million people (34.4 per cent of all employed people) paid any
personal tax at all, leading it to pass regulations making registration for
PAYE compulsory regardless of income, which trebled the number of apparent
personal taxpayers to 15.4-million.
As far back as the
14th-century Islamic world, economists understood that, at low tax rates,
economic activity flourishes and people comply with their tax obligations. At
high tax rates, economic activity recedes and resources are diverted to tax
evasion. At some comfortable mid-level tax rate, tax revenues are maximised.
SARS appears to be acutely aware that it has reached this point.
The effective rate of
personal income tax has remained static at about 19.5 per cent over the past
decade. Even for the very rich — those earning more than R5m a year (supposedly
only 166 of them) — the effective tax rate has remained static at about 39.7
per cent over the past decade.
Taxes on cigarettes,
alcohol and fuel have remained roughly constant in real terms for the reason
that 20 per cent of fuel and 45 per cent of cigarettes are smuggled, and the
Treasury has little space to raise taxes on these items without promoting
further tax evasion.
If SARS and the Treasury
continue along the present lines, SA will quickly slide from a predatory to a
failed state. The government has proved to be an enthusiastic raiser of taxes
and a hollow and insolent provider of services. The delivery of such minimal
political goods as security of persons and property, institutions of dispute
resolution, institutions of political participation and methods of regulating
the use of common resources are at an advanced stage of collapse.
Mining and water rights
have been quietly nationalised. People are kept in a state of tenancy in their
own homes. Policing is done more effectively by private security companies than
the police. Low-fee private schools are growing exponentially while state
schools close down.
dominates in the provision of quality medical services. Meanwhile, tax morale
is declining and heavy-handed advertising by SARS will keep it so.
This article first
appeared on bdlive.co.za.