SARS has announced that this year's tax season opens on the 1 July 2012. Their slogan "Get ready to be good at tax" has a nice ring to it and reflects the belief that as citizens we are bound by a social contract to pay tax and contribute to service delivery and development. Surely we are all morally bound to pay tax?
Morality has been defined as "a particular system of values and principles of conduct". It is therefore indicative of what an individual, group or a society regards as right behaviour. This definition implies a choice on the part of the individual or group.
In contrast a statutory obligation is something we have to conform with. We have no choice in the matter. If an individual or group decides not to conform to a particular statute or regulation they may be incarcerated and their property may be ceased.
Based on the above definition paying income tax is a statutory obligation. We are forced to pay tax whether we like it or not. The only choice we have is to arrange our affairs within the tax system in such a manner as to pay the least amount of tax.
But even this limited freedom is frowned upon and is actively discouraged.
This week a tax scandal was uncovered in the UK involving Vodafone. It has been reported that the world's largest mobile phone company has shaved 1 billion pounds, and possibly more, off the taxes its UK operating unit might have paid in the past decade, thanks to accounting factors not seen at other European units. Reuters examination of statutory filings made by Vodafone across Europe over the past 16 years shows the UK taxman has often gone empty handed, while tax authorities in Germany, Spain and elsewhere have raked in billions of euros.
By aggressively pursuing tax avoidance strategies i.e. applying the exemptions inherent in the tax code to minimise their liability for UK tax, Vodafone has racked up tax credits such that it may not have to pay any tax on its UK operations for the foreseeable future.
"This is yet another tax scandal," said a Member of the UK Parliament Margaret Hodge, chair of the parliamentary Public Accounts Committee, which scrutinises public expenditure and revenue-raising. "It may be legal, but it's completely immoral. They make money out of Britain, and they should put money back into Britain."
It is not only corporates that seek to minimise their taxes. The UK Prime Minister David Cameron recently commented that popular comedian Jimmy Carr was "morally wrong" to shelter 3.3 million pounds of income from tax by using an apparently legal tax avoidance scheme.
Applying tax avoidance strategies is regarded by some as morally offensive because it shows a disagreement amongst the parties as to the terms and conditions of the "social contract".
The problem is that tax is determined by politics. The types of taxes and the amounts to be paid are informed by the ruling party's manifesto and election promises. The recent ANC policy conference has mooted the idea of a "second transition". This seeks to accelerate economic development by more state intervention. According to President Zuma "The ownership of the economy is still primarily in the hands of white males, in which it has always been…It is time to ask questions about the present and future... the last 18 years was the first transition. We are calling for a dramatic shift... to deal with the triple challenge[s] of poverty, unemployment and inequality." Certain proposals include free education, nationalisation of certain industries and land reform.
Karl Marx in his Communist Manifesto states that "Political power, properly so called, is merely the organised power of one class for oppressing another". He believed that the end justifies the means. He had a moral idea of how society should operate and was willing to use statutory rules to obtain a moral idea. He therefore believed that, until class distinctions have disappeared it would be necessary to make use of "despotic inroads on the rights of property, and on the conditions of bourgeois production; by means of measures therefore, which appear economically insufficient and untenable, but which, in the course of the movement, outstrips themselves, necessitate further inroads upon the old social order, and are unavoidable as a means of entirely revolutionising the mode of production."
However from a narrow tax perspective it is of little importance whether one supports the second transition or any other politically favoured idea. The bottom line is that taxes will be levied to pay for any change in policy, irrespective of one's political persuasion.
It matters not whether you believe that the ANC's policies are more moral than for example the DA's. Indeed no objective measure exists to determine this. It boils down to personal preference and imposing taxes to fund your preferences.
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.