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Are social grants maintaining the integrity of families?
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From each according to his ability, to each according to his need(s).These immortal words popularised by Karl Marx, one of the world’s most famous communists, are upheld by some as the epitome of fairness. Our progressive tax system that taxes the rich more, and our social welfare programs that redistribute wealth to the poor fits nicely with this slogan.

However, as beauty is in the eye of the beholder so fairness is in the hand of the legislator. What is considered fair is determined by the amount of taxes government needs to collect to pay for its policy aims. Some might differ from government as to their policy aims and hence the fairness of your tax burden – but we are nevertheless forced, and morally bound, to pay taxes.

The only thing that we can demand is that government spend taxes in the most effective and efficient manner. This will require that collection and spending policies are aligned.

Opposing policy objectives: Tax collection vs social welfare

According to a report issued by a UK pressure group CARE “The tax system does not recognise the family unit. It sees taxpayers as individuals, regardless of their family circumstances. This is immensely damaging to the social fabric of the country and must be addressed by an incoming government.”

This is also true in South Africa as our tax laws do not provide tax credits or tax deductions for married couples or families with children.

This policy seems at odds with the findings of the Department of Social Welfare as detailed in their report “Towards a 10-year review of the population policy implementation in South Africa (1998-2008): Families, households and children”. In the report it is stated that the family is widely seen as the core of society and it I the main source of human capital development. The study notes that it is the responsibility of government and the wider society to empower and strengthen vulnerable families to prevent their possible disintegration.

Good intentions

In response to this identified need government uses a large portion of its tax collection to provide services to needy families including social security (in the form of social grants), primary health care, free basic services and free education.  Of significance is the announcement in the recent budget speech that the number of people eligible for social grants was due to reach 16.5 million by 2016/17 amounting to R410 billion.

Assistance is surely needed as Census 2011 determined that there were approximately 14.5 million households in South Africa. Of which, 55.2 percent of households in rural areas and 22 percent of households in urban areas are living below the poverty line, according to the Statistics SA poverty trend analysis released in April 2014.  Almost half of all families in South Africa are headed by a single parent, usually a woman. These families tend to be at a disadvantage as they typically depend on one income earner, which impacts on their standard of living.

However, there is a risk to these policies that should be carefully considered. Although they provide much needed support they may unintentionally change the character of the family by implanting the State as the primary caregiver and bread winner within the family nucleus thereby competing with the traditional roles of parents.

An alternative approach

Tax Statistics, a joint publication by South African Revenue Service (SARS) and National Treasury indicates the growth in the individual tax register from 1.7 million in 1994 to 6 million in 2010.The register has since doubled again following a policy change in 2011 to register all individuals in formal employment.

Since more than 12 million people are now included on the tax register we should consider using the tax system to provide direct tax credits to families. This will provide an alternative mechanism of assisting poor families whilst keeping the traditional nature of the family intact.

The tax code in the United States is much more family friendly than the South African counterpart. A typical American family with two children for tax year 2011 could make $45,399 and still pay nothing in federal income taxes. This is because of allowable deductions and a $1,000 per child tax credit. In addition the American system allows for tax credits that are refundable. That is, you still get the credit even if you don’t have any tax liability. These refundable credits include the adoption credit (up to $13,360 per child), the first-time homebuyer credit (up to $4,000 or $8,000 if married filing jointly), the additional child tax credit (up to $1,000 per child), the American Opportunity credit (up to $1,000 per student, with 40 percent of the credit being refundable), and the earned income credit (up to $5,751 for three children).

Paying tax is not fun and we can but grin and bear it. However we can influence the way taxes are collected and distributed. Perhaps the current fiscal laws should become more family friendly and support the important role of families.

WHY REGISTER WITH SAIT?

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.

MINIMUM REQUIREMENTS TO REGISTER

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.

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