Could we be headed for a tax revolt?

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“The greater the level of corruption, the less we will have tax integrity and the greater the possibility of a tax revolt” (Judge Davis, Chairperson of the Davis Tax Committee)

There is no doubt the mood in the country has soured in recent times. Whilst we have become used to numerous service delivery protests, the rise of middle class protests such as those around the Gauteng e–tolls and more recently the student #FeesMustFall, has been seen as a milestone in post-1994 South Africa. This is because the government is seemingly under the impression that it will not lose many votes with service delivery protests as the bulk of the protesters receive grants. With e-tolls and #FeesMustFall however, the protesters have resources, are well organised and are independent of the ruling party.

What would cause it?

There is a social contract between taxpayers and government – taxpayers are willing to pay tax if it is spent correctly. As Judge Davis says this bargain breaks down when corruption increases. In addition, spend at parastatals, such as the SABC, is viewed as wasteful and misallocated.

Whilst tax revolts go way back to when civilisations first emerged, we should remember that SARS are in a strong position – for example, it is unlawful to hold back taxes owed. The emergence of another mass protest movement is possible but certainly cannot be viewed as a given.

Revolts don’t have to be mass movements  

Taxpayers have resources and can start shifting their assets and income to jurisdictions outside of South Africa. We are particularly vulnerable to this as the top 10% of the country’s earners pay 87% of personal income tax.

This is the bigger threat to the fiscus and explains why so much attention is being given by SARS to “base erosion” or the shifting of income to lower tax entities.

So even if there is no open tax revolt, it is entirely possible that it is happening under the radar as people shift their assets and income off-shore. The continuing weakness in the Rand lends credence to this possibility.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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