The coming taxpayer revolt

William Saunderson-Meyer says the post-1994 social compact has been trashed by the Zupta mobsters


President Jacob Zuma’s administration hit South Africa with the brutal intensity of a gang of armed robbers. And as is typical of law enforcement in this country, the cops are nowhere to be seen. 

The Zupta heist has been aggressive, deliberately disorienting and utterly ruthless. When the thugs eventually make their escape, they will leave the entire nation not only substantially poorer, but also suffering from post-traumatic stress.

Unfortunately, until Zuma’s term ends in 2019 or he is ousted, things will get worse. 

The African National Congress has abandoned any pretence at governance. Instead, the end days of this government revolve around ever more audacious acts of looting, ever more brazen indifference to the people it swore to serve.

For years, a frustrated and angry citizenry has been casting around for ways to resist the pillage. An option increasingly mooted around the braai fires of those whose pockets are being systematically emptied, is that of a tax revolt. 

Judge Dennis Davis, who heads a committee tasked with tax system review, warns that the greater the state corruption, the greater the possibilities of a tax revolt. Tax Ombud Judge Bernard Ngoepe cautions that if taxpayers come to believe that those charged with the administration of their money are unethical, they will stop paying.

Government is alert to the mutterings, with Finance Minister Gigaba speaking of a “weakening tax morality”. He warns that any attempt to withhold taxes will be dealt with harshly and a sign of the concern is this week’s hastily appointed inquiry into tax administration. 

Government is wise to be worried and not only because there is massive R50bn hole in the tax revenue net this year. For, although SA Revenue Service has draconian powers — it can confiscate from bank accounts money it has decreed as owing and with virtual impunity levy hefty penalties for non-payment of taxes or non-submission of returns — there are alternatives to a direct revolt.

SA’s personal taxpayers are uniquely powerful. Although only one in fourteen of 56m people pay any personal taxes, almost 40% of tax revenue comes out their pockets. A minuscule 1% of individual taxpayers pay 61% of income tax. 

This accords them leverage that negates somewhat the legislative armour in which SARS is clad. Just a relatively small number of taxpayers need to suspend or cut their tax contributions, for the country’s fiscus to be in trouble.

It doesn’t even have to be overt. Passive resistance is a real option and it is already happening. 

Tax evasion is illegal but appears to be increasing. Much safer is the legal option of avoidance, which is exercising the minds of many.

SARS cannot force people to keep their assets onshore and despite it taxing overseas income, dual taxation agreements — as well as the problems of oversight at a distance — mean potentially significant tax losses. That disaster would be compounded by further slowing local economic growth, as assets are exported. 

There is some potential for direct action. SARS can legally plunder private bank accounts but the local municipality cannot act with the same impunity. 

There have already been quiet, successful attempts by ratepayer groups to compel improved local government by withholding rates. The funds are kept available in a trust account for future disbursement, conditional on performance. Dysfunctional municipalities that lack financial reserves and are spending most of their revenue on monthly salaries, are particularly vulnerable to any cashflow disruption.

So far, attempts to get judicial blessing for such ratepayer revolts have been met with short shrift. But the law is a naturally slow process that can, as our president has demonstrated, be virtually immobilised by procedural tardiness and — in those case — by some creative arguments on the constitutionality of tax extraction by unapologetically corrupt and wasteful state entities. 

What is slowly beginning to dawn on SARS and the Zuma government, is that taxation is not only about laws. It is about a social compact between government and its citizens that, at its best, makes compliance voluntary. 

It was not only better economic conditions and more efficient collection that enabled SARS to initially post regular revenue surpluses, post-1994. There was, then, a real sense of obligation among large swathes of those privileged to have wealth, that they should willingly contribute to fixing a broken country. 

This social compact has been trashed by the Zupta mobsters. The allegations in Jacques Pauw’s newly published book, The President’s Keepers, sketches the potential scale of that betrayal: an entire class of politically connected super-wealthy that scoffs at paying taxes, with the apparent connivance of SARS.

Tax authorities pride themselves on their ability to squeeze blood from a stone. But in a globalised financial system there’s no guarantee that those with the option of being rolling stones are going to stick around to be squeezed.

Follow WSM on Twitter @TheJaundicedEye