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September12

The silent taxodus

Something in me wants to reach out and give a hug to our well-meaning and indefatigable Finance Minister, Nhlanhla Nene, each time I hear him repeat to an audience of the converted that there is a looming possibility of government failing yet again to reach its tax revenue collection targets at the end of the current financial year. He said this again at a tax conference attended by people who knew what he was talking about. 01a3b318885a476faec4227f500293fd

Tax specialists and observers of the socio-political and economic developments in the country are not expected to be surprised by the possibility of a shortfall in tax collection. The people Mr Nene should be targeting with his messages – in case he’s not – are those responsible for the conflicting and, often, emotion-driven pre-electoral rhetoric that is keeping not only investors at bay, but also making increasing numbers of citizens, who are also tax payers, leave the country.

In his recent address Nene cited, in random order, the technical recession, the weakening rand, persisting problems at SARS, an economy that is growing too slowly, increased taxes, including VAT, and the fall in GDP. He then moved closer to the real issue when he said this, “some taxpayers are taking it upon themselves to pay as little tax as possible. Such behaviour not only negatively affects collection … (but) creates more social discontent.”

He should have added that there are also worrying reports of increased numbers of tax payers quietly packing their affairs, gathering their families, and leaving the country. They do this out of fear of what is said to be coming; growing racism, particularly targeted at white citizens, feared confiscation of private property, and general economic exclusion for young Whites.

People here at home and abroad have known for months that Zuma is no longer president of the ANC and of South Africa. They also know that Cyril Ramaphosa – he who held the microphone to the mouth of the newly released Nelson Mandela when he made his first public address outside the City Hall, in Cape Town in February 1991 – is the new man in charge. Many got excited when Zuma’s anointed candidate, Dr Nkosazana Dlamini-Zuma, lost the party presidential contest, as they understood that her loss meant she would not be state president and continue the country’s downward spiral where her former husband would have left off. They knew that with her loss, the feared armageddon would be pushed back a bit further.

There was additional excitement when Ramaphosa announced that he would establish a formal inquiry into reported governance malfeasance at SARS. Many agreed that Tom Moyane had to go in order for the institution to begin a reputational climb back. The longer it remained in his hands the harder it would be for it to regain the sterling image it used to enjoy before Zuma became president.

 

Connecting the dots  

There remains a direct link between the stubborn poor tax morale on one hand and, on the other hand, the conduct of people in power and the messages they send out; this applies to both intended and unintended messages. Tax payers are no fools; high earning wealth and property owners even less so. So, when Minister Nene warns that “…such behaviour (tax payers taking it upon themselves to pay as little tax as possible, or absconding) not only negatively effects collection, it creates more social discontent”, he also needs to honestly interrogate the climate that makes tax payers behave in the manner he describes. Our politicians cannot have it both ways.

Nene’s unpacking of the possible ramifications of continued poor tax morale and the erosion of South Africa’s tax base is absolutely on point. And it can be unpacked further. When people no longer have confidence that the taxes they pay are used to fund legitimate government programs – as many see paying tax as their way of giving back – they will actively seek ways to pay as little as possible or not to pay at all. Why, I’ve heard some ask, would people willingly hand-over their hard earned money to a government run by unethical people who either steal the money, do not themselves pay tax – as it was alleged of former President Zuma – or actively help people said to be in the criminal underworld, some of whom are alleged cigarette smugglers, avoid paying their dues?

So, if nothing changes; and the threatening, racist, political rhetoric is allowed to continue, uncertainty grows as to whether people’s property will continue to be protected by the laws of the country, some feel that this country no longer wants them and that there will be no room for their children here; everything that Nene fears will become reality. Government will fail to reach its revenue collection targets and the funding of government grants, free tertiary education, and the delivery of services – basic or not basic – to the people of South Africa will become constrained. If any of this happens, the social discontent that Nene alludes to will dominate our newspaper headlines and TV screens. Violent protests will multiply, so will xenophobic attacks when scapegoats are sought and found in poor, hardworking foreign immigrants, especially ones emanating from the rest of the continent.

 

Watch the rhetoric

The confusing messages being sent out about the ANC’s push for land expropriation without compensation, irrespective of the outcomes of the long and expensive public consultation processes – and in the absence of a clear program detailing exactly how that will be done, when the process will start, who will be targeted and who will benefit, and on what basis – do not bode well with a government intent to throw in an economic stimulus package aimed at attracting investors and normalising economic activity in a climate of a technical recession and toxic political warmongering.

The ANC and government must ask themselves, given the deteriorating economic climate in the country, is this the right time to continue threatening both investor confidence and eroding the tax base when the country’s needs for economic and political stability are so pressing?

Who will be blamed when, come the end of the financial year, tax collection targets would not have been met? The usual minority suspects; apartheid yet again; incompetence; or ill-advised and misguided political rhetoric?

One thing should remain clear to those who will care to listen; South Africa will not regain economic stability and growth when politicians and government continue sending messages whose impact will only erode the country’s tax base.

It will take a whole lot more that Chinese loans that seem generous on the surface – but whose terms and conditions remain classified – to get South Africa out of the path of the looming economic maelstrom.

  • Posted by donvalley
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