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‘Increase in corruption could trigger tax revolt’

Judge Dennis Davis shares his views on inequality and wealth taxes.

JOHANNESBURG – The greater the level of corruption in South Africa, the less tax integrity the country would have and the greater the possibility of a tax revolt.

Speaking at the Fourth Annual International Economic Law Update hosted by the Mandela Institute at the Wits School of Law in conjunction with the World Trade Institute and Swiss Economic and Cooperation Development, Judge Dennis Davis, chair of the Davis Tax Committee, signalled this warning.

He said people of all classes, genders and race groups have been asking him the same question: Why should they pay tax when the level of corruption in South Africa is endemic?

His observation comes just two weeks after Finance Minister Nhlanhla Nene in his Medium-Term Budget Policy Speech (MTBPS) lowered his economic growth forecast for 2015 to just 1.5% from 2% in February – signalling a challenging road ahead for tax collection. At the same time expenditure has been difficult to contain. A major point of contention in the MTBPS was the public sector wage increases, which at 10.1% was significantly higher than the inflation figure of roughly 6%.

Government is trying to secure income to finance its development goals but also to narrow its forecasted budget deficit of 3.8% of gross domestic product this year to 3% over the medium-term.

While the Davis Tax Committee’s mandate is focused on the revenue side of the tax equation, Davis stressed that South Africa carefully had to consider and debate the need, sustainability and impact of its expenditure decisions.

Davis said a country in South Africa’s parlous economic position couldn’t afford to continuously award wage increases of 10.1%. This would result in a funding shortfall for universities, schools and other capital infrastructure.

He said he also doesn’t understand why the country has continued to spend billions bailing out South African Airways (SAA).

“The amount of money we spent on SAA in the last budget by the way would cover the R2.7 billion [shortfall for the funding of university fees] if you just simply focus attention on it.”

After widespread #FeesMustFall student protests in October, President Jacob Zuma announced a 0% increase in university fees, leaving a funding shortfall of roughly R2.7 billion.

Davis said he also didn’t understand why two additional universities had to be built. If the roughly R2 billion or R3 billion allocated to these universities in the last budget were redirected to the National Bursary Fund then, the country could have ensured that far more impoverished people could attend university without paying fees.

“We can’t afford these things. We have to understand where our priorities are.”

Inequality

During his recent visit to South Africa French economist Thomas Piketty raised the possibility of a wealth tax to address inequality.

Davis said figures produced by professor Murray Leibbrandt from UCT and used by Piketty showed that when apartheid began in 1948 the top 1% of the South African population received about 22% of income, compared to about 9% in France and 11% in the US. By 1975 the share of South Africa’s top 1% had dropped to about 10% and remained there until 1991, but since the end of apartheid it has gone back up to almost 20%.

“The truth about it is that we’ve done appallingly in relation to questions of inequality.”

Davis said something had to be done about inequality. While the tax system can’t solve the entire problem, it can address certain aspects of the issue.

“We are going to investigate a wealth tax. That I can assure you.”

He said this process would take time as – with the design of any potential tax – it had to be done thoroughly and thoughtfully.

The Davis Tax Committee also recently released its recommendations on estate duty.

Davis said above a certain level a proper estate duty should seriously be considered.

While its report indicated that the first R12 million could be ring-fenced, he admitted that this amount might have to be increased as middle-class South Africans are taking huge strain, but extremely wealthy people should be prepared to pay more estate duty, he said.

Davis estimated that the country could probably raise another R3 billion from estate duties, which would cover the student-funding shortfall of R2.7 billion.

“Are we seriously saying as a nation we are not prepared to do that?”

Two other areas where potential tax revenues could be collected to supplement the state’s coffers are in the areas of base erosion and profit shifting (BEPS) and undisclosed assets held offshore.

Davis said when the previous amnesty was implemented in 2003, it collected more than R7 billion.

“My information is that there is a lot more than that waiting to be collected. And I don’t want to go further but we are certainly sending the minister a series of recommendations in regard thereto. My view is people are either going to have to pay up or frankly we should prosecute them.”

Davis said the tax statistics suggest that there is only a very small group of people with a taxable income of R5 million or more – this was because most very wealthy people make their money from dividends and capital gains.

He said there is no reason why, once a certain limit is reached, capital gains tax (CGT) could not be increased. When CGT was devised the reason why only a small percentage of the gain was taxed was because inflation was much higher at around 11% or 12% compared to the current figure of roughly 6%. This means there does not have to be such a significant allowance for a capital gain as there previously was because at the moment more of the gain is real than when the system was introduced.

“And there is no reason why corporates shouldn’t pay a 100% tax on capital gains as they do in Australia. And so there is probably another R7 billion or R8 billion in the system.”

Davis said the tax committee is investigating all these questions to deal with the issues of inequality, while also being cognisant of the deficit and not disturbing the income tax system.

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the country has to widen and heighten the tax base. those highly paid high wealth individuals need to repay what they and their ancestors took from the country. how much did Rhodes pay? likewise with barnato and all the other gold barons who stripped the country of its birth right. suggest you read the EFF “23 DEMANDS” here http://www.bdlive.co.za/national/politics/2015/10/27/eff-marches-to-reserve-bank-to-hand-over-list-of-23-demands

go live in Zimbabwe.

Phil99 I agree but it is nice to see what imbecilic line he is taking on the day.

You must have stripped enough out of SA to do the chicken run or did you stow away on a ship?

I have a few suggestion for you…the least of which is to disappear of this site.

No clear thinking person believes that the EFF is the future of this country.

I actually doubt you are even living in Aus, i think you really are a bored unemployed sad individual who gets his rocks off by baiting the true contributors to this site.

@ricky1 @pwgg @Beeshaas. This guy Robert seems to thrive on responses to his outlandish statements – his “support” for the EFF is a prime example. I think the best thing to do is to ignore him completely – he will get tired of talking to an empty room and will shut up. Anyway that’s what I’m going to do. So Robert, enjoy your ranting in Sydney – if you are actually there.Is your surname Mugabe by any chance?

Ok Robert I will take the bait. I read the demands and I see a great deal on the expenditure and weakening the tax base side. You profess to be an educated success financial person. Please educate us as to how each of the 23 demands widens the tax base.

@ ‘robertinsydney’

More likely ‘juliusintembisa’ ?……’loserinmymomsgarage’………plse note, your comments are being monitored.

Stop trolling here or we will ask Moneyweb to remove your account.

So Davis admits governments absolute dismal economic failure through its ridiculous prioritisation of expenditure which could be directly linked to continued inequality. Then he proceeds to come up with the equally inept plan himself to impose a wealth tax to solve the inequality. Punish the hard working intellectuals for someone else’s failures. Arguably the logical thing for the wealthy to answer would be to hire an army to defend themselves and take control of government and fix the inequality themselves as they are probably the only ones in the country remotely standing a chance to cope with South Africa’s permeated intelligence deficit. What a wealth tax will do is simply replenish the pot to steal from by government. The wealthy is simply an easy target for the mindless school ground bully – period. Speak of taxation without representation in the worst possible form. In the end of course the wealthy will simply run instead of defend themselves leaving only their bricks and mortar as the final target for destruction

Welldone and well said.APARTHEID for 40 years was after all not always the white and black skin thing.You must stay APART AND HATE stupidity.

I am surprised about “where can we increase or apply more tax” approach by SA to increase tax. I think there are other ways to accumulate more taxes.
Bring more foreign companies to SA and make them list on the JSE. Then you can increase the pool. What makes Hong Kong and Singapore so special….? Why can’t we attractb if foreign companies to our country to list?

Bobby ,it is a very good idea of foreign companies coming in .But you must remember that any company coming to SA cannot make such high profits here as oversee ,because if you want to make good profits you must be focus infront of you to achieve your goals.
Here you must always look back and see if someone not stabbing you from behind, if it is corruption or a knife.

Do you think all the companies that are listed in Singapore and Hong Kong actually operate in those countries?
Also, many African companies, would like to enjoy more exposure to International investors….
Simply put….if they don’t operate in SA, give them a tax break/discount as long as they list here…after all…SA would make money from transactions…

Its just a matter of when there will be a tax revolt. The ANC’s greed and theft have already determined that.

Sanral took only one to court for not paying.the other 10 million walking (driving ) free.
The same will happen if 3 million not paying tax than 50million can walk free.Lets follow Mandela and do the FREEDOM WALK.

The trouble is that most of the taxes we pay are deducted at source (PAYE) or paid at point of sale (VAT). Employers are obliged to deduct PAYE and if they didn’t they would be in seriously hot water and I don’t think SARS would hesitate to take legal action. If you don’t pay VAT, then you don’t get any food (bar some zero-rated items). I suppose one approach would be for people who actually pay tax (above threshold) to refuse to submit tax returns. But then again, the vast majority of employees don’t have to submit returns even if they pay tax.

Taff, as registered tax payers and law abiding citizens, HOW do we start a tax revolt? We all talk, but will not take to the streets and destroy property! WE are mostly too decent!

Simple.

If we all stick together and all decide to not pay tax, what are they going to do ?

They cant even keep up in courts with current cases…what are they going to do with 4.5m non paying citizens…?

I am one month away from telling corrupt Govt/SARS to stick it.

Seriously….i am gatvol.

Stop gauva-ment wastage, stealing and corruption and you will have heaps of money to go around. It really burns my *** when I pay my VAT/TAX. Can’t help thinking it is going into some corrupt officials pocket, or just being plain wasted.

This Davis Tax Committee,how must money do they get? Nevermind the students ,give that corrupt money for those who don’t have food.
I stil remember the funny jokes of Davis on TV of Apartheid and the future of this country.It is the future now , pay back time..Must we stil sing Anton Goosen song Of don’t be afraid of the future, because it is” jugdes “the “winde van verandering wat waai”!
How can you be afraid of corruption if you are part of it by paying your taxses.??? That money is coming from some where. Don’t be corrupt, don’t pay tax.The “just” Davis must rather put the whole lot in jail…

I also have a problem paying rates as a farmer to the local municipality. Apart from getting no services at all, we as farmers pump, pipe and purify our own water. We buy power from Eskom, we dispose of our own garbage and when our sewage backs up we fix it, yet we have to pay rates to a municipality who cannot produce an invoice with the details of the payment to be made. We go and ask what is the balance, it is always incorrect as they have no record of payments made. I will for now be paying my rates into a unit trust account in my name and if and when they demand payment I will have plenty to pay with. maybe that is what all tax payers should do, accumulate it and the growth and interest will be more than the penalties from SARS.

I have just returned from Australia who like South Africa are facing a serious mining crisis. What have they gone and done? Well they signed free trade agreements with China and there Asian partners and started a “Australia Open For Business” advertising campaign inviting other countries to trade and do business with them. This is what we should be doing. As long as we implement and encourage minimum wages and have labour laws as we have we are going nowhere! We still have limited exchange control in SA and as long as we have some of this money in SA,we will keep some of the wealthy here, these are the employers and entrepreneurs. However if we are going to implement wealth taxes to simply keep the unemployed voters of the ANC happy who chose not to work( yes they chose not to work because they insist on earning minimum wages instead of taking and working for a fair wage) we are simply going to be passed by and good bye the African dream! What a pity because we have it all!

And, what were the results of Australia’s decisions? Last I checked, their dollar is also on a downward spiral against the mighty USD.

Although they did manage to delay the depreciation until 2013. When our’s started in 2011.

So you loath the corrupt State but when it comes to milking the tax base via CGT it is different? Everybody knows inflation today is close to 15%, not 5 or 6%. Misrepresentation of real inflation figures is also corruption, don’t you think so?

Great that Judge Davis concurs with Piketty but Government is a miserable vehicle to create wealth; actually, the only thing they can do is take from Peter to give to Paul.

What about cutting government and its expenditure with 75%? That would than include all kinds of self serving think-thanks.

Bonus: nobody would ever notice the difference.

We already have a 15% wealth tax on dividends, or am I mistaken?

Here’s another question : Why should we pay tax if we have to send our kids to private schools, pay for private health care and private security because the government is to useless to provide it???

Davis: a collaborator.

He did not complain when his salary was increased together with other “civil” servants.

The tax revolt has begun; look no further than etolls.

Tax money should be paid into a private trust account and managed by private individuals and institutions, thereby bypassing a corrupt, inept and economically illiterate government. Starve them out. As it is in South Africa, most government functions have been taken away from them with private money. Private security in SA is estimated to be bigger than the army and police force put together, not to mention the size of the private security budget. The same can be said for hundreds of other services that have popped up over the years to fulfill roles where the government has failed (eg. education, public transport, health etc etc). Effectively we pay double for everything. We must be the only country in the world where around 90% of personal tax payers have not voted for the government they have, and have no say in how their money is spent.

In Hekpoort Gauteng we tried a land tax non payment on agriculture land. The problem is when we sell the the land all tax owing must be paid otherwise the new owner can not take transfer.In most cases our land has been valued at 100% market value.We do not get any municipal services . I am afraid in future the government treasury will be drained by all the free
services they are dishing out.

Rhody yes that is correct but when your municipality cannot prove non payment you may have 10 years of rates stashed away, SARS requires that you retain paperwork for 5 so you then pay your 5 years and get your rates certificate for transfer. The other 5 years is still yours. My municipality has lost all records, twice over, each time there is a change of council, the accounting program gets changed and the data is lost.

Yes its rather easy to deal with one or two non-taxpayers. However, when a entire town withhold payments the government cannot afford to wait for property sales to materialize, they will be bankrupt in 3 to 6 months. Same go’s for income tax. When a million citizens refuse to pay tax, government cannot prosecute everyone. That’s how the e-toll system failed. The administration involved in prosecuting a large number of citizens is simply impossible. if those citizens could organise their income into a central fund, those funds could be used to defend its members in court cases.

Please explain how salaried tax payers who pay via PAYE and pay VAT should withhold their taxes? Should they resign their jobs and stop buying food!!!
Dream on for a tax revolt!

Then there is Capital Gains Tax and Estate Duty to reward you for your hard work and a life-time of financial risk taking, of course.
Maybe the good judge could persuade our minister of finance to include an estimate in his Budget of just how much taxpayer’s money is to be “allocated” to corruption, theft and misappropriation. It would be interesting to see whether or not the comrades are able to keep their looting within those budgeted figures at least.
All opposition parties should conduct formal public ceremonies to “celebrate” the symbolic opening of the schools, hospitals, old age homes and housing estates which could have been built had the monies for those projects not been stolen.

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