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THE FINE LINE BETWEEN TAX COMPLIANCE AND TAX RESISTANCE: THE CASE OF SOUTH AFRICA

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Abstract

With tax resistance dating back to biblical times, tax revolts are not a new phenomenon. Neither are tax rebels unique to a particular country or nationality. Throughout the ages, tax revolts bear similar symptoms of declining levels of taxpayer morale and confidence in the government's ability to manage public finances for the greater good of its' citizens. Tax collection is framed within a system that is designed on the principles of equity and fairness. Taxpayers on the other hand are not donating taxes in an effort to be altruistic. There is an expectation of a return in some form. South Africans are indeed increasingly restive about paying for a 'captured state' and sentiments of a tax rebellion are growing. This paper examines the threats of a tax revolt in South Africa, within the context of a taxpayer's obligations as provided for in the Tax Administration Act, No. 28 of 2011. First, a theoretical framework is established providing an explanation for tax resistance. Second, the fiscal contract will be touched upon inasmuch as taxes are perceived as a taxpayers' investment in a country, and shows how an irrevocable breakdown of trust in government institutions contributes to taxpayers' resistance in what is perceived to be a coercive environment. Third, the legal consequences imposed on a South African taxpayer embarking on a tax revolt will be discussed. In addition, this paper seeks to contribute to determinants of tax morale and draw a distinction in the fine line that exists between tax compliance and tax resistance, within the ambit of an invisible fiscal contract.
THE FINE LINE BETWEEN TAX COMPLIANCE AND TAX RESISTANCE: THE CASE OF
SOUTH AFRICA
RAMFOL, R
University of South Africa
Abstract
With tax resistance dating back to biblical times, tax revolts are not a new phenomenon. Neither are tax
rebels unique to a particular country or nationality. Throughout the ages, tax revolts bear similar symptoms
of declining levels of taxpayer morale and confidence in the government’s ability to manage public finances
for the greater good of its’ citizens. Tax collection is framed within a system that is designed on the
principles of equity and fairness. Taxpayers on the other hand are not donating taxes in an effort to be
altruistic. There is an expectation of a return in some form. South Africans are indeed increasingly restive
about paying for a ‘captured state’ and sentiments of a tax rebellion are growing.
This paper examines the threats of a tax revolt in South Africa, within the context of a taxpayer’s obligations
as provided for in the Tax Administration Act, No. 28 of 2011. First, a theoretical framework is established
providing an explanation for tax resistance. Second, the fiscal contract will be touched upon inasmuch as
taxes are perceived as a taxpayers’ investment in a country, and shows how an irrevocable breakdown of
trust in government institutions contributes to taxpayers’ resistance in what is perceived to be a coercive
environment. Third, the legal consequences imposed on a South African taxpayer embarking on a tax revolt
will be discussed.
In addition, this paper seeks to contribute to determinants of tax morale and draw a distinction in the fine
line that exists between tax compliance and tax resistance, within the ambit of an invisible fiscal contract.
Key words: tax revolt, tax evasion, tax compliance, tax policy, tax morale, tax resistance, trust
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1. Introduction
Jean-Baptiste Colbert’s (n.d) famous analogy on the art of taxation where he likened optimal taxation to
plucking the goose so as to obtain the most feathers with the smallest possible amount of hissing’ offers a
simplistic yet succinct comparison to maximising tax revenue with least resistance (Martin & Nadav, 2018).
Integral to this challenge is the issue of taxpayer consent and identifying the point where consensual tax
compliance shifts to rebellion and at full-scale, tax revolt.
Spanning through the centuries, society has not changed their feelings towards taxation (Van de Braak,
1983). In as much as the modern tax system has evolved, the history of mankind is replete with nations
protests against the levy of taxation
1
(Delalande & Huret, 2013). While different circumstances lead to tax
revolt, the disruptors carry similar traits of declining levels of taxpayer morale and confidence in a
government’s ability to manage public finances for the greater good of its’ citizens (Lowery & Sigelman,
1981). In framing a taxpayer’s compliance decisions, the level of taxpayer morale provides a metric scale
for tax consent.
Imposing a heavy tax burden ranks high on the list of motives for tax rebellion (Batrancea, Nichita &
Batrancea, 2012). Contrarily, Norway, Denmark and Iceland cited
2
as three highly taxed nations
simultaneously hold acclaim for being the happiest
3
countries (Bloom, 2017). This anomaly highlights the
significance of taxpayer’s consent in the ambit of perceived taxpayer benefits conferred within the fiscal
contract.
South Africa appears to be on the brink of a tax revolution. Public outcries for a looming tax revolt signal
dissatisfaction and concerns over the management of the publics household (Lamprecht, 2019). This paper
examines the threats of a tax revolt in South Africa, within the context of a taxpayer’s obligations as
provided for in the Tax Administration Act, No. 28 of 2011 (hereinafter referred to as TAA).
Most historical accounts have analyzed the circumstances leading up to a tax revolution. Other studies
investigate tax non-compliance. This study examines when compliant taxpayers choose to resist paying tax.
1
The collapse of the ancient Egyptian empire from the pharaohs merciless tax collection. Through to the demise of the Roman,
Ottoman and Spanish empires. Similar revolts took place during the American and French Revolutions. Leading onto resistance
movements in the 19th century against Poll tax, California’s Proposition 13 (Galles & Sexton, 1998) to name a few, and todays
"silent revolution" of government services (OUTA, 2019).
2
According to the World Happiness Report
3
Citizen’s satisfaction is attributed to ‘high equality, social trust and honesty of government. They enjoy long paid vacations,
zero out-of-pocket costs of health care, zero or low tuition costs and quality public services for all’ (Bloom, 2017:2).
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Thus, a gap exists in the literature linking the theoretical construct of tax compliance decisions with a tax
revolt. Taxation has multi-disciplinary attributes that include law, economics, accounting and fiscal
sociology (Heij, 2012). Therefore, a combination of methodologies is appropriate. This paper adopts a
qualitative review of the extant literature on tax compliance in order to establish the theoretical point where
tax compliance shifts to resistance. Thereafter, the study then extends this analysis to the South African
scenario extrapolating the legal implications of a tax revolt. Under this paradigm, the doctrinal research
lens is adopted whereby a scholarly analysis of legislative provisions within statute is conducted.
The paper proceeds as follows: the following section provides a literature review of tax compliance theory.
First, a theoretical framework is established providing an explanation for tax resistance. Second, the fiscal
contract will be touched upon inasmuch as taxes are perceived as a taxpayers’ investment in a country.
Third, the legal consequences imposed on a South African taxpayer embarking on a tax revolt will be
discussed.
2. Literature study and theoretical background
2.1 The fine line between tax compliance and tax resistance
Government requires its citizens financial support in order to function (Martinez, 2004). Taxation is not
only the vehicle for government to generate resources (Paz-Fuchs, 2008). It offers an opportunity to achieve
economic growth from the allocation and redistribution of these resources. Therefore, the closest and most
contentious interface between a citizen and one’s government is the fiscal regime (Bird, n.d). This
relationship is underpinned by an exchange
4
, whereby a taxpayer forgoes a portion of his purchasing power
in the private market in return for government benefits’ (Spicer & Becker, 1980:171). One’s perception of
fairness in a fiscal regime is thereby bound by an evaluation of the parity between participants involved in
the exchange of: tax payments to and benefits received from government. Reciprocity underlines this
contractarian approach of giving to receive, or ‘something for something’
5
(Paz-Fuchs, 2008:8). Simply
put, the point of revolt arises when government receives something (taxes paid) for nothing (without
delivering the perceived reciprocal benefits).
Society is not naturally motivated to pay tax (Frey & Torgler, 2007). Voluntary compliance is fostered by
establishing: consent, trust and legitimacy in a fiscal regime (Kirchler, Muehlbacher, Kastlunger & Wahl,
4
Known as the Macro-sociological exchange theory (Van de Braak, 1983).
5
‘those who willingly share in the social product have a corresponding obligation to make a reasonable (albeit proportional)
productive contribution to the community in return’.
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2007). Consequently, government is tasked with ensuring that compulsory taxes are acceptable, fair, and
beneficial
6
to citizens (Delalande & Huret, 2013). Taxpayers comply when they receive a fair exchange for
collective public goods. Oberholzer & Stack (2014) concur, when they state that tax compliance improves
when tax revenue is applied for the benefit of the taxpayer. Similarly, Dean, Keenan & Kenney (1980)
show that wasteful government expenditure increases tax evasion. The motivation to rebel arises when a
taxpayer’s ‘ability to pay’ is hampered and the tax regime is perceived to be unfair
7
and oppressive. Tax
revolt
8
is effectively a mechanism to renegotiate the terms of exchange by applying strategies to mobilise
the association that disintegrated between taxpayers and government institutions. Similarly, the objective
of a tax revolution may not merely be based on a rejection of taxes, but to seek restorative action
9
to improve
government performance (Neiman & Riposa, 1986).
Distinct from the macro-sociological exchange theory where taxpayer behavior is motivated by self-interest
and the expectation to receive benefits. The macro exchange theory and the economic grants theory stipulate
that tax contributions are perceived as altruistic payments made in solidarity to the state (Andreoni, 1990).
Here, tax payments are not the price paid for collective goods but rather gifts or donations paid as a kind of
investment to the state in lieu of a higher return. A gift is given out of loyalty for the welfare of the recipient.
The grants theory excludes the concept of reciprocity, where the government budget is subject to one-way
transfers. Tax resistance in these instances arise from the discrepancy between the investment and citizen’s
expectation of profit (Van de Braak, 1983). Rationalizing these theories, the macro-sociological exchange
theory provides the closest motive for taxpayer protest. It is therefore posited that taxpayers revolt when
they fail to receive expected benefits in exchange for taxes paid.
At the outset tax compliance decisions are determined by an individual’s tax morale
10
. The benefits of
promoting tax morale hold immense potential for tax revenue generation (Batrancea, Nichita & Batrancea,
2012). A taxpayer’s level of tax morale is a strong motivator to comply with or resist taxation. Countries
demonstrating higher tax to gross domestic product ratios have higher tax morale
11
. Kornhause (2007) states
that idiosyncrasies of tax morale have not yet been fully delineated. The Australian Cash Economy Task
6
Allingham and Sandmo (1972) refer to expected utility
7
The tax burden is not shared equitably by citizens and or concerns over the misappropriation of tax revenue.
8
Tax resistance is used by citizens to defend their interests against the fiscal state (Delalande & Huret, 2013).
9
South Africa’s Bambatha Rebellion in 1906 against poll tax was closely linked to convictions of witchcraft and supernatural
powers (Redding, 2000). Thomson (2007) added that the motive behind the tax revolt was to overthrow European colonization.
10
Defined as the ‘intrinsic motivation to pay taxes’ (OECD, 2019a:6).
11
The OECD (2019a:7) attributes this phenomenon to ‘effective government performance, higher tax morale and voluntary tax
compliance (as well as effective enforcement); or evidence of a fiscal contract between taxpayers and the state’.
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Force (1998) identified that a combination of psychological
12
and sociological
13
factors in tandem influence
tax morale. Public perception studies conducted by the OECD (2019a) confirm that a citizen’s age, gender,
religious beliefs, level of education and trustworthiness
14
of government are determinants of tax morale.
The findings generalized that typically: woman, older taxpayers, taxpayers with higher levels of education
or stronger consciousness towards religious beliefs, as well as those that have a higher degree of trust in
government all demonstrate higher levels of tax morale. Further studies conducted in Africa add to the list
of determinants: the perceived quality and legitimacy of the tax administration and satisfaction with
government service delivery (OECD, 2019a). Thus the positive correlation between increased levels of tax
morale and satisfaction with government service delivery supports the existence of the fiscal contract.
The Economics-of-Crime Model of Tax Compliance identifies that the fear of detection and punishment
are key motives to comply (Alm, 2019). Hence, it can be asserted that tax compliance is dependent upon
enforcement. Under a behavioral economics lens, one’s compliance decision depends upon how the choice
is presented and the social context in which the decision is taken (Alm, 2019). When identifying the cost
of citizenship compliance, one evaluates the ‘fear of getting caught and duty to obey(Scholz & Pinney,
1995:490).
The World Bank theory of change for tax compliance emphasizes the interplay between trust, facilitation,
and enforcement in harnessing tax morale. Building trust is the foundation to establishing a fiscal regime
15
that is fair, equitable, reciprocal and accountable. Fiscal confidence and trust is fostered when
government’s performance addresses citizen’s needs (World Bank, n.d as cited in OECD, 2019a).
According to the OECD (2019b:12), trust is created when government institutions are competent and
effective in delivering on their goals, they operate consistently with a set of value that reflects citizens'
expectations of integrity and fairness…[a]nd align with business ethics”. Legitimate government
institutions, inadvertently, leads to enhanced levels of tax morale (Torgler & Schneider, 2007). This paper
focuses primarily on government’s trustworthiness as a unique identifier of tax morale. The significance of
trust in the context of the fiscal contract will be discussed further in section 3.
12
Psychological factors include: risk, fear, trust, values, fairness/equity and opportunity to evade’ (Australian Cash Economy
Task Force, 1998).
13
Sociological factors include: norms, reciprocity, age, gender, education level, ethnic background (Australian Cash Economy
Task Force, 1998).
14
Jimenez & Iyer (2016:18) add perception of “fairness, trust in the taxing authority and altruism”.
15
Prinz, Muehlbacher and Kirchler (2014) propose a tax compliance framework titled the ‘slippery slope’ that suggest voluntary
compliance is harnessed by deter non-compliance from enforcement action and building trust by adopting a service-oriented
approach.
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A taxpayer’s consent to pay taxes is contingent on perceived fairness or equity within a tax system. Two
types of inequities can be differentiated: vertical equity created between government and taxpayers in the
fiscal obligations imposed on identical taxpayers and horizontal equity between citizens with differing
compliance decisions (Bazart & Bonein, 2014). Martin and Nadav (2018) assert that a taxpayer’s consent
to tax is dependent on the perception that other citizens are also paying their fair share. The proposed model
in Figure 1 illustrates that the level of tax morale is a metric measure for tax consent. As shown below if a
taxpayer has trust in government, perception of fairness increases
16
one’s tax morale along with improving
voluntary compliance (consent to tax), resulting in an increase in tax revenue collections (Martinez, 2004).
With the converse holding true when trust in government is reduced, the fairness construct is compromised,
tax morale dwindles fueling tax resistance and tax revenue declines. Taxpayers willingness to be tax
compliant increases when they believe other taxpayers pay their fair share (Frey & Torgler, 2007).
Figure 1: Consent to tax
INCREASE GOVERNMENT RECEIPTS
DECREASE GOVERNMENT RECEIPTS
Tax compliance achieved as tax morale increases
Tax resistance increases as tax morale diminishes
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Consent to tax provided in terms of the fiscal
contract
A tax revolt arises when taxpayer morale dwindles to 0%.
Fiscal contract breached, consent to tax withdrawn
Source: Author
As presented in the model, I interpret the fine line between tax compliance and resistance to lie where
government creates an equitable distribution between collective costs and benefits. Thus in government’s
production of collective goods, taxpayer resistance occurs when collective costs exceed benefits and
taxpayer compliance arises when collective costs and benefits are equitably distributed. This model
16
Jimenez and Iyer (2016) theoretical model shows that trust in government is a precursor to perceived fairness in the tax system.
Tax Compliance
- trust in governement
fairness in the tax system
- delivery of government
services
Tax Resistance
- unfair &
excessive taxes
- trust in government declines
T
A
X
R
E
V
O
L
T
Tax Morale
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extrapolates that taxpayer revolt
17
arises at the juncture where tax morale declines to zero percent. This
occurs when trust in government has dissipated and the tax system is perceived to be unfair. At this point a
taxpayer withdraws permission or consent to tax in terms of the fiscal contract
18
.
2.2 An invisible fiscal contract
The concept of a fiscal contract implies a contractual agreement between taxpayers and government
whereby social security is exchanged for fiscal participation (Martin & Nadav, 2018). While a citizen has
a duty
19
to pay one’s taxes, taxes payments are made in lieu of a civilised society
20
. This notion conflicts
with the definition of tax’. Defined as a ‘compulsory levy by a public authority for which nothing is
received directly in return’ (James & Nobes, 1996:266)
21
. Moreover, the judicial definition rendered in
Chief Justice Latham in Mathews v Chicory Marketing Board
22
decision provides that taxation is a
‘compulsory exaction of money by a public authority for public purposes, enforceable by law, and… not a
payment for services rendered’. Thus a discrepancy exists between macro social exchange theory and the
purpose of taxation. This inconsistency disclaims the presence of any fiscal exchange as tax payments are
treated as unrequited payments to the state. Even so, a citizens’ willingness to comply is closely connected
with: one’s satisfaction
23
with the supply of public goods and securing the compliance of non-compliant
taxpayers. Accordingly, the reciprocity between the payment of taxes and the supply of public goods can
be interpreted as the terms of an ‘invisible’ fiscal contract. A citizen’s obedience to tax laws is dependent
on the legitimacy of government. Likewise, a citizen’s support of government legitimises the public sector
and fosters tax compliance (Fjeldstad, 2006).
Government’s credibility or trustworthiness
24
plays an important role in this construct, where trust
25
is
identified as a predictor of taxpayer compliance decisions (Mardhiah, Miranti & Tanton, 2019). While a
taxpayer’s voluntary compliance threshold is jointly influenced by the tax authorities coercive power and
17
Lowery and Sigelman (1981:963) define a tax revolt as a ‘systematic national phenomenon that is a function of individual -level
social, economic, and political factors’.
18
Freiman and Grasso (1982) explanation of a tax revolt ‘successful movement to eliminate a sizable gap between the level of
government services desired by the citizenry and the level provided by the government justifies the presence of a fiscal contract.
19
Citizens are required to be tax compliant (Kirchler, Hoelzl & Wahl, 2008).
20
Justice Holmes Jr (n.d)
21
Lymer and Oats (2009:3) concur, describing tax as “a compulsory levy, imposed by government or other tax raising body, on
income, expenditure, or capital assets, for which the taxpayer receives nothing specific in return”.
22
(1938) 60 C.L.R 263, 276.
23
Fjeldstad & Semboja (2001) found that discontent with public service delivery increases tax resistance.
24
Several studies link willing tax compliance to presence of trust in government (Fjeldstad, 2006; Frey & Torgler, 2007; Jimenez
& Iyer, 2016; Mardiah, Miranti & Tanton, 2019).
25
Trust refers to citizen’s perception that tax authorities work for their benefit (Kirchler, Hoelzl & Wahl, 2008).
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trust in government institutions (Kirchler, Hoelzl & Wahl, 2008). A citizen only supports a government it
trusts. Torgler, Demir, Macintyre and Schaffner (2008:332) extend this analysis by justifying taxes as
payments for government’s positive actions. Alm (2019) concurs, showing how ‘trust’ in government can
have a positive impact on compliance. Trust is engendered when government adopts fair and practical
measures. In addition, a citizen consents to tax is subject to their level of trust in government and belief that
other citizens are paying their fair share (Fjeldstad, 2006).
On the contrary, as government’s trustworthiness declines citizen’s react by resisting government actions
and start ‘believing taxes are too high’ (Jimenez & Iyer, 2016:19). Kirchler, Hoelzl and Wahl (2008) study
demonstrate the significance trust has on a taxpayer perceptions of the tax rate. They explain that taxpayers
distinguish a high tax rate as unfair when trust is low and when trust is high the same tax rate is interpreted
as an investment for the benefit of society. This substantiates why citizens in higher taxed jurisdictions,
who have fiscal confidence and trust in their government, willfully and happily settle their tax obligations.
A taxpayer’s perception of fairness is dependent on the trustworthiness of government. Therefore, if
government’s actions are trustworthy, taxpayers are more willing to comply thereby upholding the fiscal
contract. Similarly, distrust in government institutions contributes to taxpayers’ resistance in what is
perceived to be a coercive environment.
Fjeldstad and Semboja (2001) study links an increase in corruption to the demise of the reciprocal
agreement with government. When government loses credibility, the legitimacy of government is
undermined and with it, taxpayer obedience. Furthermore, corrupt tax officials diminish the moral
justification for taxpayers to act with honesty and integrity. Thus taxpayer rights are important to hold
government institutions accountable for effective spending and to arrest deterioration of the terms binding
the fiscal contract. Fjeldstad and Tungodden (2003) emphasize that corruption has to be eliminated in order
to engender a fair system of reciprocity, while trustworthy government institutions are a critical constituent
to harness economic development.
A study conducted by Cummings, Martinez-Vazquez, McKeec and Torgler (2009) to establish the effects
of tax morale on perceptions of public institutions in Botswana and South Africa found a positive
correlation between increasing the quality of governance and tax compliance. Oberholzer & Stack
(2014:251) conducted a survey on South African taxpayer’s perceptions of taxation. Their study attributed
wasteful government spending to increasing levels of tax resistance. Furthermore, taxpayers perceive that
they do not receive sufficient benefits in exchange for their tax payments. These findings support an early
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study conducted by Coetzee (1993) where it was found that taxpayers felt they did not receive value for
money, expressing discontent with poor service delivery of public good in terms of education, infrastructure
and health care.
Bird (n.d:26) highlights that the manner a tax administration conducts its operations can contribute to public
trust, in that a more ‘responsive and legitimate state’ with better government performance is linked with
higher levels of trust in government institutions. In this respect, he cites the example of the post-apartheid
South African Revenue Service (SARS) identifying that the impact of a tax administration is influenced by:
the nature of the legal system, the extent of corruption, and perceptions of government.
Recently, the once exemplary governance track record of SARS has been overturned by allegations of
maladministration. The Nugent Commission of Inquiry into Tax Administration and Governance tasked to
investigate the administration and governance at SARS, reported a massive failure of integrity and
governance at SARS… This was more than mere mismanagement. It was seizing control of SARS as if it
was his to have (Nugent, 2018:3-4). Many further instances of widespread corruption and wasteful
expenditure by various state-owned parastatals and government institutions have come to the fore and
negatively affected both parties: government’s credibility and competency and a citizens tax morale
(OUTA, 2019; Bowman Gilfillan, 2017). Under these circumstances of distrust ad malaise, a taxpayer may
question the rationale for paying taxes where ‘the squandering of public funds is… a matter of general
knowledge’ one may deduce that their tax payments are financing state corruption (Bowman Gilfillan,
2017). While taxpayers have a civic duty to be tax compliant they are not donating taxes in an effort to be
altruistic. There is an expectation of a return in some form. South Africans are indeed increasingly restive
26
about paying for a ‘captured state’ and sentiments of a tax rebellion
27
are growing (Lamprecht, 2019).
3. A taxpayer’s legal obligation under the Tax Administration Act, No. 28 of 2011 in the context of
a tax revolt
South Africa’s current economic, political and social context present many determinants of taxpayer
resistance: a high tax burden; loss of confidence, credibility and competency in government; low taxpayer
26
Citizens are frustrated with added pressures from a narrow tax base and an increasing tax burden. A taxpayer’s moral obligation
to pay tax has further diminished due to ‘…government’s bureaucracy, maladministration and lack of will to tackle corruption…the
tax system is perceived as being unfair, tax revenues are squandered through rampant corruption, the citizens will turn to methods
and effort to avoid paying taxes’ (OUTA, 2019).
27
Batrancea et al. (2012:203) state that the taxpayer’s decision to comply is affected by inefficient fiscal policy mirrored in
squandering of public funds and low quality of public goods makes taxpayers think twice before paying the entire share of their
tax liabilities.
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morale and increased frustration from government’s lack of commitment to arrest the rampant corruption
and misappropriation of tax funds (Bowman Gilfillan, 2017). As a last resort, revoking one’s consent to tax
and embarking on a full-scale tax revolt may seem like the only available option to restore the terms of the
fiscal contract. However, historical accounts of tax revolt show that this type of action can expose citizens
to the harshest and most repressive measures (Delalande & Huret, 2013). This section considers whether a
taxpayer can legally participate in withholding tax payments and the powers conferred on SARS by the
TAA to collect tax debt.
The TAA is a comprehensive statute that consolidates generic administrative provisions while conferring
wide-ranging powers on SARS
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to enforce taxpayer compliance (Moosa, 2018). Revenue collection is a
fundamental function of the TAA and provides SARS with discretionary authority to make administrative
decisions in furthering its’ mandate (Napier, Govindsamy & Cronje, 2019).
Tax collection arises when a tax debt, in terms of a tax act becomes due and payable. A taxable event is a
precursor to tax liability which is determined when a taxpayer submits a tax return. The taxpayer’s
obligation to pay tax, arises when an assessment is issued (SARS, 2013). SARS is then entitled to recover
tax payable as the assessment is a prerequisite to legally enforce collection (Moosa, 2018). In terms of
section 94 of the TAA, SARS can issue an assessment prior to a tax return submission date (South Africa,
2011). This is known as a jeopardy assessment. Furthermore, in terms of section 95, SARS may basis a
jeopardy assessment in whole or in part on an estimate(South Africa, 2011). The purpose of this protective
assessment is to secure early collection of a tax debt that would otherwise be in jeopardy (Visser, 2012).
Thus where there is a danger of tax being lost (Johannes, 2016), as characterized by the conditions of a tax
revolt, SARS could invoke the provisions of section 94 legitimizing the states claim against a taxpayer. In
the instance of a tax revolt and a taxpayer refusing to submit a tax return, SARS can respond by issuing a
jeopardy assessment against which SARS is thereby legally entitled to recover tax debt.
SARS tax collection powers are further extended to include instances where tax assessments are under
dispute (Solomon, 2015). In the interest of ensuring prompt collection of tax revenue, a taxpayer will be
required to settle one’s tax debt regardless of whether the amount in question is subject to an objection or
appeal (Keulder, 2013). If successfully with the objection the taxpayer can reclaim the amount disputed.
This principle, stipulated in section 164 of the TAA is referred to as the ‘pay now, argue later’ rule and is
a measure to protect the fiscus from taxpayer manipulation by unduly delaying the payment of taxes
28
Section 143 of TAA states that it is the ‘duty of SARS to assess and collect tax ...and not to forgo a tax which is properly
chargeable and payable’.
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(Johannes, 2016; Keulder, 2013). The non-suspension of tax debts is further evidence of how the TAA
empowers SARS to enforce timely tax collection. Thus, in the context of a tax revolt if one where to attempt
to postponing tax payments by objecting to an assessment, this action would be stifled by the provisions of
section 164.
Further punitive measures to enforce tax compliance are available by way of preservation orders. Here,
SARS can apply to the High Court to seize the taxpayer’s movable property and place them under the
custody of a curator bonis (SARS, 2013). In order to comply with the requirements of section 163, a senior
SARS official must have reasonable suspicion that the collection of tax will be compromised by the removal
or dissipation of assets (South Africa, 2011). In urgent cases, SARS may seize assets up to 24 hours prior
to an application for a preservation order. Furthermore, an order can be obtained compelling the repatriation
of offshore assets to South Africa and ones rights to travel can be restrained. Section 59, similarly
authorizes a senior SARS official who has suspicions of a tax offense to apply to court to issue a warrant,
enabling entry to the taxpayer’s premises (South Africa, 2011). In terms of such a warrant, an official is
permitted to search the premise, persons on the premise and seize any relevant material to prove the tax
offence. Section 63 of the TAA authorises warrantless seizures if the owner provides written consent and
there are reasonable grounds to justify that the delay in obtaining the warrant may result in relevant material
being removed or destroyed (SARS, 2013). Selling one’s assets and leaving the country in a measure to
revolt, would again be thwarted by these TAA provisions.
Assuming that a taxpayer succeeds in withholding tax payments, unless these funds are held in cash they
would be retained in a bank account. Here again, section 179 empowers SARS to serve a notice on a third
party who holds money on behalf of the taxpayer, directing them to pay over such funds in settlement of
the taxpayer's debt (South Africa, 2011). SARS may serve such a notice on banks, pension funds or
employers (Johannes, 2016). SARS first serves a final letter of demand to the taxpayer, thereafter the third
party is instructed to pay stipulated amounts to SARS without the taxpayer being notified (Napier,
Govindsamy & Cronje, 2019). Failure of a third party appointment to act in accordance of the notice may
lead to the third party’s personally liable for the tax debt and maybe subject to a fine or to imprisonment
for not longer than two years (SARS, 2013).
In terms of section 172(1), SARS may after 10 business days’ notice, apply for civil judgment for recovery
of the debt regardless of whether the amount is disputed in terms of an objection and appeal. (South Africa,
2011). The civil judgement could result in hampering a taxpayer’s future ability to secure finance.
Thereafter if the debt remains unpaid SARS can then apply for a warrant of execution to attach and remove
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any movable property to satisfy the judgment debt (Napier, Govindsamy & Cronje, 2019). Furthermore, in
terms of sections 234 and 235 if t a taxpayer is convicted is convicted of a criminal offence for tax evasion,
the penalties include: a fine of up to 200% of the tax debt owed, or imprisonment for a period up to five
years (South Africa, 2011).
The penalties for tax non-compliance are harsh and embarking on a tax revolt is an act of civil disobedience
and unlawful
29
(Bowman Gilfillan, 2017). Furthermore, in terms of the legislative provisions contained in
the TAA, a taxpayer revolt would not be possible. Even if one refuses to pay tax, the mechanisms available
to SARS to enforce tax collection are far reaching and between third party appointments, seizure and
execution of one’s property, escaping the wrath of the TAA non-compliance provisions are difficult. Tax
resistance, however is a real issue and if taxpayers are continually disappointed with low levels of public
service delivery, taxpayer morale will erode. The solution lies in creating accountable governance, restoring
trust and legitimacy in government and ensuring value is received for one’s tax money.
4. Conclusion and recommendations
Society has a long-standing history of taxpayer resistance and rebellion. When taxpayers seek to renegade
on their tax obligations the consequences of imposing fiscal stress can be severe. Ultimately citizens bear
the burden of disruption in government services, economic stagnation and inflationary pressures. A tax
revolt is not solely attributed to failed tax policy, contributing motives include breach of the fiscal contract
and general discontent with social and political policies where governance is perceived as oppressive. The
threat of a tax revolt is a measure to pursue restorative action to rebalance equitable fiscal contract terms
and bring about welfare reform.
The fine line that exists between tax resistance and compliance lies where a taxpayer receives a fair
exchange for collective public goods. While the taxpayer’s threshold to invalidate a tax depends on one’s
level of tax morale. Accordingly, when tax morale erodes, tax consent is revoked and threats of a tax revolt
loom. Often, the threat of a citizen’s tax revolt is a measure to seek restorative action to improve government
performance.
It is recommended that transparent governance is fostered when a government is held accountable for
effective spending. This can be achieved by supporting civil society groups that challenge the suitability of
29
Acting SARS commissioner Mark Kingon stated “It would be inadvisable and very unwise to call for a tax revolt. It is advocating
for taxpayers to commit criminal offences. I believe it would damage democracy." (Financialmail, 2019).
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13
government policies and the reciprocal spending of tax revenue. Much need attention needs to be placed in
restoring trust in government institutions. The fundamental starting position is to address corruption. Only
then can government start to rebuild its credibility and with it taxpayer morale and restore a taxpayer’s
consent.
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... Saidu & Dauda (2014) assert that taxpayers' indulgence in tax evasion may be encouraged by the non-transparent attitude of tax professionals who are expected to promote transparency of the practices and detect fraud. A comparative analysis study undertaken by Cummings, Martinez-Vazques, Mckee and Torgler (2006) cited in Ramfol (2019) between South African and Botswana which measured taxpayers 'perception of tax administration system reveals that Batswana unlike their South African counterpart perceived paying taxes as part of the social contract and as a price paid for government services. These findings show high levels of citizen's respect for the state and institutions that govern economic and social interventions, level of political stability, absence of violence, level of institutional quality in Botswana compared to South Africa. ...
... The approach is premised on a win-win situation, and it aims at promoting and developing a healthy relationship of trust between the tax authorities and the taxpayer as well as boosting the taxpayer's selfesteem. Trust models align to voluntary compliance as it is based on perceived fairness and transparency of the tax system and the conducive environment that allows taxpayers to freely participate in the tax reforms or enactment of new tax laws Ramfol (2019) and Bani-Khalid et al. (2022) citing Alshirah et al. (2019). The model is also consistent with Cummings, Martinez-Vazques, Mckee & Torgler (2006) cited in Ramfol (2016) assertion that taxpayer becomes compliant when government is trustworthy, tax enforcement mechanisms are perceived as fair, and the fiscal exchange is deemed beneficial to taxpayers. ...
... The authors (citing Etzioni, 1986) add the cultural differences influence, the perceived fairness and transparency of the tax system and fiscal exchange to the important factors that promote taxpayer's compliance Randlane (2015) and literature reviewed reveal that tax compliance is shaped by both economic and noneconomic factors as captured in Figure 7 below. These include instances when (i) people embrace the public good voted on rather than imposed; (ii) the political outcome is known Alshirah et al. (2019), (iii) tax compliance requirements are friendlier Aladejebi (2018), and when trust in government and taxpayers' morale is high and there is perceive fairness of the tax system and delivery of government services Ramfol (2019). ...
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Thesis
The main goal of this study is to investigate whether tax revolts currently taking place and apparently threatening to take place in South Africa follow patterns shown in past international tax revolts or follow a unique pattern of their own. Tax revolts or tax rebellions are not a new phenomenon; they can be traced back to the beginning of time. Renowned tax revolts of the past include the Magna Carta and the Peasants’ Revolt in England, the Boston Tea Party, the Whiskey Rebellion, the Zimbabwean poll tax revolt, the Bambatha rebellion, the Tigre Rebellion, Proposition 13 and Margaret Thatcher’s poll tax revolt. These tax revolts were usually caused by the high burden of taxation, excessive government expenditure, corruption of government officials, declining tax morale of taxpayers and taxpayers’ perceptions of unfairness. In South Africa, elements of tax revolts have been on the rise. There has been a tax revolt against the e- tolling system in Gauteng since 2013. Non-payment of municipal rates is another form of tax revolt that has been and is happening in South Africa. Trade unions have also threatened strikes and mass action against various tax changes, including the value-added tax increase. Taxpayers, through media reporting, have been witnessing an increase in the use of taxpayers’ money for non-governmental agendas or overstated budgets. An increasing number of South Africans have been emigrating financially from South Africa to avoid a high taxation burden. The study falls within a post-positivist paradigm and an interpretive methodology is applied in the present research. The methodology is based on the fact that the social reality of tax revolts is not singular or objective, instead it is influenced by human experiences and social contexts. The study finds that tax revolts are currently occurring and threatening to occur in South Africa. The patterns of South African tax revolts are to a great extent similar to the patterns of international tax revolts, indicating the universalism of tax revolts. The study also confirms that South African tax revolts are, to a certain extent, unique. Key words: taxation; tax revolts; tax rebellions; government’s role; South African and international tax revolts
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