The art of taxation is in plucking the most feathers from the goose without the goose hissing – J B Colbert
Over the past number of years taxpayers have been frustrated by how government collects revenue and by how it has introduced financial policies that are implemented by the revenue department. While no excuse can be made for bad government, one does have to balance the frustration with a grounded view and understanding of taxation.
Clearly a nation and its government cannot protect and further the rights of its citizens without adequate resources and funds. This is obvious. However, taxation is more than just the old style ‘Robin Hood and the Sheriff’ story and in the 21st century it is a complicated mess. Developing countries have added the pressure of effective taxation by mixing in socio-political complications.
Effectively one must view the country as a company, its head of state as the CEO, government as the board of directors and the citizens and taxpayers as employees and shareholders alike.
- Like all businesses, cash flow is king and there will be management problems, budget constraints and staff problems from time to time;
- Tax is the income stream and government must try, like most board of directors of a company, to increase revenue and decrease expenses to have a healthy net result. A good balance sheet attracts the attention of better business and warrants respect in trade. The converse goes without saying;
- Like most companies, desperate times will call for desperate measures and if a “net profit” cannot be shown, the company will be insolvent and will not survive. Employees will move to other companies who offer better benefits, wages and security, regardless of whether or not one still likes / loves the company;
- Showing profit means more money for the shareholders who will then continue to invest. Showing profit brings a sense of accomplishment and achievement for the employees who begin to love and value the idea that they are part of something bigger than themselves. Showing profit validates the appointment of the CEO and the board of directors;
- Showing loss brings discontentment, creates debt, forces shareholders to rethink their investment and possibly cut their losses. Showing loss does not necessarily speak to bad leadership, but continually showing loss certainly confirms incompetency and mismanagement.
In South Africa, the current tax environment is being influenced heavily by socio-political factors and the revenue department has the difficult task of trying to increase revenue while the company continues to increase expenditure. In any other company the shareholders / employees would not tolerate mismanagement and would simply vote in a new CEO and Board of Directors. Not in SA. Why? Because politics and social problems are not only clouding vision but are a legitimate issue to be solved. A new CEO and Board will not be able to simply grow this company without removing the underlying problem, but they may very well introduce a fresh approach to new solutions.
SARS is the only branch of government essentially tasked with bringing in money, while every other branch spends without noticeable restraint. This places a huge burden on SARS and as recently confirmed to the media, they are finding “innovative ways” of collecting revenue. If more revenue cannot be collected, SARS have no option but to manage its cash flow by not paying everything out, staggering payments and where possible, creating delays. Companies do this all the time (at least the ones in financial difficulty), so why would a country be any different? Understanding the ‘back door business’ of South Africa helps make sense of madness, such as:
- Delaying payment of refunds;
- Increase in audits on refunds;
- Aggressive collection strategies of revenue, even if incorrect (“pay now argue later”);
- Issuing of additional assessments;
- Innovative ways of applying the provisions of deductions in the Income Tax Act;
- Relying on the Tax Administration Act to delay matters such as objections, appeal, applications, etc.
However, not all is doom and gloom. Change is the only constant and with a small global community nowadays, South Africa will survive, possibly thrive. This ‘company’ will need to seriously rethink its management and the only people who essentially have a say are the shareholders. Turbulent waters are forecasted, but like most storms, they will pass and calmer oceans with blue skies will be seen again.
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