Joburg Advocacy Group (JAG): THE GREAT TAX DEBATE

Monday, 27 October 2014


The new Finance Minister, Nhlanhla Nene, presented his first Medium-Term Budget Policy Statement on Wednesday, 22 October, and reaction has been swift.

While every day brings new reports of financial losses due to corruption, graft and inefficiency at national, provincial and local level, the Minister intends to look to taxpayers for an additional R15 billion in the next financial year.

According to research conducted by the Solidarity Research Institute, personal income tax accounts for 33.7% of the state's revenue, company tax (tax on shareholders) accounts for 19.7% , VAT accounts for 27% and the remaining 19.6% is made up from taxes such as the fuel levy and import tariffs. All of this tax - every single cent of it - is paid by individuals. All of it - every single cent of it - is spent or misspent by government and state-owned entities.

In the City of Joburg, for instance, the administration continues to battle a large deficit, partly due to poor management and collapsing infrastructure, and partly due to its failure to collect rates and service fees in areas where there is a high rate of illegal usage and/or payment defaults for legitimately supplied utilities. This is without even going into the state of service delivery as a whole.

Despite this, the Constitutional Court (ConCourt) has ruled that rates cannot be withheld by residents even if the services they are intended to finance are not being delivered. This is due to the fact that rates are classified as a tax, and because there is no direct and causal relationship between the payment of this tax and the delivery of individual services.

At national level, there is also little or no opportunity to withhold taxes from a government that is not using tax revenue properly. A civil disobedience action like this would need to be broad-based and very well organized in order for it to be effective.

So what's to be done in the face of what appears to be such a hopeless situation? Are we doomed to simply continue being fleeced by a corrupt and inefficient government?

In a comment following a feature entitled Medium-Term Budget: Nene's House of pain and cutbacks (Daily Maverick, 23 October 2014) a reader by the name of Robyn Burger has suggested what we feel is a genius option. As a large part of government's revenue is made up of income from VAT, a radical reduction in consumer spending would impact significantly on this revenue stream.

To quote Burger: " ... stop buying anything that you can make/do for yourself like pizzas, Christmas crap, cars that are still good (screw the warrantees - they are a rip-off anyway, sold to you for profit to alleviate anxiety ...), schlepping around the world pretending to yourself that it is good for expanding your mind (go by Google instead) and updating technology that is only an improvement of style, not substance.

In brief, stop spending ...

"Believe me, a spending boycott will be devastatingly effective because the more VAT goes up, the more you will save.

"The core issue is that no-one has to do without; it is really just about doing with less."

As we are all aware, consumer boycotts were very effective during the apartheid era and
perhaps it's time for consumers to start flexing their muscles again. And, yes, that means making a conscious decision to do without some creature comforts and status symbols but, hey, it's certainly an effective way of reducing the state's income from VAT.

Other ways of reducing the state's revenue from tax include
opting for contract work rather than employment, as contract workers pay way less income tax than their compatriots in formal employment. And aiming to be debt-free is also important. The financial services sector is a vast cash-cow for government, and the sector depends on business and consumer debt for its very healthy bottom line.

So, if you want to know what you can do to make a difference when it comes to the great tax debate, start by spending less.

FOR FURTHER READING: Check out Analysis: Civil disobedience, revisited by J. Brooks Spector (Daily Maverick, 27 October 2014).  

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