Tax revolt will lead to a legal battle that only SARS can win
There has been discussion recently about a "tax revolt" by South African taxpayers in response to political and economic woes. This seems to be driven by rising frustration at state capture, credit downgrades and anaemic economic growth.
About 35% of SA’s gross tax revenue comes from indirect taxes such as value-added tax (VAT). Personal income tax makes up about 40%, while corporate income tax accounts for about 17%.
Let’s analyse exactly how a tax revolt might work.
An individual or company registered for tax is required to submit a tax return in the manner prescribed by the South African Revenue Service (SARS) so that SARS can raise an assessment for the amount of tax due.
If the taxpayer simply does not file the necessary tax return, SARS will raise a tax assessment based on its estimate of the amount owing by the taxpayer.
Once this assessment has been raised, it constitutes a tax debt due to SARS.
SARS may therefore after providing the taxpayer with 10 business days’ notice, file a certified statement with the clerk of the appropriate court, setting out the amount of tax due. The certified statement is treated as a civil judgment for a liquid debt for the amount specified.
This judgment would then be enforced against the taxpayer and SARS may, if necessary, authorise the institution of proceedings for the sequestration, liquidation or winding up of the taxpayer for the outstanding tax debt.
SARS may also collect the tax debt from various third parties. In the case of a company, this includes anyone who is involved in the management of the company’s financial affairs if that person’s negligence resulted in the failure to pay the tax debt.
This means the person responsible for submitting tax returns on behalf of the company may be held personally liable, together with other relevant persons in the finance or tax department of that company.
As if this was not enough, it is also a criminal offence for a taxpayer to deliberately fail to submit a tax return to SARS, with a potential prison sentence of two years.
So, to summarise, if an individual or corporate taxpayer participating in a tax revolt does not submit a tax return to SARS, the revenue service will simply issue an assessment based on its estimate of the tax due.
This becomes an amount due to SARS, which, upon filing a statement with the relevant court, becomes a judgment for the amount owing. In addition, SARS could potentially collect the tax owing from various third parties who become personally liable for such tax debt. Oh, and the taxpayer could go to prison.
It is difficult to obtain precise statistics on individuals who have emigrated, since many do not follow the formal emigration process but merely leave the country taking their skills and substantial amounts of their capital with them
So, while certain taxpayers may feel a sense of frustration at events unfolding in the country, embarking on a tax revolt is a bit like going into the boxing ring against Floyd Mayweather with your hands tied behind your back.
Far more real and of greater concern is the loss to SA’s tax base caused by individuals and companies emigrating. This is the "silent tax revolt".
These individuals are typically highly skilled and entrepreneurial. Although Elon Musk’s departure from SA was for different reasons, imagine if individuals like him had remained here instead of heading for foreign shores.
It is difficult to obtain precise statistics on individuals who have emigrated, since many do not follow the formal emigration process but merely leave the country taking their skills and substantial amounts of their capital with them.
It is also possible for companies to migrate from the country.
For example, various dual-listed entities are now managed from outside the country and controlled through their foreign listing by non-South African resident shareholders.
In addition, a company may, by transferring its place of effective management, migrate from SA and become a nonresident company for tax purposes.
In simple terms, this transfer of effective management requires the resignation of the principal South African decision makers for the company and their replacement by nonresident individuals.
The company then becomes taxable as a nonresident entity — that is, only on its South African-sourced income.
Instead of talking about not paying taxes due, South Africans should focus on stemming the tide of this silent tax revolt by ensuring that its entrepreneurial skills base and companies remain in our country.
• Dachs is a director and joint head of ENSafrica’s tax department. He writes in his personal capacity.