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Key Text And Their Hearts and Minds will Follow? Tax Collection, Authority and Legitimacy in Democratic South Africa

Author: D Hlophe and S Friedman
Date: 2002
Size: 10 pages

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Summary

Does the state's ability to tax create a need to respond to citizens? If a state derives its resources from foreign aid, is it less inclined to consider the needs of the poor? Is there “no taxation without representation?” This paper from the Institute of Development Studies, explores tax collection, authority and legitimacy in South Africa. It suggests a change in tax-payer attitudes is necessary despite that contrary to other developing countries, it has a tax paying culture.

There is no demonstrable link between the tax dependency of states and their responsiveness to the poor. Nevertheless, states that are not forced to respond to their citizens are unlikely to address needs of the poor. Hence, the ability to raise revenue from a domestic source is a necessary, if not sufficient condition for pro-poor development.

The South African Revenue Service (SARS) has increased tax collection in South Africa mainly due to improved administration. Enhanced performance is seen as the outcome of more effective management, not of enhanced legitimacy. However, this finding is less straightforward than it appears and complexities include:

There is no suggestion that increased revenue collection has any link to enhanced citizen confidence in government. The state has not yet established a rapport with the tax paying public or corporate institutions to allow voluntary payment compliance.
The political process tends to outweigh the “social contract”. From this perspective the legitimacy of the tax regime cannot be assumed and needs to include both persuasion and coercion.
Corporate tax is often avoided by aggressive tax planning. SARS gains may prove temporary as companies develop more effective avoidance techniques. Firms have greater capacity to avoid tax than individuals, and the affluent more so than the poor.
Managerial technique has increased efficiency and the use of coercive tactics. Coercion, not negotiation is seen as the key to effective revenue collection.
For historic reasons, South-Africans tend to exaggerate the degree of non-compliance with public authority. Coercive techniques succeed because there is a greater propensity to pay than SARS officials assume.

Policy issues of critical importance in the transformation of SARS are threefold: structural organisation and internal dynamics, environmental (global and domestic) and contextual and the attitudes of taxpayers. Key policy pointers for successful SARS implementation include:

The challenge to tap into emerging economic activity. The increased fluidity of global trade, reflected in exports and imports, suggests the need for an increased customs and excise capacity.
Challenging taxpayer attitudes. Rethinking notions of “voluntary” and “coerced” compliance to overturn common attitudes that government officials are corrupt.
The challenge for the informal sector. Research needs to be conducted into the degree to which taxing capacity can penetrate the informal economy.
Increased vigour in enforcing compliance. SARS should bolster its partnership with the police and the National Directorate of Public Prosecutions and continue to prosecute those refusing to pay tax.
Dealing effectively with SARS officials engaged in corruption and bribery.

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Source: Hlophe, D. and Friedman, S., 2002, 'And Their Hearts and Minds will Follow? Tax Collection, Authority and Legitimacy in Democratic South Africa', IDS Bulletin, vol. 33, no. 3, pp.67-76.
Author: Steven Friedman , steven@cps.org.za
Institute of Development Studies , http://www.ids.ac.uk/ids