THE tighter the economic environment, the tighter becomes the relationship between taxpayers and revenue collectors.
Recent events in Europe have shown that a dysfunctional tax administration serves nobody. Greece has learnt this and is still failing to collect ?45bn in tax revenue. The Italian tax authority is struggling to collect almost ?30bn. The enforcement meltdown in these countries played a big role in the economic crisis still gripping Europe.
Eelco van der Enden, PwC's global tax leader in tax effectiveness, says in the Netherlands, company tax amounts to ?50bn or 7%-8% of total tax revenue, yet 80% of all resources in the tax administration are allocated to collecting it. "The CEO of any company who utilises his resources in such a way will surely be kicked out," he says.
Tax administrations have to rethink the way they enforce the law and organise their tax systems. There seems to be a gradual shift towards a different relationship, the co-operative compliance model, and more than 36 countries, including Ireland, have adopted the model.
According to the Irish revenue authority, co-operative compliance "envisages a new form of relationship between revenue and large business, one where both parties work together to achieve the highest possible level of compliance across the taxes for which particular businesses need to account".
Mr van der Enden says the principle is simple: if a company can show that it has a functioning internal tax control framework, then the company will not be "harassed" or audited in the classical way.
He says there has been a shift in focus. Initially the focus was on the responsibilities of the taxpayer, but has now shifted to a balanced relationship.
For the model to work optimally, tax administrations have to consider their responsibilities, Mr van der Enden says. These include comprehensive industry knowledge, impartiality and proportionality.
If a taxpayer is transparent about their tax digressions, but is penalised, charged interest and audited, the relationship is "blown to pieces".
The South African Revenue Service (SARS) is certainly working on its model, says Ine-Lize Terblanche, associate director at PwC in SA.
SARS has issued its c ompliance p rogramme for the next five years until 2016-17. Its clear focus is to ensure that wealthy South Africans and their associated trusts, large businesses and their transfer pricing practices, the construction industry, small businesses and tax practitioners toe the tax line.
Ms Terblanche says risk analysis has changed, driven largely by a lack of resources at SARS to focus on the highest-risk areas.
In the past, large taxpayers self-assessed their tax liability, SARS officials looked at the assessment, and if their interpretation differed from the taxpayer's assessment, the company was subjected to an audit.
She says in recent times SARS has become far less reactive. It will validate the tax control framework of a taxpayer by taking account of the nature of the business, recent reorganisations and recent transactions. If SARS is satisfied that the taxpayer has a good rating on all the taxes, they can expect to see little of SARS, she says.
Yet, as Finance Minister Pravin Gordhan warns, people are getting tired of seeing their tax money wasted.
"That is how the French Revolution started. Government and public officials have a huge responsibility towards its citizens. The vast majority of people want to be compliant. Noncompliance is triggered when those who are not paying their taxes are not held accountable, and repressive behaviour by tax administrations, treating all people like criminals, tends to push people over the edge," says Mr van der Enden.
The co-operative compliance model was introduced in 2007, whereas the existing tax model has been around since 1880.
The new model will require a considerable amount of "change management", Mr van der Enden says.