NO-ONE likes paying tax, and many try, legitimately or otherwise, to avoid it. So it behoves the South African Revenue Service (SARS) to maintain a public stance of strict application of the law.
But tax collection is also the art of the possible. If tax rates are set at a reasonable level, most businesses and individuals would prefer to pay than risk offending the most powerful organ of the state outside of the military. Companies’ ability to do so is more often than not determined by their profitability rather than the morality of management. If the revenue service overreaches, it can turn would-be honest taxpayers into criminals constantly looking for ways to avoid or evade tax.
It is inevitable that every now and then someone will try to buck the system. In these circumstances, SARS has no option but to throw the book at them.
In this confusing and contradictory mix, South Africa’s tax system has one celebrated case: that against businessman Dave King. It is complicated, but there seems little question that King did a lot wrong. The more tricky question is whether SARS did everything, or at least most things, right. This is very difficult to tell for sure without intimate knowledge of the case’s details, but it seems comparable to a family feud. Small slights have turned into large ones, and these have expanded from generation to generation. The case has been going on for more than a decade and the amount claimed has increased fivefold.
SARS, having been unable to get its hands on the cash it feels it is owed by Mr King, is now trying to implicate a division of the bank, HSBC. This is going to be a tough case to win; the law may be on SARS’s side, but the case still needs to be proved. And the bank has a huge incentive to fight, as tax avoidance risk is not normally part of the implicit contract between bank and client.
It is clear that SARS has complied with the first criterion mentioned above: apply the law as rigorously as possible. But what of the second criterion? If tax collection is the art of the possible, then by continually upping the ante, SARS is making it more and more difficult.
This is so because, with each click of the ratchet, the incentive to fight increases. Could it all have been avoided? Perhaps not. But the case illustrates why it is in both sides’ interests to try hard to settle.
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