During the recent global economic crisis, governments were faced with addressing large budget deficits and finding someone to pick up the bill. Who better than the taxpayer – both large corporates and high net worth individuals alike?
Now, with ongoing global corporate scandals, to which South Africa is no stranger, the focus is on addressing corporate responsibility and accountability by corporates and individuals.
General anti-avoidance rules (GAARs)
Globally, tax is making headlines with an increasing focus on tax avoidance or aggressive tax planning, to increase the revenue collection by governments.
While specific anti-avoidance rules are already available, general anti-avoidance rules (GAARs) were adopted in South Africa and elsewhere, coupled with a greater focus on addressing base erosion and profit shifting. The application of GAARs, given their general nature, depends on the facts and circumstances of each case, and is considered subjectively by the relevant tax authority. When our GAARs were promulgated, the then Minister of Finance, Trevor Manuel, commented in Parliament that the new anti-avoidance rules empowered the South African Revenue Services (SARS) to bring to book all the anti-avoidance schemes that had escaped the tax net for a number of years.
From a tax authority perspective, the effectiveness of the GAARs is grounded in their uncertainty, as more cautious taxpayers and their advisors may hesitate to create new structures when their tax implications were uncertain. Alternatively, there are those taxpayers who could be of the view that the uncertainty provides a tax planning opportunity – that is, structuring the facts to fall outside the scope of the ‘general’ law.
It is therefore contentious whether, in structuring such transactions, decisions should be based on the letter of the law, that is, a strict interpretation of the actual words, or by taking into consideration the spirit of the law.
Therefore, the question is: Does one choose between what is legally correct or what is morally correct?
When addressing blatant tax avoidance, tax authorities are cognisant of the impact that tax policies, tax administration and levels of corruption in a country have on the tax morality of the taxpaying nation. In his 2017 mid-term Budget Speech the then Minister of Finance, Malusi Gigaba, acknowledged that tax morality was declining, given the extensive administrative and tax policy challenges and noting the focus on misspending. Earlier that year, Pravin Gordhan, then Minister of Finance, noted in his Budget Speech that an effective tax system demanded an effective tax administration and a willingness of (corporate) taxpayers to comply.
The concept of tax morality and a fair share of tax
This is where the concept of ethics, or in a tax context, tax morality, comes in – currently a much talked about term globally.
Keeping it local, at his speech at the 2016 Tax Indaba, recently suspended SARS Commissioner Tom Moyane called for tax morality. Shortly after that, at the 46th annual International Association of Financial Executives World Congress held in Cape Town, Mr Moyane again raised this concept when addressing business executives, he stated that the tax morality of an organisation followed that of its leader and its board.
Just what is tax morality and what does it mean to different people/entities?
The concept of morality speaks of behavioural standards of ‘right’ or ‘wrong’. Considering a taxpayer’s tax morality, this is an assessment of the taxpayer’s behaviour as right or wrong in the circumstances.
At the 2017 IFA Congress held in Brazil, one of the panel discussions considered tax morality to some extent. It was submitted that the most common measure for determining whether a taxpayer’s behaviour was right or wrong, was ‘fairness’ – more specifically, whether a taxpayer (individual or corporate) was paying a ‘fair share’ of tax.
Most would say that the answer depends on who is asking, because the problem with this concept is that ‘fairness’ is a subjective measure – and who determines what is fair and in what context?
The IFA Congress explored a number of concepts relevant in a South African context, including the following:
- What sort of deficit is the country piling up?
- How much personal tax is each taxpayer paying?
- How dependent is government on personal tax versus other taxes?
- How graduated are a country’s personal tax rates?
- What are the average tax rates for the top 1% (contributing the bulk of personal income tax) versus the 99% and how do these compare?
- How do average rates compare to the highest marginal rate?
In South Africa, taxpayers in the top 1% will argue that they pay more than their fair share of tax, yet from a government perspective even more should be demanded of them to achieve equity or fairness amongst all citizens.
Possibly a more important question is how are the taxes used? This leads to the question of the tax morality of those charged with distributing the taxes collected for the benefit of society at large.
The question then becomes: What is a fair share in relation to the benefit enjoyed as a result of the taxes paid?
When tax authorities refer to tax morality, they mean taxpayers must pay their taxes responsibly and ‘morally’, even if it resulted in paying more taxes than legally required. That is, if there is an unintended ‘loophole’, it should not be used!
Tax morality and the CA(SA)
All of this being said, what does it mean for the chartered accountant [CA(SA)]?
Well, as was the case at the inception of the profession more than 100 years ago, integrity remains the cornerstone of the CA(SA) profession. Integrity equates to ethics and morality.
The opening lines of the SAICA Code of Conduct state: ‘A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest.’ That is, CAs(SA) have a duty to protect the public interest and not only the interest of an individual client or employer.
It is these qualities and characteristics that sets the CA(SA) apart. These qualities must always be considered when determining whether a transaction or structure, and related disclosure in the tax return, is legally and morally correct.
Given the number of recent media reports that have drawn public attention to individual CAs(SA) who allegedly conducted themselves in a manner not reflecting the characteristics of what a CA(SA) should stand for, there are many who question the level of integrity and ethics of CAs(SA), based on the alleged actions of a few.
However, the bigger question is what are the rest of our 46,000+ members doing to demonstrate the true qualities of the CA(SA)?
Ultimately, each and every CA(SA) has the power to bring about the positive changes that we want to see in our society and in the reputation attached to our brand.