Authored By: Meriam
University of Western Cape
- Introduction
Tax administration efficiency and its influence on taxpayer compliance have been subjects of substantial interest and investigation in public finance and economics. Understanding the intricate dynamics between tax administration efficiency and taxpayer compliance is pivotal for policymakers, tax authorities, and scholars alike, as it directly impacts revenue collection, fiscal stability, and the overall functioning of a country’s tax system.[1] This research paper will define tax administration and tax compliance, discuss the interplay between tax administration efficiency and taxpayer compliance, mention the legal and institutional framework of tax administration in South Africa, discuss the impact of the Tax Administration Act 28 of 2011, and also discuss tax collection under the Tax Administration Act.
- Definition of Tax Administration and Tax Compliance
Tax Administrations, like private companies and other organisations, have a core business. The core business of Tax Administrations is the levying and collection of taxes imposed by law. Tax Administrations must define their core business clearly from the outset and make it known to stakeholders.[2]Tax compliance is key to economic development as individual taxpayers are significant contributors to overall tax revenue. Thus, for policymakers and tax authorities to craft and implement effective tax policies and strategies, it is imperative that they understand the nuances of tax knowledge and behaviour among individual taxpayers.[3]
- Interplay Between Tax Administration Efficiency and Taxpayer Compliance
The relationship between tax administration efficiency and taxpayer compliance remains a dynamic and bidirectional process, as elucidated by Pomeranz.[4] Recent research has further nuanced our understanding of this intricate interplay, revealing additional insights into the mechanisms through which administrative effectiveness influences compliance behaviour and vice versa. Efficient tax administration plays a pivotal role in fostering compliance by alleviating taxpayer burdens and ensuring procedural fairness, as noted by Pomeranz.[5] Recent studies have highlighted the importance of taxpayer services and information dissemination in promoting voluntary compliance. For example, research by Nguyen.[6]
- Legal and institutional framework of tax administration in South Africa
Moosa explains that taxation in South Africa serves not only to raise revenue, but also to fulfil the constitutional rights such as equality, dignity, housing, health care, and education.[7] Section 7(2) of the Constitution obligates the state to promote, protect, respect and fulfil these rights progressively using resources raised through tax.[8] To do so necessitates that the government has sustained access to adequate finance. Financial constraints in the public treasury will hinder the State’s ability to achieve social justice through the fulfilment of, inter alia, socio-economic rights. Unless the problem of strained governmental resources is overcome, the aspiration of a fully transformed society with human dignity, freedom and equality for all will have a hollow ring.[9] Thus, tax is both a financial and constitutional instrument for achieving human rights and social development. In addition, it protects democracy by ensuring transparent, accountable fiscal management and fair tax administration.[10]
In the case of SARB v Shuttleworth, the Constitutional Court confirmed that taxes and levies must be authorised by law in terms of Section 77 of the Constitution. They are compulsory payments imposed by the state without direct benefit to the payer. This distinguishes a tax from a charge or fee, which provides a specific benefit and from a fine or penalty, which is punitive. The case reinforced that public revenue measures must comply with legality and separation of powers; only Parliament can authorise a tax.[11]
- Impact of Tax Administration Act 28 of 2011
SARS and certain of its office bearers are creatures of statute. As such, they can perform no function and exercise no power unless authorised to do so by an enabling statute.[12] The Tax Administration Act (TAA) 28 of 2011 is a source of such power. It confers wide-ranging audit, investigative and general legal and administrative powers. Certain of these powers (such as warrantless inspections and searches) have the potential of encroaching on taxpayers’ fundamental rights to, for example, privacy and property. The TAA imposes obligations on SARS and its officials[13] and outlines procedures[14] to be followed.
- Tax collection under the Tax Administration Act
The TAA (s 3(2)(e)) incorporates tax collection as a core facet of tax administration. It is in the public interest that taxes are collected.[15] Tax collectors are the engines driving a state’s effort to swell the public treasury. Tax collection must occur in a principled way consistent with the Constitution and an enabling statute. The rule of law, a founding constitutional value, prohibits arbitrariness in tax collection and precludes financial considerations being used to justify an infringement of entrenched rights.[16] Thus, for example, SARS cannot require taxpayers to pay more tax than is due in law, nor can it claim taxes in advance of their due dates.[17] No tax may be collected unless there is a tax debt due and payable as determined in accordance with a statute.[18] No tax liability arises unless a taxpayer is brought within the reach of legislative text expressing the legislature’s will.[19] A tax liability arises when a taxable event[20] occurs, the nature whereof is determined by a taxing statute. For example, an income tax liability is regulated by the definition of ‘taxable income’, of which ‘gross income’ is an integral part.[21]
- Conclusion
In conclusion, effective tax administration is essential to achieving high levels of taxpayer compliance, sustainable revenue collection and fiscal stability in South Africa. Tax administration extends beyond the mere collection of taxes; it involves the efficient, fair and lawful implementation of tax legislation. The relationship between administrative efficiency and taxpayer compliance is therefore dynamic, as efficient administration can reduce taxpayer burdens, promote procedural fairness and encourage voluntary compliance, while greater compliance strengthens the effectiveness of the tax system.
The South African tax system is also closely connected to the constitutional objectives of the state. Revenue collected through taxation enables government to fulfil socio-economic rights and promote equality, dignity, health care, housing and education. However, the exercise of tax powers must remain subject to the Constitution and the principle of legality. The decision in SARB v Shuttleworth[22] reinforces that taxation must be authorised by law and that the power to impose taxes rests with Parliament.
The Tax Administration Act 28 of 2011 has strengthened the administration and enforcement of tax laws by providing SARS with extensive audit, investigative and administrative powers, while simultaneously imposing duties and procedural requirements on SARS and its officials. Although these powers are necessary to ensure effective tax collection, they must be exercised in a manner that respects taxpayers’ fundamental rights, including privacy and property rights.
Ultimately, tax collection must balance the public interest in securing government revenue with the protection of taxpayers’ legal and constitutional rights. SARS may collect only taxes that are lawfully due and payable, and tax liabilities must arise from applicable legislation and a taxable event. Therefore, an effective South African tax administration system is one that combines efficiency and strong enforcement with fairness, transparency, accountability and respect for the rule of law. Such an approach is fundamental to fostering taxpayer trust and compliance while ensuring that taxation continues to support the country’s fiscal, constitutional and social objectives.
Bibliography
BOOKS
Matthijs A & van Kommer V Handbook on Tax Administration 2nd edn (2016) 163.
CASES
Azanian People’s Organisation v President of the Republic of South Africa1996 4 SA 671 (CC) para 43.
AM Moolla Group Ltd v CSARS 2005 JOL 15456 (T) 3.
CSARS v Brummeria Renaissance (Pty) Ltd 2007 6 SA 601 (SCA) para 26
CIR v Nemojim (Pty) Ltd 1983 4 SA 935 (A) 946.
SARB v Shuttleworth 2015 (5) SA 146 CC.
Schachter v Canada [1992] 2 SCR 679, 709.
Singh v CSARS 2003 4 SA 520 (SCA) para 25.
Welch’s Estate v CSARS 2005 4 SA 173 (SCA) para 89.
CONSTITUTION
Section 7(2) of the Constitution of the Republic of South Africa, 1996.
JOURNAL ARTICLES
Mukhammad Idrus ‘Efficiency of Tax Administration and Its Influence on Taxpayer Compliance,’ Volume 5 Issue 2 (2024).
Zanele Matshona, Mabutho Sibanda, Maibulele Phesa M, ‘Tax Knowledge and Tax behaviour of Individual Taxpayers in South Africa: International Journal of Economics and Financial Issue’ 2024, 14(5).
Pomeranz Dina, ‘No taxation without information: Deterrence and self-enforcement in the value added tax. American Economic Review,’ (2015) 105(8).
Nguyen, T., Patel, A., & Gupta, S. (2021). The impact of digitalisation on tax administration: A comparative analysis. Journal of Comparative Economics, 49(3).
Dr Fareed Moosa, ‘Taxation of Partnerships: Section 24H of the Income Tax Act Analysed’, (2019) Vol 22(1).
Deak Terrence, ‘Taxpayer rights and obligations: The Hungarian experience’1997 Revenue LJ 18 19
LEGISLATION
Section 1 of the Tax Administration Act 28 of 2011.
Section 169 of the Tax Administration Act 28 of 2011.
[1] Mukhammad Idrus ‘Efficiency of Tax Administration and Its Influence on Taxpayer Compliance,’ Volume 5 Issue 2 (2024) 889
[2] Matthijs A & van Kommer V Handbook on Tax Administration 2nd edn (2016) 163.
[3] Zanele Matshona, Mabutho Sibanda, Maibulele Phesa M, ‘Tax Knowledge and Tax behaviour of Individual Taxpayers in South Africa: International Journal of Economics and Financial Issue’ 2024, 14(5), 299.
[4] Pomeranz Dina, ‘No taxation without information: Deterrence and self-enforcement in the value added tax. American Economic Review,’ (2015) 105(8), 2539.
[5] Pomeranz Dina, ‘No taxation without information: Deterrence and self-enforcement in the value added tax. American Economic Review,’ (2015) 105(8), 2540.
[6] Nguyen, T., Patel, A., & Gupta, S. (2021). The impact of digitalisation on tax administration: A comparative analysis. Journal of Comparative Economics, 49(3), 539–556.
[7] Dr Fareed Moosa, ‘Taxation of Partnerships: Section 24H of the Income Tax Act Analysed’, (2019) vol 22(1)
[8] Section 7(2) of the Constitution of the Republic of South Africa, 1996.
[9] Azanian People’s Organisation v President of the Republic of South Africa1996 4 SA 671 (CC) para 43.
[10]Dr Fareed Moosa, ‘Taxation of Partnerships: Section 24H of the Income Tax Act Analysed’, (2019) vol(1)
[11] SARB v Shuttleworth 2015 (5) SA 146 CC.
[12] AM Moolla Group Ltd v CSARS 2005 JOL 15456 (T) 3.
[13] For example, ss 42 (keeping taxpayers informed of audit completion), 69(preservation of secrecy of taxpayer information), 82(2) (advance rulings are binding on SARS), 91-96 (duty to issue and give notice of a tax assessment), 106 (duty to decide a valid objection), 190 (duty to pay refunds), 207 (reporting of tax debts written off or compromised), and 216-218 (duty to remit a penalty).
[14] For example, ss 50 (process for obtaining prior authorisation for inquiry proceedings), 59 (process for warrant application), 172 (application for a civil judgment pending objection and appeal), 199 (procedure for writing off a tax debt), 204 (procedure for compromise of a tax debt), and 214(procedure for imposing an administrative non-compliance penalty).
[15] CSARS v Brummeria Renaissance (Pty) Ltd 2007 6 SA 601 (SCA) para 26.
[16] Schachter v Canada [1992] 2 SCR 679, 709.
[17] Deak ‘Taxpayer rights and obligations: The Hungarian experience’1997 Revenue LJ 18 19.
[18] The TAA (s 1 read with s 169(1)) defines ‘tax debt’ to mean “an amount of tax due or payable in terms of a tax Act”. ‘Tax’ is defined in s 1 as including a “penalty” and “interest”. A tax debt is ‘due’ when there is a “liquidated money obligation presently claimable by the creditor for which an action could presently be brought against the debtor. Stated another way, the debt must be one in respect of which the debtor is under an obligation to pay immediately”. See Singh v CSARS 2003 4 SA 520 (SCA) para 25.
[19] Welch’s Estate v CSARS 2005 4 SA 173 (SCA) para 89.
[20] The TAA (s 1) defines ‘taxable event’ to mean “an occurrence which affects or may affect the liability of a person to tax”.
[21] For the definitions of ‘taxable income’ and ‘gross income’, see s 1 of the Income Tax Act 58 of 1962. For an analysis of these terms, see CIR v Nemojim (Pty) Ltd 1983 4 SA 935 (A) 946.
[22] SARB v Shuttleworth 2015 (5) SA 146 CC.
