The State Of Tax and Wage Evasion in South Africa: A Guide by the Alternative Information and Development Centre

The State Of Tax and Wage Evasion in South Africa:

A Guide by the AIDC

AIDC Economic Justice Programme Press Release | 10 June, 2019

The Alternative Information and Development Centre (AIDC) has recently compiled a comprehensive study investigating the current state of tax and wage evasion in South Africa. The research has been compiled into a guide, titled “The State of Tax and Wage Evasion: A South African Guide”.

The study provides an analysis of tax and wage evasion in SA and unveils the schemes and mechanisms by which illicit financial flows (IFF’s) occur.

Part 1 of the guide offers an overview of the scale of IFFs showing that IFFs not only impact tax revenue but also negatively impacts the wages earned by workers.

Part 2  shifts focus to transparency, illustrating the limitations of the reforms proposed by the likes of the OECD in relation to combating tax and wage evasion. The study  proposes the move to the implementation of the ABCD’s to strengthen the capacity of state’s to combat IFF and BEPS:

The ABCD’s are the

• Automatic Exchange of Information (currently underway)
• Beneficial ownership information disclosure in public registries
• Country-by-country, subsidiary-by-subsidiary reporting standard (implemented but information not public yet)
• Disclosure of the tax returns of every South African

The third part of the report relates to profit shifting and transfer (mis)pricing methods used by multinational-corporations. The guide shows that while reforms proposed under the Base Erosion and Profit Shifting process offer some positive changes, they are still severely limited by their adherence to arms length principles of the international tax system. A proposal explored by the guide is the implementation of a unitary tax system. In lieu of an international consensus necessary for the implementation of a unitary tax system the guide, among a number of ideas, proposes:

The final section of the guide offers a look at tax treaties, double non-taxation and conflict resolution in relation to the BEPS Action Plan. Among a number of concerns the guide notes that key parts of the action plan represents a massive loss of sovereignty to private interests. Such systems have been used in several instances by MNCs to contest states’ sovereign power to regulate their economy, even in domains as essential as health, the environment or workers’ rights.

In concluding the guide calls for the implementation of the aforementioned ABCD’s, equipping SARS with the necessary tools to aggressively pursue tax avoidance and evasion schemes. In addition the guide calls for a strong commitment to the long-term solution of a unitary tax system, while working on pragmatic medium term solutions, specifically in relation to mining and the digital economy.

This guide was created by the AIDC’s Economic Justice Programme and serves as part of the programme’s work on issues of tax and wage evasion and is available online here.

For more information about the report or the programme please contact Dominic Brown, head of the AIDC’s Economic Justice Programme, at dominic@amandla.org.za.