Question 4 (25 Marks)
The South African government depends on the South African Revenues Services (SARS) for the
collection of tax revenue for the ever increasing public expenditure. COVID-19 made all government
sof the world over to resort to lockdowns to curb the spread of the disease. The lockdowns have a
direct effect of reducing business activities and hence, decrease in revenue collections. Citizens
willingness to pay tax largely depends on the perceptions the public have on the tax system,
Critically discuss any 7 requirements of a good tax system.
Equity and fairness
Taxpayers in comparable situations should be taxed in the same way. This covers both horizontal equality (taxpayers with equal capacity to pay should pay the same amount of taxes) and vertical equity (taxpayers with equal ability to pay should pay the same amount of taxes) (taxpayers with a greater ability to pay should pay more taxes). It is important to note that equity is best evaluated by looking at a range of taxes paid rather than just one.
Economy of calculation
Tax collection expenses should be maintained to a bare minimum for both the government and the taxpayer.
The impact of tax legislation on a taxpayer's decision whether or not to carry out a certain transaction should be reduced to a minimum. The fundamental goal of a tax system is to collect money, not to modify behavior.
Economic growth and efficiency
A tax system should not inhibit production but should be consistent with the economic goals of the taxing authority. The system should not prioritize one industry or kind of investment above another.
Transparency and visibility
Taxpayers should be aware that a tax exists and how and when it is levied on them and others. In addition, taxpayers should discover the real cost of transactions quickly and when and on whom a tax is imposed or paid.
Minimum tax gap
A tax should be designed in such a way that disobedience is minimized. The tax gap is the difference between the amount of tax owing and the amount collected. Rules are required to achieve an acceptable degree of compliance. However, a balance must be established between the desired degree of compliance and the tax system's costs of enforcement and intrusiveness.
Tax regulations should clearly explain when and how a tax is to be paid and how the amount is to be calculated. Certainty may be defined as a person's level of assurance that a tax is being computed accurately.