Evelyn Groenink

The taxman is coming

South Africa | Down with donors, up with taxpaying citizens

Africa's pavements are awash with money. After decades of neglect of the informal trading sector and 'citizen value' in general, thirty-five countries on the continent have joined a tax crusade. "It's good for democracy too. Because a paying people is a questioning people." A day in the life of the South African Revenue Service.

'A people that pays its own government is a people that will ask questions of that government'

The boss of the shop is 'never there' and the traders hide behind rows and rows of fake sunglasses, but they represent billions of hard dollars. Africa's informal trading sector is increasingly recognized as a powerful economic force that could help sustain countries. The South African Revenue Services is pioneering an approach of formal registration that is increasingly adopted throughout the continent: in Rwanda, even a shoe repairman in the street needs to have a license. "You can call it going overboard, but that shoe repairman, if he pays tax, also becomes a citizen who can hold the government to account. And citizens can topple governments," says Logan Wort, formerly of SARS, now director of the African Tax Administrations Forum, that unites 35 countries on the continent in a drive to establish effective tax administrations.

Doing business from a cupboard, or from off-shore

His words are echoed by Sandisa Mhaka, leader of the Johannesburg Mobile Registration team which goes out into the streets to register informal businesses. "To me it feels like I am empowering people.

'We actually empower people, though they may not see that at first'

If your transactions are formally recorded, you exist legally and you can grow. Otherwise, you remain marginal." Or, as she puts it when she detects two female traders from Congo and Cameroon hiding behind rows of clothing on a few square metres in an apartment building: "Do you want to be in a cupboard forever?"

Of course not every business person is a small business person. There are mega-rich people with million dollar businesses to be taxed as well. A recent investigation unearthed a list of global tax crooks, among whom are quite a few Africans.

The church cares for the sick

The big bald man with the bodybuilding figure and the open shirt has suddenly lost most of his command of English. "Tax? Government? I don't know. I am from Ethiopia." He is an associate of the two Pakistani men who run the clothing-annex-mobile phone-shop in Johannesburg's downtown Smal Street, and who are currently busy explaining themselves to a tax inspectors' team from the South African Revenue Services (SARS). "We make only little money and we don't know about these things. When we try to register at the Trade Department they give us complicated forms to fill. We are just a small shop..."

Whilst the SARS team argues that surely the shop owners know they must pay tax, I ask the Ethiopian associate (or brother-of-an-associate, as he now maintains) about the silver cross dangling in his tanned open neck. "Yes, I am Christian." So what about caring for the sick and feeding the hungry? If we want to have a caring society with hospitals and schools we must pay tax, not so? With a mix of hostility and puzzlement: "Church does these things. I pay my church"

We won't find out how regularly the burly Ethiopian attends his church, but many Africans, like he, don't trust their governments to house the poor and care for the sick. In the shop next door, a South African in a shiny new Bafana Bafana T-shirt (Bafana Bafana being the national South African soccer team) doesn't seem too patriotic in this respect. "Yes, we must all contribute to public services," he nods obediently, with the SARS team around him. "But it's not me you need to talk to. I don't own this shop, I am just minding it for the owner. I don't know when he will be back." The tax team exchanges knowing looks: the people they confront never know when the real owner will be back.

Tainted history

Taxes in South Africa come with a tainted history. Many in the black majority recall ancestral stories about the onset of poverty in the villages when the white government started to demand tax money from people who, living off the land, weren't part of the monetary economy. (The traditional protest song Asinamali (we have no money) rather than just meaning 'we are poor', is rooted in the actual absence of any money from rural African societies). The 'Glen Grey' Tax Act of 1894 demanded money from people who didn't have any, with the intention of forcing rural black men to take up salaried jobs in the mines in the towns, something they had been reluctant to do before. It worked. Black men went to work in far-away mines, and communities and families were torn apart. Taxes traumatised South Africa long before apartheid would formally refine that job.

Exactly one century later, in 1994, the new black majority ANC government took over tax administration and developed a vision for a new South African Revenue Service: an institution which would, in line with the social justice ideals espoused by the liberation movement, take from all according to their capacity, and help distribute to all according to their needs. This vision is now formally phrased as "stimulating growth and development, and contributing to South Africa's integration in the world economy in the interest of all citizens."

Replace 'South Africa' with Africa, and the same vision applies to all thirty-five member countries of the African Tax Administrations Forum (ATAF), in which SARS has played an initiating role. The vision is also shared by donor countries in the West: diminishing development aid must go hand-in-hand with local sourcing of state budgets in developing countries. That is not only good for fighting dependency, but also for democracy and accountability: "a people that pays its own government, is a people that will ask questions of that government," says Logan Wort, CEO of ATAF.

Dodgy electronics

The South African government needs yet to get a grip on Smal Street, a formerly whites-only shopping area with luxury boutiques and hotels, and now an all-African hub. Today, there is not a white person in sight. Zimbabweans, Congolese, Ugandans and all kinds of Asians mingle with locals among endless rows of clothing made in China, fake brand sunglasses, dodgy electronics and fast food. It is here that the South African Revenue Service has directed one of its drives to formalize the informal sector. Make them pay tax, that is.

"We coordinate with the police," says team head Sandisa Mhaka, energetic, thirty-three, and passionate about registering new taxpayers. "Because you never know, someone could become aggressive. And also, the policemen know the area. When the shop owner tries to hide, and says he is not the owner, the policemen can tell us: 'yes, he is'. So we'll be a team of twelve, and two policemen." But the policeman on duty this morning does not exactly answer to the helpful image Mhaka has painted. Standing around drowsily and inert, he resembles a fixture in the street. When asked a question, he rambles on, pointlessly and barely audibly, about the need to bring down crime and fighting corruption. Is he drunk? Depressed? "Some in the police are not inspired like we are," explains Mhaka. "There are also those who fall prey to criminals, they will warn them when we are coming to check. So we never tell them exactly where we will be going."

A tragic legacy

It is one reminder of just what kind of a society South Africa is. Not only citizens, but their officials, too, show the damage of a traumatic past: apartheid law was oppressive and many people were against the law in more ways than one. It has become a tragic legacy. "This is a country with huge problems. You need to feel passion to work to improve it, otherwise you won't cope." The passion that Mhaka and her team exude is not accidental. "We consciously brought in activist-minded people, to get them to work with the technocrats that were already there," Mhaka's chief at head office, Sobantu Ndlangalavu, had told me just a few days earlier. Mhaka and her team members have been handpicked and groomed on that basis.

Mhaka herself was put in charge of a number of middle aged white women when she was barely 28. "They thought I was just there to sit and 'look black', but I was making changes. In the olden days, SARS only dealt with the tax returns of a small tax base of white people. It was all about procedure, not about building a new country. So I had to tell 'madam' that she must do things differently now. That was hard, also on them, because as white women they had also been victimized in the past, never having been promoted, still doing what they did when they started 15 years before." Back home in the village, Sandisa Mhaka's family was flabbergasted of course, when she told them how she was 'boss' now. "Boss! Of madams! They couldn't believe it."

Now, Mhaka educates the public about tax. "We are here to help," the team argues with a group of terrified and hostile Cameroonians, Somali's, South Africans and Congolese in an apartment building, where each floor overflows with fake Lacoste, Burberry and Hermes items, brought in (mostly) from China. "This is not about taking your money. If you don't have profit, we don't tax it. Registration can help you. You can have bank accounts. You can grow. WE will help you to grow."

"Do you want to be in a cupboard forever?" Sandisa Mhaka asks two giggling young women (one, Jocelyne, from Cameroon, and the other, Claire, from the DRC) after they come out from the clothing racks where they tried to hide. They have understood by now that the team is not going to take their merchandise and is not going to arrest them to check if they are illegal immigrants. "The cops do that sometimes," say Jocelyne and Claire. "That is why we are afraid."

Looking like an assault team

"See, they are scared of you," a big man in a blue shirt tells Sandisa Mhaka. He sounds and looks like a South African, and he is clearly not scared at all. "They think you are the cops. You mustn't come here looking like an assault team." (He is referring to the blue vests with the big letters: SARS). "On all the other floors, the shops are being closed as we speak. They are running as soon as they see you. These people need you to present a workshop here first, so that they can be educated." Mhaka does not immediately buy it. "Everybody pleads ignorance. So we tell them about our workshops. But then they don't pitch up." On the other hand, Claire and Jocelyne do seem interested in moving out of the 'cupboard' size space they have for their business now, and an end to illegality. "We would attend such a workshop," they chime in. There may just be the small matter of not having residence permits for South Africa, but today is not the day to ask them about that.

When Mhaka realizes that we are alone on the third floor, she tells me to come down quickly. "There is a reason why we go in with big teams, a place like this can become hostile." On our way down the stairs we pass a group of Congolese men gesturing wildly. Mhaka looks apprehensive, until she realizes what they are saying: it is about formalizing their businesses. "Registration is actually very easy," explains one. Outside, Mhaka tells the other team members, grinning from ear to ear. "This is becoming real. And we already have five registrations, too."

"Yes!" shouts a man at the hairdresser the team enters, grinning, with his fist in the air. "I am sure that Julius Malema is behind this. SARS must investigate!" It is a quote from the rebellious politician formerly leading of the ANC Youth League. "SARS must investigate!" Malema shouted defiantly, when questions first arose about the wads of money he reportedly cashed from government contracts. SARS investigated, and Malema is finished now, retired to a small farm in Limpopo - which he stands to lose to the taxman as well. The 'political' hairpiece trader, whose name is Thomas, is 'very compliant with SARS' himself, he says, though stories about corrupt government expenditure do worry him. "I guess we as citizens have to keep check on our government."

Back outside, Mhaka and other team members argue with me about the 'picture of rampant corruption' that is 'created by the media'. "There are plenty good things that the government is doing with taxpayers money. When we grew up, we had to walk kilometres to the river to get water. Now in our area everybody has a tap. I went to university thanks to government support. But you guys in the media always focus on bad stuff." I ask if good news stories, like: "Today people went to work, they found that there was water and electricity at work, and then they went home at five," would not be boring. But Mhaka cries out, with real emotion: "I would LOVE to read a story like that!"

Bad news is no news

In Sandisa Mhaka's universe of the 'usual' African problems, it is normal that things are bad, services are absent and institutions do not work. Things going well, therefore, are really big news. That is why Mhaka and her colleagues are excited about every new registration number her team manages to punch in their portable tablets. They are busy creating a functional, correct, good normality and it literally means the world to them.

Always at the back of Sandisa Mhaka's mind is that South Africans like herself were not always citizens. "We were servants, always told to wait for mlungu to tell you what to do, and mlungu will give you food. Many of us still behave that way and I sometimes envy the business spirit of Somali's and Zimbabweans. But I am hoping to make a change there, too. Part of my job is to help people to become entrepreneurial, and then to help them do that legally. Now, when I see someone who is not recording her or his affairs formally, I feel like helping that person to grow."

The big evaders

"We are small," is an argument that tax inspectors often hear in the informal sector. "Why don't you go after the big guys?" Sometimes the complainant is not, actually, that small. A taxi boss, for example, can be a US dollar millionaire. But there is something to the argument. According to Logan Wort, CEO of the African Tax Administrations Forum, the biggest tax evaders are multinationals and local big business. "Even corruption by public officials amounts to less, in terms of leakage of taxpayers money, than the amount that businesses evade." A recent investigation by the International Consortium of Investigative Journalists listed dozens of such evaders worldwide. Among these, several African businesspeople were identified. For a complete list, check here

The evaders usually park their excessive profits in an (offshore) tax haven, where the income goes largely un-taxed as well. (One of these tax havens, incidentally, are The Netherlands.

An evasion method used by many a multinational culprit is transfer pricing: the practice whereby a company does not pay tax in the country where it actually makes its money. Companies like Zambia Sugar and South African Breweries (in Ghana) list many 'costs' in these countries, resulting in a zero or negligible tax obligation. The 'costs' are then listed as income for a subsidiary of the same company in another country, often again a tax haven.

SARS, ATAF and other countries' individual tax administrations, liaise with the global Tax Justice Network to address these issues. Logan Wort: "ATAF, OECD, Tax Justice Network and other civil society partner organisations (such as Action Aid and Oxfam, EG) are coming together to help build systems that counter the practice. As tax services, we must set up legal instruments that enable cooperation between countries to deal with the same taxpayer. A company that evades tax in Rwanda and South Africa, for example, must be investigated by a joint team." Rwanda is one of the most eager member countries of ATAF.

This brings another element into the discussion. Rwanda's opposition claims that the current government behaves like a dictatorship and that tax money is being used to bolster the security apparatus and oppress dissidence. President Kagame is criticized for 'levying more and more harsh taxes' for this purpose. Is ATAF's assistance being used for oppression in Rwanda? Wort: "The issue of how taxes are spent and whether taxes properly benefit society is an important question, not just in Rwanda. But it is separate from the rule that one has to pay tax. Paying tax is compulsory in most, if not all, countries. Imagine if in Europe or anywhere else, opposition parties would call for a boycott of taxes because the government is perceived to be oppressive or corrupt. Society has other means to deal with such issues, through elections, or revolutions if need be."

The SA Revenue Services has convinced many South Africans, at least, that paying tax is the right thing to do. Though criticism of wastage, bad service delivery and corruption permeate public discourse also in this country, most South Africans -like Sandisa Mhaka - admit that services have improved. Few doubt that this is because of the money that SARS, increasingly, collects. This year, though revenue forecasts were gloomy because of the worldwide crisis and the decline in the South African mining industry, SARS beat its target again by about 4 billion Rands (Eur 400 million), collecting 814 billion Rands (Eur 81.4 billion) in total.

Click through to reading material:
No More Shifty Business: a response to the OECD's BEPS report on global tax
Most foreign investment in BRICs isn't foreign at all-it's tycoons using tax havens
Transfer pricing in Helsinki: videos now available
Cyprus: what the world's media has missed

News links:
Post-2015 agenda must be founded on coherent global framework, says panel The Guardian
Understanding International Tax Havens NPR
Panel for the radio broadcast includes TJN's James S. Henry, lead researcher of the report, "The Price of Offshore Revisited."
Laundry ... TJN Latin America and Caribbean (In Spanish)
A focus on Swiss banking

ZAM-net Foundation
Tussen de Bogen 66, 1013 JB Amsterdam
+31(0)20-531 8497

Back to top