Corruption, more than any other factor, leads to an increase in tax avoidance and retarded economic growth. That was the message of David Hartnett, former permanent secretary of tax at the UK’s revenue and customs authority, at this year's Tax Indaba at the Sandton Convention Centre. “When there is a fair system, tax compliance and tax morality seem to be high. However, there is ample evidence that systemic corruption can do serious harm to tax morality,” he said.
Hartnett said there had been an extraordinary period of taxation and unprecedented worldwide interest in tax rates since the 2008 global financial crisis, brought on by increased corporate responsibility, the rampant pace of globalisation, higher levels of cooperation between tax authorities and big business recognising the need for chance. In addition, there was a groundswell of anti-business sentiment caused by multinationals not investing in local communities, exorbitant executive remuneration, an abundance national austerity programmes and the growing gulf between rich and poor.
Tax morale, according to Hartnett, is a fragile attitude that is easily influenced by external factors. High levels of compliance reduce the cost of tax administration and because citizens feel that tax is not intrusive, it is easier to plan expenditure well in advance. This allows for sustainable development, reduces aid dependence, increases trade and foreign investment and creates an opportunity for state building because high compliance rates raised government accountability.
Hartnett said studies had shown that gender (female), age (older), political ideology (democracy), faith (any persuasion) and education were key factors determining whether an individual was likely to comply with tax regulations.
In closing, Hartnett mentioned a few notorious political scandals, including the Irish Dirt Inquiry and the Thatcher steel strike tax controversy, both of which had failed to affect compliance rates. In contrast, the Ukraine, however, had an infamous revenue service that was consistently ranked last in all surveys of credibility and as such, the country's tax compliance rates were among the lowest in the world. He added that there were a number of African governments that were auditing multinationals several times a year in a bid to extort additional revenue.
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