Zuma’s Corruption Stalls Popular Trust in South African Taxation

In parts of Africa where governments are weak, corrupt, and lack popular legitimacy, individuals seek to avoid paying their taxes. Motivation for tax non-payment ranges from being a form of protest to there being a government with little or no ability to enforce penalties. Instead of taxes paid by individuals, states often rely on revenue that is easy to collect, such as customs and excise duties, sales taxes, and from taxes owed by big corporations that are engaged in extractive industries, often in partnerships with the government. The general willingness of people to pay individual taxes is a useful marker of the perceived legitimacy of a government and the state. In apartheid South Africa, few non-whites paid taxes, other than value added taxes (VAT), a form of sales tax that falls disproportionately on the poor. Similarly, in the townships there was an unwillingness to pay electric and other utility bills. Then again, few outside of a portion of the white minority perceived apartheid South Africa as a legitimate state.

After the 1994 transition to “non-racial” democracy and the inauguration of Nelson Mandela as president, the popular legitimacy of the South African state dramatically improved among all racial groups. So, too, did compliance with tax law. According to a recent article by the New York Times, post-apartheid tax collections rose year after year, “eventually surpassing some benchmarks in much richer, more established democracies, including the United States.” The Times, citing government statistics, reports that the number of South Africans paying taxes quadrupled between 1994 and 2010, and the post-apartheid South African Revenue Service (SARS) won international praise. Because income distribution in South Africa is probably the most unequal in the world, with whites much wealthier than blacks, personal income tax is mostly paid by the wealthiest one percent of the population, which is largely white.

During Jacob Zuma's presidency between 2009 and 2018, particularly during his second term, scandal and corruption deeply damaged the image and capacity of SARS and its parent agency, the National Treasury. Critics credibly accuse Zuma of seeking to destroy the independence of both institutions to facilitate his personal corruption, that of his family, and that of his cronies, notably the Gupta brothers. The latter are of South Asian origin and business partners of at least one of his children. The Times reports extensively on Zuma’s personal waffling on the payment of his own taxes. Zuma allegedly fired well-respected leaders of both agencies and replaced them with political allies and cronies. The Times reports wholesale exodus of career civil servants and their expertise. The scandal eventually involved—and tarnished—institutions ranging from the Sunday Times (the newspaper with the largest circulation in South Africa) to the international accounting firm KPMG. International confidence in South African financial institutions eroded, the value of the Rand against the dollar fell, and South Africa’s credit rating dropped. The scandal is still playing out in court. The legal and financial issues are highly complex and may be difficult to follow for South African voters, who go to the polls in 2019.

The governing African National Congress (ANC) rid itself of Zuma as party leader in December 2017, and Cyril Ramaphosa, the new leader, maneuvered Zuma out of the state presidency in February 2018. The ANC, some of whose leaders were thoroughly complicit with the assault on SARS and the Treasury, concluded that Zuma was too great an electoral liability because of his association with corruption. Ramaphosa has set about trying to restore the credibility of SARS, the Treasury, and other institutions of government. However, Zuma and his allies remain powerful within the ANC, and Ramaphosa can move only with care.

There are signs that South Africans are reverting to not paying their taxes. The Treasury estimates that half of the revenue shortfall in 2017 resulted from personal income taxes that the government had budgeted for but were not paid. The shortfall is compelling Ramaphosa to raise the VAT. The question must be whether South Africans are losing confidence in their government, and whether Ramaphosa can restore it. It is encouraging that Zuma is now being tried in a South African court on personal corruption charges.