The thought of paying taxes always brings a gloomy picture to those facing the obligation. Many people become resentful about submitting their tax returns to the Revenue Services. There is possibly a mental health pandemic around tax submission and payment – a surge in one of the biggest fears – the fear of poverty.

The looming submission deadline brings about diverse behaviours from taxpayers. Some taxpayers will submit accurately, others inaccurately, some will hire consultants and advisors to assist in dampening the burden, others will ignore the submission deadline completely and carry on with life as if everything is normal, hoping for a lenient penalty from the Revenue Services.

The Revenue Services are not lenient anymore, and have also introduced Artificial Intelligence to deal with most of their tax cases – one of the areas which government is really efficient in administering.

The Revenue Services deals with diverse taxes depending on the nature of the transaction. Some examples are point-of-sale transactions, cross border transactions (where the Reserve Bank is also involved in legislating), employee taxes, juristic persons income taxes, etc. For this they have laws and regulations to administer.

What would happen if government did not charge taxes?

It is almost unbelievable that there was a period when taxes did not exist. There was no burden for taxes on those generating an income. Trade would happen with no need for taxes to be paid. The main reason for taxes is more economical than just the thought of paying taxes. A book titled Wealth of Nations by Adam Smith motivates that as a society we live to enhance our wellbeing and we can do so as private individuals without the need to receive “free” service from the government. The Wealth of Nations basically pushes for free market trade where taxes are low or non-existent and people are wealthy using their wealth to satisfy society’s needs.

The case of whether free-market trade is better than government intervention is not covered in this article. What is important to note is that government functions through levying taxes on its citizens – individuals and juristic persons. It is also important to note that fairness should be on both ends – if government has imposed a certain tax charge, it is important that government receives that exact amount, no more no less, at the right time. Accuracy allows government to continue providing the service and the citizens to enjoy that service.

Different types of taxes

At a high level there are essentially two types of taxes levied by government, either through the revenue services or dedicated state-owned entities:

1. Taxes which are submitted periodically at legislated date; and
2. Taxes which citizens pay as they go: Levies

Purpose of levies

Levies are taxes – citizens pay levies so that government provides a service, usually through a state-owned entity. Examples of levies, include fuel levies, toll fees, land rehabilitation levies, etc. Their purpose is simple – the service that has been provided or damage that has been caused to a country’s environment must be paid for and done so in proportion to the cost of service or damage incurred. This allows the government to continue providing that service.

Volume catastrophe – is technology letting taxpayers down?

In a government where law enforcement is functional, citizens generally pay their taxes timeously and accurately. However, the challenge comes when government overstretches itself and overcharges compliant citizens because of its own inefficiencies. This disparity often goes unpunished, especially in high volume transactions.

For instance, the toll road system in South Africa is quite efficient and fairly advanced. When travelling across provinces, one passes a number of toll gates which are generally highly congested during peak seasons. There are 3 options of paying through the toll gates: (1) cash, (2) Bank Card or (3) E-tag (preloaded tag attached to car windscreen with credit).

The e-tag option is efficient and provides travelers with an opportunity to pass through the toll gates faster. However, the introduction had several legal challenges which led to many citizens opting not to use this method.

The next best efficient method is using a bank card, as cash is generally being discouraged. However, it appears that many travelers still prefer to use cash because they do not want escalating bank charges each time they swipe. Using cash delays traffic movement at the toll gates resulting in further inefficiencies.   

Those who swipe their bank cards have also experienced another problem – delayed duplicated billings in their bank accounts. The deductions are often 5 – 7 days after the transactions took place. While the individual amounts may be insignificant, the volume of transactions is very high. This means that the government may be inappropriately benefiting from its citizens.

The overall transactional flow involves various service providers: (1) the POS machine (fintech product), (2) The paying bank, (3) The Clearing House for the transactions and (4) The receiving bank.

Who is at fault?

The POS machine will provide a unique transactional reference number which should be deducted once. If it provides the same number twice, the paying bank should be the first point of check and rejecting its deduction. The Clearing house should also reject duplicated transactions. The POS machine is the initiator of the transaction for the receiving bank (representing government) and therefore the receiving bank is likely to receive as credited into their account with no further internal responsibility of the government’s bank account.

The key remains that the POS should only send one unique transaction reference per transaction and immediately flag or reject anything that appears suspicious. The duty to check duplication, unfortunately remains the owner of the paying bank account. The best option for the affected account owner to retrieve any duplicated transactions would be through assistance from their bank. In addition to introducing new innovations around transactions of this nature, fintechs must always be weary of threats that may place the consumers at risk of losing their money.