Assessing the taxpayers' comprehension of tax reduction strategies

Abstract

Paying tax is like swallowing a bitter pill for most citizens hence any form of tax minimizing or avoidance is always welcome. The South African tax system is structured in a way that allows tax minimization within the limits of the law. This is done by implementing certain measures as indicated in the Income Tax Act. The Income Tax Act, no. 58 of 1962 contains several sections that deal with tax deductions for individual taxpayers. This involves making contributions and incurring some costs. The tax-deductibility of these contributions and costs is vital to the individual taxpayers for the reduction of tax liability. The purpose of this study is to assess how much taxpayers know about these options and if they utilize them to reduce the amount of tax they pay. A qualitative research approach and a systematic review was applied in the study. Existing literature and tax reports from the South African institutions that deal with the payment and tax related matters were analysed. The study firstly did an evaluation of sections 11A and 11F, section 6B, section 12T, and section 18A of the Income Tax Act. The provisions of these sections were evaluated concerning the tax deductibility of the measures within the sections and the application thereof. The study then reviewed the literature concerning tax deductibility measures available to taxpayers as well as annual reports about the tax deductions knowledge of mechanism at the taxpayer's disposal for lowering the tax burden. The study associates the utilization of tax reductions strategies with the level of comprehension the taxpayers have of these strategies. Comprehension of the strategies is a subject of the readability of the SARS communications and tax legislation. The impediment to comprehension of the tax reduction strategies is the above-average readability index of SARS communications. This in light of the literacy level of the individuals in a society with lower literacy level compared to other countries with similar economic challenges. Findings suggest that some tax minimisation strategies are underutilise, owing to the minimal comprehension of tax reduction strategies. The study indicates a strong desire amongst academics to establish the solution to the lack of comprehension which if addressed can alter the attitude of citizens towards tax. The study concludes that the use of plain and simple language to communicate with taxpayers in a way that is easy to understand could be useful in altering attitudes towards tax as this might lower the readability index on SARS communications and improve taxpayers' ability to read and understand SARS communications. This is likely

to increase the level of comprehension taxpayers have on tax reduction strategies and tax legislation and subsequently encourage the utilization of tax reduction strategies which stand to benefit both the state and the taxpayers.