A regulatory framework for tax whistleblowing in South Africa

Abstract

This study explores the viability and practicality of incorporating an incentivised tax whistleblowing programme in the Tax Administration Act, 28 of 2011. The primary objective of the study is to develop a legislative framework that can be used as a baseline for the development of the Tax Administration Act. To achieve this primary objective, the study considers the theories of compliance such as economic deterrence theory, fiscal exchange theory, social and comparative treatment and trust and political legitimacy of revenue authorities. These theories provide a basis for concluding on the factors that influence taxpayers' behaviour. The potential effect of a whistleblowing programme on these theories is considered to determine the potential role of an incentivised whistleblowing programme. The study also considers protection laws, fines, reporting duties and rewards as different regulatory policies or strategies to compel tax compliance. Finally, by taking lessons from the policy designs of the US and Australia, the study concludes on the foundational requirements for an incentivised whistleblowing programme. The study adopts a mixed-method approach. It involves reviewing the findings of existing studies on behavioural economics to understand taxpayer behaviour and a doctrinal analysis of the existing legislative framework in South Africa. In addition, the study also examines the regulatory designs of incentivised tax whistleblowing frameworks in the US and Australia, not for comparative purposes, but to gather key insights into the foundational requirements for an incentivised tax whistleblowing programme. The key findings of the study can be summarised in three main points. Firstly, South Africa does not have an incentivised tax whistleblowing programme. In fact, there is no incentivised whistleblowing programme in South Africa. Secondly, the South African tax legislative framework requires amendment to accommodate such a programme. Tax whistleblowing is a fundamental and powerful tool for revenue authorities to collect information and combat tax non-compliance and evasion. Thirdly, the proposed incentivised legislative framework envisages the following seven foundational requirements: i. A separate office within SARS that deals with whistleblower reports; ii. The investigation powers currently available to SARS must be available for this separate office to investigate the whistleblower reports; iii. A preliminary reward must be calculated; iv. Appropriate dispute resolution mechanisms and processes; v. A system for payment of rewards; vi. Adequate protection for whistleblowers and taxpayers; and vii. Appropriate anti-retaliation mechanisms. Finally, the proposed whistleblowing programme passes preliminary constitutional scrutiny making it a viable option for consideration by SARS and the South African legislature. The introduction of an incentivised tax whistleblowing programme has several benefits. It could potentially assist SARS in achieving its strategic objectives to promote voluntary compliance by encouraging individuals to report tax non-compliance and evasion. The proposed programme could increase revenue collection, since whistleblowers provide information that can be used to recover unpaid taxes. The proposed programme also plays a role in the deterrence of non-compliant and evasion behaviour, since individuals and companies may be more cautious and less aggressive in their tax planning. In conclusion, the study highlights the potential benefits of such an incentivised tax whistleblowing programme and provides insight into the development of such a policy in South Africa. The study acknowledges the need for future research to develop the preliminary framework established in this thesis, so as to address the unique challenges within a South African context.