Abstract:
Background: Tax avoidance is a prevalent issue that perplexes many governments, policy
makers and revenue collection authorities across the globe. Tax avoidance is the legal
exploitation of loopholes in tax laws and the abuse of tax benefits intended for other
purposes. Excessive and impermissible tax avoidance constrains a government’s capacity
to deliver public goods, services and programmes to the broader public.
Various measures have been implemented over time to curb this unwanted behaviour.
Examples of these measures include tax reforms and the introduction of general and specific
anti-avoidance rules and penalties. This study focusses on the effectiveness of the use of
penalties as a measure to combat tax avoidance, firstly at a global level and then centred
on South Africa.
Main purpose of study: This study aims to provide a systematic review on the opinion of
academic literature globally regarding the effectiveness of tax penalties in combatting tax
avoidance and to make recommendations on the implementation of penalties in South
Africa.
Method: Relevant literature was identified from high quality sources and analysed according
to predetermined criteria. A brief overview of the literature was performed and findings were
presented and discussed. Conclusions regarding the effectiveness of tax penalties were
drawn and, where applicable, recommendations were made for the implementation of
penalties in South Africa. Results: The opinion in academic literature regarding the effective use of penalties to
combat tax avoidance is varied. Penalties by themselves are rarely regarded as an effective
measure to reduce tax avoidance. In this regard, various factors exist that influence the
ability of a penalty to affect real change in taxpayer behaviour and reduce unwanted tax
avoidance.
Conclusions: South Africa has implemented tax penalties, in accordance with global
norms, to combat unwanted tax avoidance. By focussing on other factors that, in
combination with tax penalties, make these tax penalties more effective, greater change in
taxpayer behaviour can be achieved. The existing penalties would therefore not need to be
changed to be more effective but additional measures should also be taken to change
taxpayer behaviour.
