The South African GAAR : striking a balance between permissible and impermissible tax avoidance

Abstract

In the topic of tax avoidance, there are two types of tax avoidance namely permissible and impermissible tax avoidance. Permissible tax avoidance is recognised throughout the world and more so it is recognised as a right. That is, a taxpayer has the right to choose to pay the least tax where the Income Tax Act permits. There other type of tax avoidance impermissible tax avoidance is completely prohibited. In fact, the South African General Anti-Avoidance (GAAR) primarily aims to combat impermissible tax avoidance although it has not been judicially considered. The application of the GAAR face a clash of interests of two parties namely the taxpayer s right to legally pay the least amount of tax and the government s need to protect the revenue base from impermissible tax avoidance. The question thereof is does the GAAR strike a balance between these two competing interests by drawing a line between permissible and impermissible tax avoidance. The GAAR attempts to limit the right of taxpayers to avoid tax but the complexity of the tainted elements hinders it to effectively inform taxpayers on what is permissible and what is not permissible.