Comparative analysis of revenue authorities’ approach to tax auditing and tax criminal investigation and its effect on tax compliance

Abstract

The paying of tax is essential for the economic survival of any country. The effectiveness of the revenue authority responsible for the collection of that tax is equally critical as it is tasked with collecting the correct amount of tax due from all eligible taxpayers in terms of its legislation. This research study has identified that the problem with tax collection by revenue authorities is that the behaviour of people differs as a result of varying influences or circumstances. This results in not everyone paying the correct amount of tax due. Much of this non-compliance can be corrected with education and efficient, appropriate service for those wanting to comply. Social norms also have a significant influence in terms of taxpayers doing the right thing. When necessary, soft approaches such as reminders through telephone calls, letters, advertisements, etc., are used with great effect. Unfortunately there are always those taxpayers who are deliberately non-compliant. The main aim of this research study is therefore to highlight that in order for the revenue authorities to ensure compliance from this category of taxpayers, stricter enforcement approaches, such as tax auditing and tax criminal investigations are necessary. By comparing the tax compliance strategies of the revenue authorities for Australia, Canada and South Africa, the research study concludes that there are strong similarities adopted by them. This is likely due to their involvement with the Organisation for Economic Co-operation and Development which conducts intensive research into these aspects and publishes this information for the benefit of all countries. The research study concludes that tax auditing and tax criminal investigations are an essential type of intervention for those taxpayers who do not comply. The research study further concludes that the purpose of these hard enforcement interventions is to ensure that the remaining tax base is protected and that the number of taxpayers in this category is limited or reduced. This enables the revenue authorities to improve collections through voluntary compliance. The research study, however, concludes that the effect of these interventions has not been accurately quantified by the three revenue authorities. Further research on the quantification of this effect will be most useful to any revenue authority, as it will assist in determining the extent of hard enforcement coverage. AFRIKAANS : Die betaling van belasting is noodsaaklik vir die ekonomiese oorlewing van enige land. Die doeltreffendheid van die belastingowerheid wat verantwoordelik is vir die invordering van die korrekte hoeveelheid belasting betaalbaar vanaf kwalifiserende belastingbetalers in terme van die belastingwetgewing, is dus ewe noodsaaklik. Hierdie navorsingstudie toon dat die probleem wat belastingowerhede ondervind met die invordering van belasting, die gevolg is van menslike gedrag wat verskil weens wisselende invloede of omstandighede. Die resultaat is dat sommige nie die korrekte bedrag belasting deur hulle verskuldig betaal nie. Meeste van die wetsongehoorsaamheid kan reggestel word deur opvoeding en doeltreffende dienslewering aan diegene wie wetsgehoorsaam wil optree. Sosiale standaarde speel ook ‘n belangrike rol in die besluit deur ‘n belastingpligtige om die regte ding te doen of nie. Indien nodig sal ‘n ligte benadering, soos ‘n aanmaning deur middel van ‘n telefoonoproep, skriftelike aanmaning en advertensies die gewenste uitwerking hê. Nietemin sal daar altyd daardie kategorie van belastingpligtige wees wat opsetlik die wet verontagsaam. Die hoof oogmerk van hierdie navorsingstudie is dus om te beklemtoon dat in die geval van hierdie kategorie van belastingpligtige, die belastingowerheid strenger gehoorafdwinging metodes, soos belasting oudits en selfs belasting strafregtelike ondersoeke, noodsaaklik mag ag om te verseker dat die wet toegepas word. Deur die gehoorafdwingings strategie van Australië, Kanada en Suid Afrika te vergelyk is daar gevind dat dit sterk ooreenkomste toon. Dit is heel moontlik as gevolg van die feit dat al drie lande betrokke is by die Organisation for Economic Co-operation and Development. Hierdie organisasie onderneem verskeie navorsing studies aangaande hierdie onderwerp wat dan die resultate publiseer vir gebruik deur ander lande. Hierdie navorsingstudie kom tot die gevolgtrekking dat belasting oudits en belasting strafregtelike ondersoeke noodsaaklike ingrypings is teen belastingpligtiges wat kies om die wet te verontagsaam. Die navorsingstudie bevind verder dat die doel van streng afdwingingsmetodes is om die oorblywende belastingbasis te beskerm en om die getal belastingpligtiges in hierdie kategorie te beperk of te verminder. Dit maak dit moontlik vir die belastingowerheid om invorderings te verbeter deur vrywillige wetsgehoorsaamheid. Die navorsingstudie bevind egter ook dat die effek van streng afdwingingsmetodes nie akkuraat gekwantifiseer kon word deur enige van die drie belastingowerhede nie. Verdere navorsing oor die kwantifisering van die uitwerking op wetsgehoorsaamheid sal baie nuttig wees vir enige belastingowerheid, aangesien dit behulpsaam sal wees om die dekking van die gehoorafdwingings metodes te bepaal. Copyright 2011, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria. Please cite as follows: Lawrence, DA 2011, Comparative analysis of revenue authorities’ approach to tax auditing and tax criminal investigation and its effect on tax compliance, MCom dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-03222012-152632 / > F12/4/177/gm