A financial and moral perspective of the impact of economic crime on taxation

Abstract

Fraud, corruption, and related taxation consequences from a financial and a moral perspective were investigated in this study. A literature review of tax ethics, tax morality, tax conduct, tax planning, tax avoidance, tax evasion, tax fraud, white-collar crime, fraud, money laundering, corruption and corporate governance are presented. The research methodology and empirical investigation followed, the research results achieved, and the conclusions and recommendations made, are also presented. The most import conclusions from this study are that economic crime (such as fraud and corruption) has an impact on taxation in South Africa, that economic crime offences ignore any possible taxation consequences and that the type of the economic crime being perpetrated is a function of the opportunities available to a potential offender. The majority of the respondents (both economic crime offenders and role-players in the field of the prevention, detection and prosecution of fraud, corruption and tax related offences) indicated that law enforcement, prosecution and sentencing practices are not adequate in South Africa. However, the majority of both groups of respondents also indicated that current laws and regulations are adequate to address economic crime in South Africa. This could be interpreted as a vote of confidence in current laws and regulations but an indication that it should be applied more effectively in the fight against economic crime. Within the legal framework of the criminal justice system and the various taxation laws and regulations in South Africa, there are always opportunities for people to come into conflict with the law. This study was also undertaken to investigate an economic crime offender’s perceptions of fraud, corruption and tax-related offences. In total 82 economic crime offenders, serving a prison term for their offences, completed a questionnaire and were personally interviewed in a semi-structured interview comprising pre-set questions. The study demonstrated that there is a correlation between an economic crime offender’s level of education and the monetary extent of the perpetrated offence. In perpetrating an economic crime, the offender is only concerned about the immediate financial reward, disregarding any possible consequences such as taxation or prosecution. To prevent fraud, corruption and tax-related offences, the motivation to commit such crimes should be eliminated or reduced. Fraudsters weigh up the individual risks and rewards of their criminal behaviour, and for that reason, their future conduct can be modified with appropriate rehabilitation and anti-economic crime education programs. Consequently, this study has vital implications for reformulating appropriate rehabilitation programmes for economic crime offenders. Economic crime offenders should be subject to an anti-economic crime education program in which the consequences of perpetrating economic crime in general on the economy and tax revenue could be conveyed to such offenders. Rehabilitation programs designed and developed specifically for economic crime offenders should be implemented at correctional institutions.