The developments of a prosecutorial approach to combat income tax fraud in South Africa.

Abstract

The South African Revenue Service (SARS) is South Africa’s tax collecting authority. SARS was established under the SARS Act [No. 34 of 1997] as an autonomous agency, which is responsible for South Africa’s tax system and customs service. Tax is a crucial aspect of life for all citizens. Tax compliance contributes to national fiscus, and has positive implications such as better schools, improved social amenities, well-resourced hospitals, and strong domestic infrastructure. A common form of fraud against government is tax fraud in which either individual taxpayers do not pay taxes or they try to find illegal ways to avoid paying taxes. There has been a noticeable increase in targeted attacks from cybercriminals taking advantage of the SARS’ e-filing system. Government initiatives to combat crime have largely focused on visible and violent crime, while ‘white-collar crimes’ of fraud and corruption have not been high on the policy agenda. This study was conducted in Durban under KwaZulu-Natal province of South Africa. A qualitative research approach was adopted in this study to explore the development of a prosecutorial approach to combat income tax fraud in South Africa. Interpretive and constructivism qualitative paradigms were deemed suitable to allow participants to describe their understanding, interpretations, narratives, and personal experiences of efforts to combat tax fraud in South Africa. Phenomenological research design was adopted to explore the phenomenon under investigation. Thirty- one (n=31) key informant interviews (KIIs) were conducted with Ngubane National Accountants and Auditing Firm (NNAAF) experts who at a time were qualified Accountants, Internal Auditors, and Forensic Auditors. Twenty (n=20) in-depth individual interviews (IDIs) were conducted with the National Prosecuting Authority (NPA) experts who at a time were qualified Specialised tax unit prosecutors (NPA STU) and NPA Asset-Forfeiture Unit (NPA AFU) prosecutors. The participants were purposively selected to share their expert knowledge on taxation systems and tax fraud in South Africa. Fifty -one (n=51) participants were interviewed individually in this study. Three interview guides containing lists of open-ended research questions were used to collected quality data.The researcher took field notes during interviews and the interviewed participants were informed of the study purpose. The participants signed an informed consent form as evidence of agreeing to participate voluntarily. Thematic analysis was adopted to analyse, code, and categorise themes that emerged from the interviews. Study findings revealed that there is a lack of skills and knowledge on detection, investigation, and prosecution of income tax fraud amongst accountants, auditors, investigators, and prosecutors in South Africa. The lack of technological investigative skills on tax crimes results in infective prosecution of tax crimes. Shortage of cybercrime and specialised tax unit prosecutors has a negative impact on quality investigation and prosecutions of tax fraud. Technological challenges on detection, investigation and prosecution processes have an impact in collecting digital evidence and in effective prosecution. Conflict of interests amongst stakeholders results in poor stakeholder co-operation. Findings also show that tax fraud perpetrators usually get fines rather than direct imprisonment. Findings reveals that the criminal justice system is not treating this crime the same way as violent crimes. There is lack of stakeholder co-operation and legislative challenges to investigate and prosecute tax crimes. The use of accounting and auditing firms has been categorised as poor. E-filing is an effective technological tool to detect, investigate, collect digital evidence, and prosecute tax fraud offenders. However, it has contributed to the current scourge of tax fraud. This study recommends that SARS as a primary tax administration stakeholder should engage with the public and private sector to develop a technological tool that will be used by taxpayers and stakeholders to report suspected tax fraud. SARS e-filing system needs to be re-implemented and improved to deter tax fraud. All tax crimes stakeholders (SARS, accounting and auditing firms, SAPS, and NPA) must sign a memorandum of understand (MoU) to enforce working relationship. All tax crimes stakeholders should conduct public workshops to promote tax compliance and deter tax crimes. Taxpayers must use the services of accounting and auditing firms to comply with tax legislation. Cybercrime investigators must be employed and trained to incapacitate them with skills and knowledge to collect digital evidence admissible in court. The NPA must employ additional tax unit prosecutors and provide cybercrime prosecution process training. All tax crimes stakeholders should implement and adopt tax fraud prevention strategies. Tax laws must be amended to allow the criminal justice processes to access all taxpayers’ information and there should be separation of powers between SARS and NPA AFU.