TAX EVASION AND ITS EFFECTS ON DEVELOPING COUNTRIES; A CASE OF SOUTH AFRICA
Abstract
Purpose of the study: The study sought to examine the effect of tax evasion on the economy of developing countries in the case of South Africa.
Statement of the problem: Tax evasion is a challenging issue in most countries for the tax authorities and has existed for a long time. Tax evasion has been a typical problem, notably in countries with weak tax collection systems, and this formed the basis of the study. Tax evasion could be why many African countries are overburdened with foreign debts due to insufficient tax collection. Hence, the study was thought worthy for policy formulation among countries in all developing countries.
Research methodology: The study was literature based. The inferences were based on the findings from the preceding studies.
Findings: Based on the reviewed literature, it was found that tax evasion has a significant impact on the economies. Tax evasion happens when an individual or firm unlawfully avoids paying their tax which is an illegal act and attracts fines and penalties. Tax evasive practices widen wealth inequality along with weakening consumer purchasing power. Tax evasion adversely affects the economy, like the decrease in government revenues.
Conclusion: The study concluded that tax evasion affects the economy negatively. Tax evasion substantially minimizes government revenue and consequently influences the level of public expenditure. Tax evasion creates investment disruption in the form of the purchase of properties exempted from tax or under-valued for tax purposes.
Recommendations: The study recommended that developing countries such as South Africa need to build systems that will reduce tax evasion. The government should collaborate with the authority concerned with tax collection to ensure that those responsible for tax evasion face the full force of the law, fined and sentenced to assist in setting an example to other individuals who may be taking into consideration the vice. It is also recommended that the government use the tax more efficiently and reduce waste so that more individuals can be encouraged to remit their taxes.
Keywords: Tax evasion, economy, developing countries, South Africa
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