A Critical Analysis of Tax Avoidance in the South African Income Tax Act 58 of 1962, as Amended

Jean Chrysostome Kanamugire


Everybody can organise his or her business in order to reduce, postpone or avoid tax, as long as he or she operates within the boundaries of the legislation. Tax avoidance is evil, as it deprives the state of the resources that it can use to meet its expenditure and responsibilities. Previously, the Commissioner had to prove that a transaction, operation or scheme had been entered into with the sole or main purpose of avoiding, postponing or reducing the liability to pay tax. The arm’s length test and abnormality test needed to be satisfied for the Commissioner to succeed in preventing tax avoidance. Tax avoidance had to be the whole or main purpose of a transaction, operation or scheme. These provisions were very weak and the Commissioner did not succeed in his or her activities. The new Amendment has introduced new remedies for the Commissioner to use to prevent impermissible tax avoidance arrangements. The Amendment protects the Commissioner to the detriment of the taxpayers. There is a provision for impermissible tax avoidance arrangement but the legislature did not provide for permissible tax avoidance arrangements. The new provisions for tax avoidance seem to structure how taxpayers should arrange their businesses. It is recommended that the law has to be amended to include the provision of permissible tax avoidance arrangements. This would help honest taxpayers to arrange their activities in such a way that they would save money and pay less tax to the state.

DOI: 10.5901/mjss.2013.v4n6p351

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Mediterranean Journal of Social Sciences ISSN 2039-9340(Print) ISSN 2039-2117(Online)

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