Illicit Transfers and Tax Reforms in South Africa: Mapping of the Literature and Synthesis of the Evidence

There is mounting evidence demonstrating that massive amounts of revenue are transferred from South Africa and other developing countries annually in ways that significantly deprive the national revenue authorities of resources that could be used to improve local livelihoods. For instance, a synthesis of the evidence by Honest Accounts (2017) reveals that foreign corporations have been drawing away profits from South Africa far faster than they were reinvesting or than local firms were bringing home. The paradox of South Africa’s considerable reserves of natural resources on the one hand, and the pervasive poverty of its people on the other hand, remains a deep feature of its economic landscape that partly demonstrates the impact of illicit transfers (see UNECA, 2011). In South Africa, abusive transfer pricing or trade mispricing is often committed by large corporations as a form of aggressive tax avoidance and therefore, is illegal in terms of Section 31 of the Income Tax Act. Various research reports confirm that a significant amount of illicit transfers from South Africa takes place through these conduits. This synthesis report reviews the available literature and relevant policies pertaining to illicit transfers and tax reform landscape. It further identifies key stakeholders in in South Africa order to articulate the key attributes that could make the taxation regime more effective. South Africa is used as a case study that helps in deepening the analysis of key issues one engages with when dealing with tax reforms and illicit transfers in developing countries. Major focus is on how South Africa can improve its national taxation regime, with special attention being paid to the capacity of the state to organise and manage the tax collection system and prevent illicit transfers.