Detect and Deter or Catch and Release: Are Financial Penalties an Effective Way to Penalise Deliberate Tax Evaders?

117 Pages Posted: 24 Apr 2018

See all articles by Chris Leech

Chris Leech

Australian National University (ANU) - Crawford School of Public Policy

Date Written: April 11, 2018

Abstract

Tax penalties play an important and often undervalued role in the tax system. They primarily serve two functions: to deter non-compliance, and to reinforce community perceptions that the tax system is fair because non-compliant taxpayers will suffer consequences. Most tax penalties are administrative financial penalties imposed by the tax authority, ranging from minor penalties to financial penalties imposed on deliberate tax evaders. This exploratory paper draws on new data relating to payment of tax penalties for false and misleading statements. The data is subject to limitations and qualifications as detailed in the paper. Overall, the data shows that the majority of financial penalties imposed on deliberate tax evaders are never paid. The paper then seeks to explain how this can serve to undermine the effectiveness of these penalties. The paper reviews literature explaining the role of tax penalties and the hallmarks of effective tax penalties. It also reflects on a chapter of Australian tax history where community perceptions that tax evaders were not being effectively penalised jeopardised the perceived fairness of the tax system. The paper argues that if the current tax penalty regime is not strengthened then this will likely pose a risk to the perceived fairness of Australia’s tax system, and it therefore proposes some potential solutions, including arguing for two new penalties to be introduced into the regime.

Keywords: tax penalties, penalty, false or misleading statement, evasion, effectiveness, payment

Suggested Citation

Leech, Chris, Detect and Deter or Catch and Release: Are Financial Penalties an Effective Way to Penalise Deliberate Tax Evaders? (April 11, 2018). Tax and Transfer Policy Institute Working Paper 6/2018 . Available at SSRN: https://ssrn.com/abstract=3161239 or http://dx.doi.org/10.2139/ssrn.3161239

Chris Leech (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

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