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Assessing Tax Compliance and Illicit Financial Flows in South Africa

image of Assessing Tax Compliance and Illicit Financial Flows in South Africa

Illicit financial flows (IFFs) such as tax evasion are a major policy challenge for developing and emerging economies, in particular as the COVID-19 pandemic has drained domestic resources. This report presents results from a joint project between the OECD and the National Treasury of South Africa, which assesses tax compliance and IFFs in South Africa. The report provides an overview of macroeconomic, tax and fiscal developments in South Africa since the global financial crisis. It discusses the concepts of IFFs, how they relate to the South African context and provides an overview of South Africa’s participation in multilateral initiatives to combat tax evasion. It also provides a quantitative analysis of tax compliance and IFFs over time amid a variety of tax transparency initiatives implemented in South Africa. Finally, the report examines the effectiveness of tax transparency initiatives such as voluntary disclosure programmes, and looks into income and wealth characteristics of applicants to these programmes.

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Assessing the size of undeclared foreign wealth and IFFs through the CRS

The objective of this chapter is to provide an assessment of the amount of previously undeclared foreign wealth held abroad by South Africans and to derive from it an order-of-magnitude estimate of IFFs in South Africa over recent years. The inability to directly quantify tax evasion, wealth hidden abroad and IFFs demands indirect approaches to estimation. Based on the data sources and the analysis discussed in the previous chapters, this chapter relies on several descriptive and quantitative approaches to estimate the extent of IFFs. Key to this is the use of statistics based on data received by South Africa under the CRS, which provides a first look at the foreign wealth holdings of South Africans, which may not have previously been reported. Given the uniqueness of the CRS data, a short overview of its coverage and the required data cleaning procedure is provided before further analysis of IFFs. OECD staff thanks the National Treasury, particularly Chris Axelson, for his analysis of South Africa’s CRS data.

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