An exploration of the taxability of income derived from illegal activities in South Africa

Abstract

This study aimed to explore the taxability of income derived from illegal activities in South Africa. The issue of whether or not income earned by a taxpayer as a consequence of illegal activity should be deemed income received by the taxpayer has caused controversy in South Africa and elsewhere in the world. According to the definition of "gross income", it has been found in a number of studies that a person can be subject to taxation based on either their receipts or their accruals. Gross income is what is required by South African Revenue Services from every taxpayer to declare all of his income in his tax return, including money from unlawful activities such as proceeds from the fraud. The rationale of this study was to tighten the present law on unlawful income taxation by determining and comprehending the appropriate technique for the courts to use in evaluating whether a taxpayer has ‘received’ illicit money for gross income purposes. This study was a qualitative, non-empirical investigation of the taxability of income earned through unlawful activities. In order to construct a hypothesis, the study used an inductive research approach to produce meaning from the data set acquired by identifying patterns and linkages. The inductive approach, on the other hand, allows the researcher to formulate the problem under review research using an existing theory, as was the case in this study. The study identified tools that allow tax authorities the power to have access to all taxpayers’ financial information that could help in identifying their income for taxation purposes. The findings of the study include that, in all jurisdictions, income is regarded as taxable income if it falls within the definitions of taxable income, regardless of the nature of its legality. The significance of the study suggested enacting a legislative measure to ensure a more united, uniform, and effective strategy to tax unlawful money. And it is also critical in tightening the present legislation on illegal income taxation in identifying and analyzing the suitable methods for assessing whether the taxpayer has ‘received’ illegal income for gross income purposes. . The rules controlling taxation must be viewed in the context of other legal concepts, particularly the Constitution of the Republic of South Africa (the Constitution) is the country’s supreme law.