The impact of the adoption of digital money on tax evasion in South Africa: perception of tax professionals

Abstract

Setting In developing economies like South Africa, government involvement in the provision of goods and services plays an important role in economic development and growth. While South Africans expect the government to provide such services, the government relies mostly on tax revenues collected by the South African Revenue Service (SARS) from taxpayers to fund them. However, with the rise of economic crimes such as tax evasion, government revenues have been negatively affected, leading the government to fail to provide goods and services as expected by citizens. The study investigated the effects of digital money adoption on tax evasion from a tax practitioner's perspective. Methodology The study followed a quantitative research methodology. A Positivist research paradigm was adopted to help the researcher gain a better understanding of professional tax accountants' perceptions of the relationship between digital money adoption and tax evasion. From a population of 9 034 South African Institute of Tax (SAIT) practitioners, a sample of 385 participants was randomly selected across the nine provinces of South Africa. The data were collected using survey questionnaires created using Google forms. The study adopted Inferential statistics to analyse the data using Pearson correlation, regression analysis, and ANOVA. These data analysis techniques were run using the SPSS application, aided by the Microsoft Excel. Findings The findings suggest that adopting digital money in South Africa may reduce tax evasion. The findings also suggest that the current methods used by SARS to fight tax evasion are effective, except for the prosecution and criminal liability penalties. Furthermore, SARS tax audits and interests were both found to be more effective at detecting tax evasion. The findings also showed that adopting digital payments will have a better effect on combating tax evasion than the current SARS methods of fighting tax evaders. However, adopting a digital money economy does not necessarily replace SARS's methods for fighting tax evasion; instead, SARS should take advantage of the opportunity presented by digital money to improve tax collections. In addition, electronic payments, bank cards, and the South African Reserve Bank digital currency were found to be the best fit to replace coin and paper money as the primary mode of payment in South Africa. However, cryptocurrencies such as Bitcoin and Ethereum were not fit to replace banknotes and coins as the primary method of payment in South Africa as they potentially lead to increase in tax evasion. Implications and the value-add The study concluded that adopting digital money in South Africa could reduce tax evasion. Recommendations included that the government and SARS should work together to establish educational programmes targeting rural areas and urban areas to teach ordinary residents about the importance and reasons of paying taxes, and to offer Cybersecurity and digital literacy training. The study provides policymakers, SARS, the Government, and Financial Technology organizations with practical insights into digital financial instruments and their impact on South Africa's economy.