Corruption and financial mismanagement in state-owned entities: the role of fiscal legislation in deterring corruption and fruitless and wasteful expenditure in state-owned entities

Mkhwanazi, Zola Elsie
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Corruption has been around for thousands of years, but in recent years, it has been increasing and has attracted world-wide attention. South Africa as a developing country, has also been affected by corruption and also financial mismanagement in its State-Owned Entities. South African tax law, like most tax law across different jurisdictions, generally provides for tax reforms that promote the anti-corruption drive in government entities and tax reforms that manage fruitless and wasteful expenditure. As corruption and fruitless and wasteful expenditure continuously increase in government entities, concerns about the impact on liquidity of these entities due to the misappropriation of public funds also increase. The evidence of this paper aims to address the following question: Have the promulgated tax laws been effective (proxied by perceived corruption) in deterring corruption and fruitless and wasteful expenditure in South African State-Owned Entities? The tax regulations against which an analysis was performed are: 1. Provisions of section 23(o) of the Income Tax Act, 58 of 1962 which regulate the deductibility of illegal expenses and fruitless and wasteful expenditure. 2. Application of the definition of gross income on illegal receipts. Specifically, it has been found that the increase in corruption, increases tax non-compliance which means it is most likely that those who are party to corruption, are likely not to comply with the laws promulgated to reduce corruption. It has also been found that fruitless and wasteful expenditure is high, and it mainly relates to interest and penalties levied by creditors and South African Revenue Services. The higher the fruitless and wasteful expenditure, the higher the amount subjected to non-deductibility for State-Owned Entities.
A research report submitted partial fulfilment of the requirements for the degree of Master of Commerce to the Faculty of Commerce, Law and Management, Wits School of Accountancy, at the University of the Witwatersrand, Johannesburg, 2022