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The fallacy of general deterrence and the futility of imprisoning offenders for tax fraud


The usual punishment for large-scale tax fraud in Australia is imprisonment. This is despite the fact that the offence does not harm an identifiable individual and many offenders have no prior criminal history. There are numerous variables that are relevant to the sentencing calculus. However, in relation to tax offences the courts have consistently stated that the most important consideration is general deterrence.

The reason that offenders who defraud the revenue normally go to jail is to deter other potential offenders from engaging in similar conduct. Ostensibly, this is a tenable justification. In this article we argue that this rationale is, however, empirically and normatively flawed. There is no proof that harsh penalties for tax offences increase compliance. Moreover, from a deontological perspective it is morally wrong that a person should be sacrificed to set an example for others.

This paper suggests that in order to match tax sanctions and investigative procedures with the current knowledge about what works and what does not, three steps need to be taken: (i) the penalties for tax fraud should not be increased in a bid to deter would-be offenders; (ii) stern sanctions should continue to be imposed in cases of tax fraud (fines would generally suffice to satisfy this goal) and (iii) more tax audits need to be performed in order to increase the perception in people’s mind that if they cheat on their tax they will detected.

This paper focuses on the sentencing law in Australia. However, the analysis regarding the efficacy of imprisonment to deter tax fraud is relevant to all jurisdictions.

Author profiles

Theo Alexander
Theo is a Barrister with the Victorian Bar.
Current at 01 July 2011
Mirko Bagaric
Mirko is a Professor, Deakin University. - Current at 01 July 2011
Athula Pathinayake
Athula is a Lecturer, Deakin University.
Current at 01 July 2011


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