Miscellaneous 2011

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

Source: Australian Tax Forum Journal Article

Published Date: 1 Sep 2011


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 Profile
Athula Pathinayake
Author Profile
Theo Alexander
Author Profile
Mirko Bagaric

Sorry, this is subscriber only content.

To gain access to this material and much more - Subscribe Now.

(Note: Members can access Taxation in Australia journal articles without a Tax Knowledge Exchange subscription - please log in to access).

Already a Subscriber? Login now

Already a Subscriber? Login now


The material is copyright. Apart any fair dealing for the purpose of private study, research criticism or review, as permitted under the copyright Act, no part may be reproduced by any process without written permission from The Tax Institute.

Unless expressly stated, opinions are not that of The Tax Institute, which accepts no responsibility for the accuracy of any of the information contained within it.

The Tax Institute
(ABN 45 008 392 372 (PRV14016))


The Tax Institute is a Recognised Tax Agent Association (RTAA) under the Tax Agent Services Regulations 2009. 

Copyright Statement

All materials provided on this site are protected by copyright and are owned by or licensed to TTI.

Except as expressly permitted by TTI or the copyright owner, any person or company who uses this site must not use, reproduce, redistribute, retransmit, publish or otherwise transfer, or commercially exploit, the materials or any information, software or other content, in whole or in part, which is available through this site.


Miscellaneous 2011

Share this page