In recent weeks we have seen first-hand the powers of SARS in holding taxpayers criminally liable where their tax affairs are not in order. What is important to note is that SARS has always had the authority through legislation to institute criminal proceedings against non-compliant taxpayers.
However, prior the recent surge in criminal charges brought against non-compliant taxpayers, we have not really seen this type of enforcement from SARS. While it is common knowledge that the Revenue Authority has now initiated criminal proceedings against a host of delinquent taxpayers, it begs the question: what has changed?
SARS probably hit rock-bottom during 2018, which coincided with the Nugent Commission of Inquiry into the Tax Administration and Governance at SARS. The Nugent Commission published its Final Report on 11 December 2018, which revealed that the institutions resources and values have been hollowed out over the course of the previous administration and that taxpayer morality is concerningly low. The Final Report recommended a total revamp of the Revenue Authority, beginning at the upper tiers of management and working its way down to the finer mechanisms that drove the SARS machine.
When Edward Kieswetter was appointed as the Commissioner, he was given the task of reformation. During 2019, using the findings and recommendations of the Nugent Report as a guide, Kieswetter went to work on the internal structures of SARS. The wheels turned slowly but based on SARS’ media releases and information in the public domain, the institution was making a steady recovery, prioritising enforcement and re-establishing its deterrence factor.
Lockdown was no deterrent
Since the inception of the hard lockdown restrictions in March 2020, there were various speculations about the extent the fiscus was being depleted, this on the back of the economy coming to a halt and the ban on alcohol and cigarettes being introduced. Subsequently, SARS failed to make their annual budget, which created a stir among those who were secretly rooting for their revival.
SARS still allowed for many graces during this time. With tax relief measures like the extension of the deferral of employees’ tax liabilities, the temporary waiving of penalties for tax debt, or the deferral of excise duties extended to businesses across the alcohol sectors, SARS offered numerous helplines to businesses who were taking strain.
While the global economy was reeling and battling to get everything back on track, SARS quietly continued to perfect its capacity to manage information and to enhance its systems to aid in the pursuit of correcting non-compliance and prosecuting tax evasion, frequently sending out warnings to media that they are preparing to make good on their promises.
Some still chose to run the gauntlet
Despite SARS’ constant warnings that it will make life difficult for non-compliant taxpayers, many chose not to heed them. Taxpayers who consciously decide to flout their tax obligations often do so after they have weighed up the benefit of doing so with the risk of getting caught. Seemingly, numerous taxpayers still doubted SARS’ ability to detect and prosecute them, and they decided not to change their behaviour. Clearly, however, we are not dealing with the same institution of the previous era.
SARS realised that taxpayer morality will not improve unless the tax base actually sees the consequences of non-compliance. As suggested in the Nugent Report, SARS joined forces with the National Prosecuting Authority (NPA) and made use of Special Tax Unit prosecutors to progress their efforts. In addition, it pushed a legislative change that made it simpler for the NPA to prosecute taxpayers for tax offences. The product of these initiatives, among others, is the current surge in criminal proceedings.
Criminal proceedings
Where a taxpayer faces criminal prosecution, they not only face the tax debt due to SARS, which likely includes penalties and interest, but the costs of an attorney and possibly an advocate, depending on the complexity of the matter, who will need to represent them in criminal court.
The criminal court proceedings can be a tedious exercise which could take years to finalize. Every court appearance an attorney/advocate attends with their client will result in hefty legal fees. Due to the unpredictability of criminal practice and procedure there are a host of issues that could delay each matter, which will directly impact their pocket. Matters have been postponed due to the unavailability of witnesses, presiding officers, interpreters, lockdown regulations, etc.
Unlike civil court, if you are successful in creating doubt as to whether the State proved beyond all reasonable doubt that you are guilty of an offence, you will not be able to recover your costs when you come out with a win. The fact that you cannot recoup your legal costs if you are found not guilty, is just one more reason that criminal proceedings should be avoided at all costs. If indeed you are found guilty, you will have a criminal record. Since a criminal record can only be expunged after ten years, this could prevent you from obtaining a police clearance to leave the country.
Furthermore, the criminal process can be needlessly problematic for expatriates, especially when they visit the Republic. Not only will they face the burden of having to be physically present for every court appearance, but should they fail to appear before a competent court, a warrant of arrest would be authorized to bring them before court. Any enforcement officer countrywide would be able to give effect to the warrant upon their arrival on South African soil.
Upon arrest they would be confined to any Police Station in the jurisdiction of arrest and detained until the SAPS brings them before the court who issued the warrant for their arrest. Since they might be seen as a flight risk, the court might grant them bail on condition that they hand over their passport. This could be catastrophic for expatriates working abroad.
The difference between non-compliance and tax evasion
Whether an expatriate working offshore, an uninformed business owner or a surviving spouse trying to wind up an estate, the Tax Administration Act, Act 28 of 2011 (“the TAA”) is clear in the way it views non-compliance and tax evasion, as well as the consequences if either of these were uncovered.
Section 234 of the TAA sets out the requirement that taxpayers must have acted “wilfully” or “negligently” to be found guilty of having committed an offence. The different types of conduct listed in section 234 relate primarily to administrative non-compliance and enforcing revenue collection, with less severe penalty provisions. Taxpayers who contravene any of the subsections are guilty of an offence and is liable, upon conviction, to a fine or imprisonment for a period not exceeding two years.
Section 235 of the TAA on the other hand holds that a person must have acted with “intent to evade” or “to obtain an undue refund” to be found guilty of having committed an offence. Each subsection hereunder assumes an element of misrepresentation of information and are more serious. Any person who acts with intent to evade or to assist another person to evade tax, or to obtain an undue refund under a tax Act, is guilty of an offence and, upon conviction, subject to a fine or to imprisonment for a period not exceeding five years.
Remedies available
There are however certain remedies available which can aid you in avoiding criminal prosecution. The simplest being to come clean upfront before SARS issues a summons. Where you have erroneously submitted an income tax return or omitted to disclose income derived from offshore interests it would be prudent to apply for relief through the Voluntary Disclosure Programme (“VDP”). Should your VDP application be successful you receive amnesty from criminal prosecution. There is also the option to mediate the matter which may assist in avoiding the lengthy court procedure and severe cost implications that might follow.
If there is doubt whether your tax affairs are in order, rather seek the advice of a professional tax attorney who can assist you to be compliant before you take your chances against SARS.
AUTHOR: Geo Killian
SOURCE: www.taxconsulting.co.za