SARS crackdown with more jail sentences

The South African Revenue Service (SARS) has teamed up with the National Prosecuting Authority’s Investigating Directorate Against Corruption (IDAC) to combat financial crimes and put tax criminals behind bars.

This is according to Jashwin Baijoo, associate director and head of strategic engagement and compliance at Tax Consulting SA.

Baijoo said this team-up demonstrates the taxman’s strong stance on criminalising tax non-compliance, with the alliance set to bolster SARS’ capacity to make non-compliance hard and costly.

“The scope of criminal charges for contravention of tax legislation does not stop with taxpayers being non-compliant as individuals,” he warned. 

“It extends to individual taxpayers controlling non-compliant companies, and which does not stop at the company – individual holding control – merely paying a fine for its tax misdemeanours.”

Baijoo explained how, through various ongoing tax fraud cases, SARS has made it clear that “personal liability” encompasses both financial and criminal liability for the individual exercising factual or financial control over a company.

“If found guilty of tax non-compliance, it can lead to a prison sentence, and even if it is suspended, the responsible individual will have a criminal record against his or her name,” he said.

Durban businessman Thoshan Panday was recently on the chopping block for a situation like this and currently finds himself behind bars, contemplating the 27 counts of fraud or contravention of tax legislation he faces.

Baijoo explained that Panday’s recent arrest on tax fraud charges is part of a broader legal battle he is embroiled in. Prior accusations also extended to fraud, corruption, and racketeering charges. 

“The intricate web of allegations highlights the far-reaching consequences that can stem from fraudulent financial practices conducted by individuals through legal entities such as companies and closed corporations under their financial control,” Baijoo said.

Henry Mamothame, spokesperson for the Investigating Directorate Against Corruption, recently said that subsequent tax investigations revealed alleged financial prejudice suffered by SARS, to the tune of R7.3 million, due to Panday’s deceptive tax practices. 

This includes submitting false tax declarations to SARS for both the 2010 and 2011 tax years, which is already an imprisonable offence under the existing tax legislation.

Panday is still behind bars after he was denied bail in the Durban Magistrate’s Court on 9 September 2024. The state argued that he was a significant flight risk and still had the means to live in luxury, even after his assets were seized.

Baijoo said that South African tax laws hold individuals personally responsible if they have a significant role in managing a company’s finances and their actions – like being careless or committing fraud – lead to the company not paying its taxes.

 “The tax laws do not specifically presuppose the existence of formal responsibility in respect of the finances of the company,” he explained. 

“They instead merely require that a person exercise a degree of control over or regular involvement with its overall financial affairs.”

Specifically, he pointed to the ambit of section 180 of the Tax Administration Act, which also relates to those who exerted a form of pre-emptive or informal control over the company’s financial affairs. 

This may include shareholders, directors and other persons who were factually involved.

Baijoo said the contravention of tax laws not only tarnishes an individual or company’s reputation but can also result in hefty financial penalties, legal repercussions, and potential incarceration.

“The Panday case serves as a stark reminder of the grave consequences that individuals face when engaging in fraudulent tax activities, even when hiding behind the guise of a verified business,” he said.

“With SARS having to become aggressive in an effort to combat the criminal elements in our society, taxpayers need to be aware that even non-compliance on a smaller scale and due to negligence carries with it the potential of a criminal conviction.”

“Where you are already on the wrong side of the law, your only reprieve is to correctly and legally engage the revenue authority. Commission of any further criminal activity will not sweep prior acts under the rug, but rather exacerbate the already severe consequences.”