SARS is coming after corporate leaders in South Africa

SARS is intensifying enforcement, holding directors, public officers, shareholders, and even informal financial decision-makers personally liable, financially and criminally, for their company’s unpaid tax debts.

Tax Consulting South Africa’s Jashwin Baijoo warned that the South African Revenue Service (SARS) is leveraging its powers under the Tax Administration Act (TAA).

In particular, the taxman is utilising the part of the Act that allows it to hold directors, public officers, and other representative taxpayers personally liable for a company’s tax debt.

Unlike the pre-Covid-19 era, these representatives must err on the side of caution, as SARS has rapidly upskilled its Debt Management Team, Baijoo said.

This has made it possible for SARS to make swift and potentially fatal collections from personal bank accounts. The taxman can even sequester personal estates.

“Although aggressive with their collections, SARS does, in the Notice of Personal Liability, afford the implicated individual an opportunity to contest their personal liability,” Baijoo explained.

“This is however not the fire escape it may sound like, as proving no personal liability entails what could be construed as an admission on why the taxes were not paid, and what better use were the funds put to.”

He further explained that, in order to discharge the burden of personal liability, certified bank statements must be submitted to SARS, across all accounts. This includes those of the representative taxpayer themselves.

Additionally, the last five years’ worth of Annual Financial Statements and Management Accounts must be submitted to SARS, confirming there was no mismanagement of funds or improper performance of financial duties.

Where there is uncertainty about who can be held liable, the legislation provides that individuals involved in the financial management of a company, even informally, could find themselves personally liable for its unpaid tax debts.

“SARS’ broad powers extend beyond just the taxpayer, potentially implicating directors, shareholders, and other key individuals in a company’s financial affairs,” Baijoo warned.

SARS’ collection arsenal

Baijoo explained that section 180 of the TAA empowers SARS to hold third parties personally responsible for a company’s tax debt if –

• The person “controls or is regularly involved in the management of the overall financial affairs of a taxpayer”
• SARS determines that the person acted negligently or fraudulently concerning the taxpayer’s tax debt

Where a tax debt exists, Baijoo noted that this would include liability for capital sums due, related penalties and interest.

“Holding an official financial title within the company is not necessary. Merely being involved in financial decisions can make an individual a target,” he said.

“Directors, shareholders, financial officers, and even informal advisors can be held liable if their actions, or inaction, contribute to tax non-compliance.”

According to Baijoo, SARS’ collection arsenal is not limited to section 180. For example, sections 153 to 155 of the TAA impose personal liability on a “representative taxpayer”.

This can be any person responsible for managing a company’s tax affairs, including public officers, who may be held personally accountable for the company’s unpaid income tax.

“The threat of personal liability extends beyond financial penalties. SARS has the power to initiate criminal proceedings against individuals controlling non-compliant companies,” he explained.

“This means that merely paying a fine may not be enough: offenders could face criminal charges, and even imprisonment.”

Baijoo cautioned that negligence is also not an excuse, as individuals can still be held accountable even if tax non-compliance is due to oversight rather than deliberate fraud.

“SARS has made it clear that ignorance or mismanagement will not shield individuals from legal consequences. This includes where taxpayers are guilty of non-submission of tax returns or non-payment of taxes rightfully due,” he said.

Section 234 of the TAA outlines the acts and omissions which SARS considers criminal offences relating to non-compliance with tax legislation.

This section further states that any person who wilfully commits one of the listed acts, or wilfully or negligently fails to act, may be liable, upon conviction, to a fine, or imprisonment of up to two years.

This is only the tip of the iceberg, however, as Section 235 of the TAA goes even further. It speaks to tax evasion and obtaining undue refunds through fraud or theft, and it carries a five-year potential imprisonment.

“Where the tax debt owed is in the millions, SARS are often aggressive in collections,” Baijoo said. “Having an attorney with trial advocacy experience under their belt gives you an undisputed edge in negotiating on the legal papers submitted.”

SARS’s crackdown means that those involved in financial decisions, even informally, could face devastating financial and legal consequences.