SARS sends a warning to businesses in South Africa

South African businesses face more than penalties when they fall behind on their tax obligations, as SARS can hold certain individuals personally liable for a company’s tax debts.

This is according to Tax Consulting South Africa’s Partner and Head of Strategic Engagement & Compliance, Jashwin Baijoo, who said SARS is growing its enforcement powers.

The warning comes as SARS expands its use of technology and third-party financial data to identify non-compliance and recover outstanding tax debts.

A common misconception among business owners is that a company’s tax debts cannot be transferred to its directors, shareholders, or other individuals involved in the business.

However, section 180 of the Tax Administration Act allows personal liability in certain circumstances.

Baijoo explained that this can apply where a person controls, or is regularly involved in managing, the company’s financial affairs, and their negligence or fraud contributes to the company’s failure to pay its tax debts.

The law does not require that the person formally hold responsibility for the company’s finances. It can also apply where someone exercises practical or informal control over those affairs.

This means directors, shareholders, and other people involved in a business’s financial management could face personal consequences.

Once personal liability is established, Baijoo explained that the taxman can take steps to recover the debt.

These can include freezing personal assets and making third-party appointments against institutions that hold money for, or owe money to, the taxpayer.

The issue has also come into focus through SARS action against Vusimuzi “Cat” Matlala and his company, Medicare24 Tshwane, which is facing a reported tax bill of R14.2 million.

Baijoo said cases such as this demonstrate that company structures do not automatically protect individuals from SARS.

As such, those directly involved in a business’s financial decision-making need to treat tax compliance as a personal risk.

SARS gets new tools

SARS is also increasing its ability to identify potential non-compliance by combining information from different sources.

Financial institutions, employers, medical schemes, investment platforms and other reporting entities provide information to SARS.

This allows the revenue authority to compare taxpayer declarations with independently supplied data.

This can help SARS identify taxpayers who may have understated income or claimed deductions that do not match available information.

Baijoo explained that this forms part of a wider move towards technology-driven tax administration in South Africa.

“The future of tax administration is not people versus technology, but it is people and technology working together to make compliance easier, services faster, and enforcement more precise,” he said

The increased use of data means SARS does not have to rely only on traditional audits or information provided directly by taxpayers.

Once a taxpayer is identified as a compliance risk, the matter may be referred for audit, additional assessment, or collection.

Project AmaBillions, which aims to improve the recovery of unpaid taxes, also falls under this technology-driven tax enforcement drive.

SARS can identify outstanding debts, locate taxpayer assets and use local and offshore financial information to support collection efforts.

Communication has also become more digital. SARS now uses channels including SMS notifications, online portal alerts and WhatsApp messages to contact taxpayers.

These methods are intended to make it harder for taxpayers to argue that they were unaware of an important compliance request or payment demand.

The result is a tax authority with more information about taxpayers and businesses, and more ways to act on it.

Non-compliance can be very expensive

Baijoo warned that businesses facing SARS action should respond quickly and make sure their submissions are accurate and properly supported.

A poor response can lead to additional assessments and further enforcement action being imposed against the business.

One of the major risks is the understatement penalty regime. Baijoo noted that penalties can reach up to 200% of the tax involved in serious cases.

SARS can also investigate historic tax submissions, meaning errors or omissions from previous years may still be subject to an audit.

For this reason, businesses dealing with a SARS audit or collection process should not treat correspondence as routine administration.

Baijoo said taxpayers should approach SARS matters with support from tax, legal and financial professionals, particularly where non-compliance may have occurred.

He also acknowledged the importance of legal professional privilege where SARS has identified or suspects historical or current non-compliance. However, the goal is not simply to fight SARS.

Law-abiding taxpayers who acknowledge their tax obligations and engage with SARS may be able to use existing debt-relief mechanisms to address their liabilities.

This would allow them to avoid more severe consequences. As a result, Baijoo urged businesses to act before enforcement action escalates.