SARS crackdown

The South African Revenue Service (SARS) has increased its efforts to enforce compliance by issuing criminal summons against company directors who have not submitted their income tax returns.

Tax Consulting SA’s head of tax controversy and dispute resolution, André Daniels, said this move is part of SARS’ broader strategy to combat tax evasion and ensure that all corporate entities and their directors meet their tax obligations.

“The recent wave of summonses marks a significant shift in SARS’ approach to dealing with non-compliant taxpayers,” Daniels said. 

“Historically, the agency has relied heavily on administrative penalties and audits to encourage compliance.” 

However, Daniels said the persistence of intentional non-compliance among some company directors has necessitated more drastic measures.

He explained that this new enforcement strategy aims to hold individuals vicariously accountable for their companies’ financial management.

This is because directors have a fiduciary duty to ensure that their companies comply with tax laws. 

“Failure to do so not only undermines a healthy tax ecosystem but also places an unfair burden on compliant taxpayers,” he said.

Under South African law, it is a criminal offence for company directors to neglect the submission of corporate income tax returns and those pertaining to payroll taxes and VAT. 

The Tax Administration Act states that directors who fail to ensure the timely submission of their companies’ returns can face severe penalties, including fines and, in some instances, imprisonment.

“The criminal summonses issued by SARS signal the beginning of legal proceedings that could lead to prosecution,” he said. 

“If found guilty, directors may face imprisonment of up to two years per successful conviction of any criminal offence related to non-compliance.”

Daniels said several high-profile cases have already emerged, with directors of prominent companies being summoned to court. 

This has resulted in a mixed public reaction to SARS’s compliance crusade. Many taxpayers and advocacy groups have welcomed the move, viewing it as a necessary step to ensure just and equitable treatment within the framework of our tax system. 

These groups argue that stringent enforcement against non-compliant directors will deter others from similar misconduct and ultimately enhance the integrity of the tax regime.

However, some business leaders have expressed concerns about the potential for overreach and its impact on business operations. 

Daniels said these leaders have urged SARS to balance enforcement with support, providing more guidance and resources to help companies voluntarily meet their tax obligations.

Regardless of the public’s view, SARS’ issuance of criminal summonses is part of a broader initiative to strengthen tax compliance in South Africa. 

“The agency has also been enhancing its data analytics capabilities to identify non-compliant taxpayers more effectively and deploying more resources to its audit and investigation teams,” Daniels said.

SARS Commissioner Edward Kieswetter has reiterated that while enforcement is crucial, SARS remains committed to engaging with the business community to promote voluntary compliance.

“SARS has indicated on many occasions that it aims to make compliance easy and cost-effective while making non-compliance difficult and costly,” Daniels said. 

“In this compliance landscape, it is critical for taxpayers to be fully aware of their legal rights and to have the backing of an attorney, which also brings with it the protection of legal professional privilege.”

It’s not only company directors that face harsher punishments from SARS.

Tax Consulting SA’s Jashwin Baijoo said earlier this year that SARS and the NPA are teaming up to hand down harsher punishments for serious tax offences.

For example, earlier this year, the Johannesburg High Court handed down a sentence of a cumulative 205 years behind bars to a “VAT Fraud Syndicate”.

Broken down, individual sentences ranged from 5 years to 65 years for fraudulent VAT claims from SARS, estimated at over R200 million.

Baijoo said that while this is just one case, criminal convictions from SARS have been plentiful over the last few years.

These convictions stem from lifestyle audits, fraudulent return submissions, and anything else deemed a “serious tax offence”. 

A “tax offence” can take the form of any contravention of a tax act, including the criminal offences specifically listed and those related to taxpayer non-compliance.

Tax offences could include –

• Submission or issuance of false documentation or certification.
• Obstruction of a SARS Official in carrying out their duties.
• Failing to notify SARS of a change in registered details.
• Failing to submit a tax return or retain sufficient records.

“These strong statements on eradicating non-compliance by SARS may be perceived by the man on the street as a recent development, but criminal prosecution is something which has long been on the cards for the revenue collector and is simply now more public than before,” Baijoo said.