SARS has a secret weapon

Under the Tax Administration Act (TAA), the South African Revenue Services (SARS) has the power to enforce tax compliance by restricting travel, seizing passports and halting business operations of defaulters.

Tax Consulting SA’s associate director and head of strategic engagement & compliance, Jashwin Baijoo, and legal manager of cross-border taxation, Delano Abdoll, explained that it is well within SARS’ powers to limit a taxpayer’s right to travel outside South Africa.

A section in the TAA even contains a provision allowing a senior SARS official to require “the taxpayer to surrender his or her passport to SARS”.

“SARS invoking certain provisions of the TAA to fulfil its mandate of collecting revenue due to the fiscus serves as a stern warning to non-compliant South African taxpayers, including expatriates, businesspeople, and those who have underestimated SARS,” Baijoo and Abdoll said.

“They may find their lives suddenly disrupted as SARS rightfully throws the book at them.”

There is a common misconception among wealthy tax dodgers that they will just pack up and leave if SARS finds them.

In particular, South Africans abroad, including expatriates who left long ago but are still tax residents in South Africa because they have not formally cut ties with SARS, feel a false sense of being able to operate with impunity.

“But SARS is not sitting back and is on record that it has the legal authority to discharge its work of collecting all taxes due to the state in an efficient and effective manner, including imposing a travel restriction when deemed necessary,” the experts warned.

“With no passport, you cannot go anywhere before you have paid your taxes.”

According to Baijoo and Abdoll, SARS can also terminate a foreigner from conducting business in South Africa.

“The TAA also allows for a senior SARS official to follow a process and withdraw a taxpayer’s authorisation to conduct business in the Republic of South Africa,” they said.

“Foreigners are extremely welcome guests in South Africa, provided they follow our rules, including paying their taxes.”

“Where they discard their obligations, SARS has the powers to close their business, with a knock-on effect on any Work or Residency Visas they may hold, as well as their ability to have a South African bank account.”

Non-compliance warning

Baijoo and Abdoll explained that SARS can even stop a South African business from trading when it hasn’t paid its taxes.

“The powers vested in a senior SARS official to ‘require the taxpayer to cease trading’ have significant implications for any business. This underlines that non-compliance when it comes to your tax obligations is not an option,” they said.

When taxpayers are hit by these orders, they have a choice between compliance, seeking court relief or facing a range of legal consequences.

“The High Court in Pretoria recently ruled that these provisions in the Tax Administration Act are constitutional,” the experts said.

The court also found that the limitations imposed on the taxpayer’s rights were reasonable and justifiable in an open and democratic society, given the importance of tax collection for public interest.

“This precedent-setting decision reaffirms SARS’ legal authority to discharge its work of collecting all revenue due to the state in an efficient and effective manner,” SARS commented after the ruling.

“Importantly, was the court’s reiteration that the provisions that allow SARS to determine third-party liability, repatriation of foreign assets and restrictions of travel are lawful and constitutional.”

Given how harsh the non-compliance landscape is, Baijoo and Abdoll urged taxpayers to err on the side of caution.

“There is no option for SARS other than to collect more money, given the fiscal pressures. This means that taxpayers who have been non-compliant or not conservative with their taxes have a limited time to act.”

“Where you have not declared fully, make use of a first mover advantage to get your taxes in order. If you owe SARS money, make timely payment arrangements.”

“A key is legal privilege, and dealing with experienced tax professionals in getting your taxes in order and managing it proactively is the best way forward.”