Cracking Down on Tax Evasion

How SARS is Tightening the Noose on Non-Compliance in South Africa

In South Africa, the South African Revenue Service (SARS) is quite active in combatting various forms of tax non-compliance. Among the most prevalent types of non-compliance that SARS focuses on prosecuting include:

  • Underreporting of Income: This is perhaps the most common form of non-compliance, where individuals or businesses fail to report all of their income to reduce their tax liability.
  • Falsifying Expense Claims: This involves inflating or fabricating business expenses to reduce taxable income, which is a serious offence under tax law.
  • Failure to Submit Tax Returns: Not filing mandatory tax returns by the stipulated deadlines is another significant area of non-compliance, which SARS actively pursues.
  • VAT Fraud: This includes various schemes, such as claiming VAT refunds fraudulently or not remitting VAT collected from customers. VAT issues are particularly critical due to the impact they have on state revenue.
  • Employment Taxes Non-Compliance: This involves issues related to Pay As You Earn (PAYE), Unemployment Insurance Fund (UIF), and Skills Development Levy (SDL) where employers do not comply with their duties concerning withholding or remitting these taxes.
  • Offshore Tax Evasion: This includes not declaring offshore income and assets, which has been a growing focus area, especially after global initiatives increased transparency among tax jurisdictions.

SARS’s approach to penalties and prosecutions aims not only to punish non-compliance but also to deter potential tax offenders by demonstrating the consequences of violating tax laws.

The public may view the recent strong statements from SARS on eliminating non-compliance as a new initiative, but the reality is that criminal prosecution has long been a tool for the revenue service, albeit more prominently highlighted now than in the past.

To provide some background, the National Prosecuting Authority (NPA) joined forces with SARS as early as 2003 through a Memorandum of Understanding. This agreement was updated in 2019, subsequently bringing a wave of high-profile tax evasion cases into the public eye.

A critical aspect by the NPA was to create a Specialist Tax Component tasked with handling the prosecution of serious and intricate high-level tax offenses. Over recent years, this collaboration between SARS and the NPA has effectively tackled these complex cases.

In April 2024, the Gauteng High Court in Johannesburg imposed a combined total of 205 years of imprisonment on a syndicate found guilty of extensive Value Added Tax (VAT) fraud. The sentences for individual members ranged from five to 65 years due to their involvement in making fraudulent VAT claims that surpassed R200 million. A “serious tax offence” is defined as a tax-related crime for which a conviction can result in imprisonment for more than two years without the option of a fine, or a fine exceeding the limits set by the Adjustment of Fines Act, 1991 (Act No. 101 of 1991).

Under Section 164(1) of the Tax Administration Act (TAA), the duty to pay tax and the right of SARS (South African Revenue Service) to receive and recover tax are not halted by filing an objection, an appeal, or even while awaiting a court’s decision on an appeal, unless a senior SARS official decides otherwise as per Section 164(3).

Section 164(2) of the Tax Administration Act offers relief for taxpayers contesting or unable to immediately pay their tax debts, preventing SARS from starting recovery actions. Together with related provisions, it mandates that suspension of payment requests be paired with legal appeals to halt SARS collection efforts during ongoing legal proceedings.

As a general guideline, it’s crucial to promptly address any correspondence received from SARS with the assistance of a comprehensive team that includes tax, legal, and financial experts. Doing so not only helps protect against potential collection actions by SARS but also ensures that you receive specialized advice on the best strategies to maintain tax compliance.