This is the third in a series of three newsflashes examining amendments to tax administration laws that were promulgated late last month. The amendments are indicative of SARS’ need to focus on maximising collections and preserving liquidity, which are likely to be among the themes addressed at Wednesday’s National Budget Speech.

The amendments to the Tax Administration Act 28 of 2011 (TAA) proposed in the 2020 Taxation Laws Amendment Act (TALAA) were promulgated on
20 January 2021. The amendments to section 234 of the TAA significantly broaden the scope for prosecution of tax offences, and appear to indicate that SARS and the National Prosecuting Authority (NPA) intend to ramp up the criminal prosecution of non-compliant taxpayers.

Since the advent of the TAA, section 234 has set out a list of criminal tax offences. Taxpayers found guilty of these offences can be prosecuted, and if convicted, imprisoned for a period of up to two years or subjected to a fine. The criminal tax offences range from serious offences, such as the deliberate (fraudulent) falsification of documents and the dissipation of assets to frustrate SARS in carrying out its duties, to relatively minor offences, such as failing to notify SARS of a change in the taxpayer’s public officer details.

These offences have always been subject to the requirement that they must have been committed ‘wilfully and without just cause’. The term ‘wilful’ implies that the conduct must have been intentional. South African criminal law recognises different degrees of intentional conduct, including dolus eventualis, or the mere foreseeable possibility that certain conduct might lead to prohibited consequences. ‘Without just cause’ refers to conduct that is unreasonable. For example, it is an offence to refuse to provide information requested by SARS, but under the old section 234, it would be reasonable (and therefore not an offence) for a taxpayer to refuse to disclose privileged advice.

Accordingly, it has always been understood that SARS and the NPA would only seek to prosecute tax offences where the taxpayer has deliberately and knowingly committed an offence. The amendments to section 234 now classify tax offences into two categories: conduct that constitutes an offence if it is wilfully committed, and conduct which can be criminally prosecuted if it is negligently committed.

This amendment therefore broadens the scope for the prosecution of taxpayers considerably, making a greater range of conduct (and a greater number of taxpayers) potentially subject to criminal sanctions. Under the new section 234, offences such as failing to update registered particulars, failing to submit tax returns or other information to SARS, and failing to withhold and pay any amount of tax can be prosecuted even when these failures are negligent (e.g. the result of an administrative oversight).

Taxpayers (particularly representative taxpayers, such as directors and public officers) should take careful note of the increased scrutiny that is likely to follow this amendment in relation to record keeping and administrative compliance. The consequences of a criminal conviction under section 234 of the TAA are severe, affecting a person’s ability to hold certain positions, and to emigrate from South Africa.

In the context of SARS’ current strategic goal of restoring taxpayers’ trust and voluntary compliance, it seems counterintuitive for SARS and the NPA to focus economic and human resources on the prosecution of relatively minor offences that do not cause any real harm or loss to the fiscus. Government should also carefully consider whether the NPA has the resources to investigate and prosecute a larger volume of tax offences, because the deterrent effect of the new section 234 will depend on its successful application in practice.