Many South African taxpayer’s received a general warning on 24 October 2023, that Sars will not only penalise their non-compliance status, but “will initiate the criminal process” against a taxpayer:
“Dear Tax Representative of [xxxxxx] you failed to submit your company income tax returns with reference no: [xxxxxx]. Failure to submit the returns is a criminal offence in terms of section 234, (2)(d) of TAA. To avoid more administration penalties being levied against you, kindly submit all the outstanding returns within 10 days of this SMS, should you fail to submit the returns, we will initiate the criminal process and send you a NOTICE OF INTENTION TO SUMMONS. Please ignore if you have since complied. Sars” [redacted]
Thereafter, Sars on 25 October 2023, issued a Media Notice stating that they will issue follow up correspondence regarding this SMS, however, that a taxpayer must still ensure that their tax affairs are in order.
An official apology was released by Sars on 26 October 2023, which provided clarity on the situation, with a “gentle” reminder of voluntary compliance by a taxpayer being the preferred course of action before any legal proceedings are instituted by Sars. The Commissioner is setting a new professional standard by ensuring that honest and compliant taxpayers are not unduly caught in the crossfire of Sars compliance drive:
Most of these SMS’s were in all likelihood sent to the representative taxpayers of dormant companies that were de-registered with the CIPC, but were not de-registered with Sars. In this instance the Sars record will still show the recipient as being the responsible party legally on the hook for the non-compliance of the company.
Although Sars confirmed that this was sent to honest taxpayers and that there should be no response or reaction, this subtly confirms that the Commissioner’s “zero tolerance”approach towards non-compliance is being ushered in this new era of enforcement. Non-compliant taxpayers and their representatives are warned that ignoring and hiding from Sars is a regrettable choice and one far more burdensome than filing their requisite tax return.
The Non-Submission of Tax Returns, When Due, is a Criminal Offence
The relevant provisions of the Tax Administration Act, No. 28 of 2011 (the “TAA”) provide that a person who wilfully or without just cause fails or neglects to submit a return or document to Sars is guilty of an offence, and upon conviction is subject to a fine or imprisonment for a period not exceeding two years. This imposition of criminal sanctions is inclusive of “representative taxpayers” under the relevant provisions of the Income Tax Act, Act No. 58 of 1962 ("ITA”) which includes a public officer, and a person who is responsible for paying tax on behalf of the taxpayer.
A representative taxpayer may be held liable for the tax liability of the taxpayer in their personal capacity if the taxpayer cannot settle the tax liability. However, this does not absolve the taxpayer of any liability, responsibility or duty imposed under any tax Act. Therefore, both the taxpayer and the tax representative must answer to Sars.
Your Chickens Will Come Home to Roost
Despite the Media Statements, taxpayers and their tax representatives are forewarned that they should not sit idle in rectifying their non-compliance, until nudged into action by the imposition of criminal proceedings by Sars.
The recent institution of criminal proceedings by Sars and the unforgiving stance taken by National Prosecuting Authority serves as a stern reminder of the need for proactive engagement by taxpayers in fulfilling their tax obligations, and in reporting and maintain proper documentation to discharge their burden of proof. Those who have not complied must recognise that the clock is ticking, and enforcement actions are inevitable from Sars.
In this new enforcement era, Sars will stop at nothing to ensure compliance, whether voluntary and simple, or compelled and challenging. It is important to remember that burying your head in the sand is not a resolution, and a demonstrated history of consistent compliance should be the ultimate goal for all taxpayers.
Written by André Daniels, Head of Tax Controversy & Dispute Resolution at Tax Consulting SA; and Colleen Kaufmann, Tax Attorney at Tax Consulting SA