Jashwin Baijoo | Head | Strategic Engagement & Compliance | Tax Consulting SA | mail me |
South African Revenue Service (SARS) and the Investigating Directorate Against Corruption (IDAC) have joined forces. Their collaboration targets financial crimes, including tax-related offences. This partnership aims to bolster efforts to make tax non-compliance both difficult and costly.
Criminal charges for contravening tax legislation are not limited to non-compliant individual taxpayers. They also extend to individuals controlling companies engaged in tax non-compliance. Importantly, a company’s tax misdemeanours cannot be resolved by merely paying a fine.
SARS has demonstrated through ongoing tax fraud cases that “personal liability” includes both financial and criminal responsibility. Individuals exercising factual or financial control over a company are held accountable. Tax non-compliance may lead to imprisonment, even if the sentence is suspended. And a conviction leaves the responsible person with a criminal record.
Strengthening the fight against tax non-compliance
Durban businessman Thoshan Panday is facing 27 counts of fraud or contravention of tax legislation. He is currently behind bars.
Panday’s arrest on tax fraud charges forms part of a broader legal battle. This battle includes allegations of fraud, corruption and racketeering. Furthermore, his case underscores the significant risks linked to fraudulent financial practices. These crimes often involve individuals hiding behind legal entities like companies or close corporations.
Henry Mamothame, IDAC spokesperson, revealed the financial prejudice SARS suffered due to Panday’s actions. Allegedly, Panday’s deceptive tax practices cost SARS R7.3 million. This includes false tax declarations for the 2010 and 2011 tax years, offences punishable by imprisonment.
On September 9, 2024, the Durban Magistrate’s Court denied Panday bail. The state argued he was a flight risk with means to live luxuriously despite asset seizures.
Imputation of personal liability
South African tax laws impose personal liability on individuals controlling or managing a company’s financial affairs.
Liability arises when negligence or fraud causes the company to fail in paying tax debts. These laws do not require formal responsibility over the company’s finances. A person’s control or regular involvement in its financial affairs suffices to establish liability.
Section 180 of the Tax Administration Act applies to those exercising informal control over a company’s financial operations. This includes shareholders, directors or others with factual involvement.
Violating tax laws damages reputations and leads to severe penalties, legal consequences and possible incarceration. Panday’s case highlights the repercussions of fraudulent tax activities, even under the guise of legitimate businesses.
Tax compliance is key
SARS has adopted an aggressive stance to combat tax non-compliance and criminal activities. Even minor negligence in compliance carries the risk of criminal conviction.
Taxpayers already in violation of the law must engage the revenue authority correctly and legally. Further criminal actions worsen the consequences of prior offences. Compliance is the only way to mitigate these risks.
Related FAQs: Tax compliance and criminality
Q: What is considered tax compliance and criminality in South Africa?
A: Tax crime in South Africa includes various offences such as tax evasion, which involves deliberately misrepresenting tax affairs to reduce tax liabilities and other financial crimes like money laundering related to tax avoidance.
Q: How does SARS approach tax compliance and criminality?
A: The South African Revenue Service (SARS) employs criminal investigations and collaborates with law enforcement authorities to detect and prosecute tax evaders, aiming to enhance the integrity of the tax system and close the tax gap.
Q: What are the consequences of tax offences?
A: Tax offences can lead to severe penalties including fines, imprisonment and a criminal record. The penalties depend on the severity of the tax crime and the amount of tax involved.
Q: What role does tax transparency play in fighting tax crime?
A: Tax transparency is crucial for fighting tax crime as it ensures that taxpayers comply with their tax obligations and allows tax authorities to track tax returns and identify discrepancies effectively.
Q: What is the tax gap and why is it significant?
A: The tax gap refers to the difference between the total amount of taxes owed by taxpayers and the amount actually collected by tax authorities. It is significant because a large tax gap can indicate widespread tax evasion and avoidance, undermining the tax system.
Q: How does the South African tax system address money laundering?
A: The South African tax system incorporates measures to tackle money laundering by closely monitoring financial transactions and requiring taxpayers to provide tax information that aids in the detection of illicit financial activities.
Q: What are the tax obligations for South African taxpayers?
A: South African taxpayers are required to comply with tax obligations such as filing accurate tax returns, paying income tax and VAT on time, and maintaining proper records of all financial transactions for tax purposes.
Q: How can taxpayers protect themselves from being accused of tax evasion?
A: Taxpayers can protect themselves by ensuring compliance with all tax obligations, keeping thorough records of their financial affairs, and being transparent with tax authorities about their income and expenses.
Q: What is the impact of organised crime on tax collection?
A: Organised crime can significantly impact tax collection by facilitating tax evasion and avoidance through illicit means, which can lead to reduced tax revenues for the government and increased pressure on the tax system.
Q: What global principles are in place for fighting tax crime?
A: Global principles for fighting tax crime involve international cooperation among tax authorities, adherence to tax justice network standards and the implementation of best practices to enhance tax collection and ensure compliance.
