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SARS: ‘Learn from your mistakes; go directly to jail’

29 January 2021 Gareth Stokes

The South African Revenue Services (SARS) has received the green light to criminalise otherwise well-meaning taxpayers for something called negligent non-compliance. In simple language the tax authority could fine or imprison an otherwise law abiding citizen for making an error or mistake on their annual tax return. The handful of citizens applauding this move should reflect on whether their multi-year interactions with SARS are up to code. And that includes the returns filed by tax practitioners on their behalf.



Criminalising negligent non-compliance

A number of changes to the Taxation Laws Amendment Act (TLAA) and Tax Administration Laws Amendment Act (TALAA) were signed into law in January 2021. Jean du Toit, head of Tax Technical at Tax Consulting SA, says that the highest impact change is the one that criminalises negligent non-compliance. “This and other administrative changes mean that taxpayers will be held to a higher standard, which serves as a cue for everyone to take ownership of their tax affairs,” he said, as quoted in an article on Businesstech.co.za. Some of the key changes that taxpayers and tax practitioners must take note of include: 

  • A three year waiting period before emigrees can access locally-held retirement benefits;
  • Tougher anti-avoidance measures to curb tax-free wealth transfers to trusts;
  • Amending the tax treatment of employee’s business travel expenses to include ‘day trips’;
  • Reducing the requirement for foreign employment exemptions from 183 to 117 days;
  • Changes to the tax treatment of doubtful debts;
  • Changes to the rollover amounts claimable under the Employment Tax Incentive Act; and
  • Expanded powers given to SARS to issue estimated assessments and withhold refunds in the event a taxpayer is under criminal investigation. 

Forget intent, the ignorant are guilty too!

This article does not expand on the terms and conditions listed above. Instead, we focus on the potential criminalisation of taxpayers consequent the replacement of section 234 of the Tax Administration Act by the TALAA. In the past you could only be found guilty of a criminal offence for wilful non-compliance with your tax obligations. Now, non-compliance could be construed as a criminal offence as a result of a taxpayer’s negligence too. “Intent is no longer required; where you are non-compliant as a result of ignorance of your obligations, you may be found guilty of a criminal offence that is subject to a fine or imprisonment of up to two years,” explains Du Toit. Are you still confident that your tax affairs are in order and that you are safe from a two-year jail stint? 

The changes outlined in this article are a snapshot of the hundreds of administrative and compliance changes implemented by National Treasury each year. These vary from the benign to the absurdly complex and often have staggered implementation dates, making it difficult for the layperson to stay ahead of the game. By way of example, spend some of your valuable time digging into the world of Capital Gains Tax (CGT). There are countless documents and manuals on the SARS website covering aspects of this tax type for both individuals and businesses. Imagine my horror when I stumbled upon a 966-page SARS’ CGT explainer! This document is full of complex and confusing information on the correct methods for measuring capital gains and including these gains in an income tax return. 

Excessive powers to tax collectors

In order to avoid making a negligent mistake on your annual tax return you would need a clear understanding of the contextual impact of annual changes and an above-average grounding in the tax legislation, as amended. And unfortunately, reading about these changes in the dozens of online articles covering the topic will not be enough. You are going to have to make sure that you know what you are doing or pay an additional tax by way of a fee to a financial adviser or tax professional to assist you. And that brings me to the crux of today’s op-ed: How can South Africa’s constitutional democracy tolerate the excessive powers given the tax collection agency? My fear is that the annual changes are introducing a draconian dystopia in which SARS could destroy the lives of well-meaning taxpayers. 

I fired off a question about the constitutionality of criminalising negligent non-compliance to a few legal minds, with the common refrain being “we decline to comment on such matters”. It appears that going against SARS is similar to suing a bank in South Africa. It is far easier to find public comment on the matter. I trawled, as one sometimes does, the comments section below an article published on Moneyweb.co.za, to test the public’s appetite for SARS newfound power. My opening position is nicely summarised by a Moneyweb.co.za reader who labelled the TALAA as “draconian and in breach of the Constitution”. His or her argument: “That SARS had the impudence to draft and table the Act proves beyond doubt that its officials either consider themselves completely above the law or  are hopelessly incompetent”. PS: I have not attributed these quotes to the largely meaningless usernames attached to them. 

Ignoring the low-hanging fruit

Many readers focused on SARS’ ongoing reluctance to go after the low-hanging fruit on the tax avoidance tree. “There are two types of people in South Africa, un-prosecutable criminals and prosecutable law abiding citizens” wrote one; “law abiding citizens are considered to be criminals under a kleptocratic regime” said another. There were also suggestions that SARS focuses on the real criminals in society, along the lines of this appeal: “Rather refine your skills better in chasing after accountants-turned-chefs in the corporate field as well as the vast majority of officials in certain political parties…” 

One reader complained that “SARS was happy to criminalize actual payers yet ignored an entire industry of non-payers” while others suggested that SARS’ employees should be held up to similar standards for the slew of errors and mistakes made in their dealings with customers, daily. Threats of a tax revolt were common too. An incensed reader raged: “[SARS’] use of fear is progressively manifesting into a system we will rebel against … the blood of the poor will be on your hands as well as the hands of all corrupt officials who claim they are ‘for the people’”. Taxpayers are becoming increasingly opposed to the poisonous mix of tax increases and over-the-top enforcement activities against the backdrop of government’s shortcomings in administering these funds. 

The blue light brigade blues

This explains why readers are calling for government to get its house in order by spending taxes wisely before coming after the dwindling pool of taxpayers for more. They make a solid case. “[Government] want small business to take all the risks and then tax their profits and leave them with crumbs in return for this effort and risk; then they use the confiscated wealth to buy expensive imported cars and pay for blue light brigades to show the world how important they are,” writes another Moneyweb.co.za reader. 

And then I stumbled upon this gem. “Interesting how a key bit of the explanation for the change is left out, which makes it clear that SARS and the NPA want to go after ‘unreasonable mistakes’”. This, said the reader, changed the thrust of the original article, which should be dismissed as drivel published under a “clickbait headline”. Sure, section 234(1) focuses on wilful mistakes. But section 234(2) lists 11 failings which, whether made wilfully or negligently, could land an ordinary taxpayer with a fine or two year prison sentence. My initial response to a headline and article that got me hot under the collar could be over-baked; but then again, perhaps my fears prove spot on. Time will tell.

Comments

Added by Pat Addison, 02 Feb 2021
It is always easier to go after the "soft" target. Because they tend to be the most law-abiding, they will also be the most open to abuse. Shame on SARS!
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