by Suzanne Smit, Fiduciary and Tax Consultant
New tax laws recently removed the term “wilful” in order to include both intentional and negligent conduct within the ambit of the criminal offences As part of its efforts to tighten enforcement, the South African Revenue Service (“SARS”) has tightened the law for non-compliance. Wilful intent is no longer required when it comes to poor tax compliance, and it can now trigger criminal penalties with mala fide intent implied. This article explores the recent changes, including if the change is as adverse to taxpayer rights as some contend.
Wilful intent no longer required
Before exploring the recent tax law changes relating to tax compliance, it is important to paint the landscape of the applicable criminal legal concepts. The State must prove beyond reasonable doubt that the accused has committed
- an unlawful voluntary conduct, with
- criminal capacity, with
- a mistake / default (either intentionally or by negligence).
in order to establish criminal liability.
In the South African context, intention includes both deliberate and foreseen conduct and practically speaking this is generally the difference between murder and culpable homicide: Murder requires intent (including dolus eventualis), whereas culpable homicide only requires negligence. Both are unlawful and punishable by law, but the punishment will differ proportionally to the specific circumstances.
Removal of “wilfulness” from statutory offences
South African tax Acts stipulate specific offences in respect of which the taxpayer may be liable for a fine or imprisonment of which the following provisions were affected by the recent tax law changes:
- Paragraph 30 of the Fourth Schedule to the Income Tax Act 58 of 1962 (“the Income Tax Act”),
- Section 58 of the Value Added Tax Act 89 of 1991 (“the VAT Act”), and
- Section 234 of the Tax Administration Act 28 of 2011 (“the TAA”).
Each of these provisions required that a taxpayer must commit the relevant act “wilfully and without just cause” before the taxpayer could be found guilty of the applicable offence. The effect of removing “wilfulness” basically negates the requirement for SARS to prove intent before the said taxpayer, i.e. the accused, could be found guilty of the applicable tax offence and it is therefore easier for SARS to ask for the imposition of either a fine or imprisonment.
Is the change as adverse to taxpayer rights as some contend?
Specific South African principles relating to criminal offences
The Constitution of the Republic of South Africa, 1996 (“the Constitution”) states that the Republic of South Africa is founded on supremacy of the Constitution and the rule of law. Furthermore, the Bill of Rights of the Constitution states that “every accused person has a right to a fair trial”. In terms of the common law ius certum principle, i.e. the principle of certainty, the formulated crime should not be vague or unclear, i.e. the taxpayer should not be fearful of breaking the law inadvertently.
Penalties are already included in the tax Acts for the infringement of specific tax requirements or sections, as may be prescribed. Section 210 of the TAA, for instance, already provides for administrative non-compliant penalties as a deterrent for certain non-compliance omissions. Punishment, however, carries a heavier burden of proof as it aims to inflict suffering for a crime. There is therefore a considerable difference between penalties and criminal punishment in the form of fines and / or imprisonment. Administrative non-compliance and understatement penalties are already contained in our tax Acts especially to avoid the demanding resources required for prosecutions, including legal counsel, human resources and the financial means to see it through. There are therefore conflicting legal principles at play and it remains to be seen whether taxpayers will challenge this recent change in court to align South African tax laws with common law and provisions contained in the Constitution.
What does this practically mean to you as a taxpayer?
It all comes down thereto that taxpayers have to ensure that they acquaint themselves with most recent South African tax laws and its basic compliance requirements. Unfortunately “human error” and other negligent errors could result in costly court battles and possible criminal sanctions.
Corporate taxpayers should review their tax policies and standard operating procedures to ensure that proper risk controls are in place to prevent possible personal prosecution of its accountable directors. In addition to King IV’s corporate governance principle of “apply and explain”, a further burden is placed on corporate taxpayers to ensure tax compliance and being able to substantiate its tax position with the relevant supporting documents and information. This also applies to individual taxpayers.
Generally the devil is in the detail and as a starting point, taxpayers should submit their tax returns timeously, but also with the correct information supported by the necessary documentation such as valid tax invoices and signed agreements as very basic examples. Appointing public officers, updating bank account details or a change of address are not regarded by SARS as minor administrative compliance issues. On the contrary, SARS regards it as critical in order to contact a taxpayer and / or serve legal documents where necessary. It is crucial to keep all of the above updated, as well as any other information which SARS requires. Now more than ever it is best to obtain sound tax advice prior to submitting tax returns, and to respond to requests for information or audits timeously – and even in these instances, tax advice is strongly recommended.
Is it controversial that “wilful” was removed from the relevant tax Acts? Yes, it is, but until this is challenged in the courts and reversed, this is the playing field for taxpayers and SARS alike. It is therefore best to be extra cautious to ensure that you do not find yourself in the same position as someone who is accused of culpable homicide.
(This is an abbreviated and adjusted article, originally also written by Suzanne, and published in the TaxTalk Magazine, January 2021)
Contact Suzanne Smit at suzanne@fidelisvox.co.za to find out more.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)