Written by Pratista Singh, Candidate Attorney With the legislature rapidly clamping down on taxpayers through the South African Revenue Service (“SARS”) and the National Prosecuting Authority (“NPA”), it is not surprising that new regulations would be imposed to mitigate tax non-compliance. But amidst all the strategic “re-structuring,” taxpayers may inadvertently be exposed to a concerning amendment to taxation legislation– the feared new section 234 of the Tax Administration Act No. 28 of 2011 (“Section 234”).

According to Section 234, non-compliant taxpayers may be subject to criminal sanctions. In this regard, the list of criminal offences is set out extensively in Section 234 and upon being found guilty, taxpayers face prosecution, conviction, and subsequent imprisonment (of up to two years) or a fine. Owing to the range of criminal offences envisaged in Section 234, there is little to no leeway for taxpayers, even in the instance of unintentional non-compliance.

In this regard, both wilful and negligent conduct may result in taxpayers being found guilty of an offence and held criminally liable. This means that whether taxpayers intend to commit the listed offences or not, is irrelevant. Examples of serious offences which may result in criminal liability under Section 234 include the wilful submission of false certificates or statements, the wilful issuing of erroneous, incomplete or false documentation and the wilful obstruction of a SARS official in the discharge of their duties. Wilful criminal conduct such as the examples listed above are serious offences which may cause prejudice to SARS or the fiscus and must be avoided in an attempt to administer taxpayers’ affairs in line with the requirements of the Tax Administration Act. In this regard, there is no doubt as to the liability of taxpayers who wilfully commit such offences.

On the other hand, examples of less severe conduct that may result in criminal prosecution include (inter alia): the failure of taxpayers to register or notify SARS of a change in their registered particulars (as required when registering for tax), the failure of taxpayers to appoint a representative taxpayer or notify SARS of such appointment or change of that representative and the failure of taxpayers to submit returns to SARS or furnish any information which SARS requires. In a practical sense, the success of the criminal sanctions to be potentially imposed on taxpayers as a result of the offences listed above will largely depend on how Section 234 is applied by SARS in light of the administrative realities pertaining to the taxpayer’s tax affairs. Since the particular circumstances of the taxpayer’s position in relation to the offence or the severity of the offence are not to be considered (by virtue of the fact that both wilful and negligent conduct is punishable), the question arises as to how Section 234 will be administered.

What is concerning is not the fact that SARS and the NPA intend to mitigate tax non-compliance through Section 234, but the fact that in doing so, the scope of criminal offences has widened so far that inadvertent human error coupled with the levels of severity of the listed offences have seemingly not been taken into consideration in conjunction with the potential result of criminal prosecution. Colloquially, it can be said that the punishment does not fit the crime in terms of retributive justice and in consideration of tax administration.

It is widely accepted that when dealing with tax administration, many taxpayers make errors which are not deliberate, or fail to comply with certain requirements as a result of a mere oversight. Through Section 234, the scope of criminal prosecution has been broadened to include conduct which is not only wilful but may be as a result of carelessness on the taxpayer’s behalf. Whilst the maladministration of a taxpayer’s tax affairs due to carelessness is not to be taken lightly and is indicative of conduct which may cause a certain level of prejudice or be an inconvenience to SARS or the fiscus, imposing criminal sanctions in this regard is not retributive and will have far-reaching consequences for taxpayers who find themselves at the helm of criminal prosecution.

Irrespective however, of the sentiment of taxpayers towards Section 234, the fact remains that they ought to be weary of the provisions which set out conduct that may be subject to criminal prosecution. In this regard, we strongly recommend that taxpayers take heed of the list of offences which are punishable and conduct their tax affairs in a diligent and disciplined manner so as to avoid speculation from SARS and potential prosecution. Whilst the parameters of tax non-compliance have become a point of contention, taxpayers must take cognizance of the realities of tax administration and rather than potentially unintentionally subjecting themselves to criminal prosecution, take purposeful and careful steps to order their tax affairs and seek the guidance of skilled practitioners where necessary.