A word of warning to all “finance professionals”, including tax practitioners, accountants, and specialist attorneys – Professional Indemnity Insurance can only cover you to a certain extent, and that does not include evading jail-time should the South African Revenue Service (“SARS”) deem fit.

In the last 6 to 12 months, we have seen, as part of SARS’ collection and compliance drive, a number of non-compliant tax practitioners receiving correspondence to the effect of SARS threatening to de-register these individuals. This is no idle threat, and no protection from your RCB will get you out of this jam.

No “Selective” in the List for Prosecution

What this means, is in fact two-fold:

1.      It raises the question of how a finance professional, can advise clients, whilst their own house is not in order; and

2.      Granted there is validity in SARS’ actions, how would the non-compliant practitioner then generate income to settle any historic debt to the revenue collector.

Going further than this, prior to the Wiese judgement in September last year, a number of tax practitioners, accountants, and attorneys, would have assumed SARS would go after only “the lowest hanging fruit”, thinking this meant the small fry, who could not put up much of a fight anyway.

Truth of the matter is, the question of “Selective Prosecution” has been one asked for years, but more pertaining to the taxpayer themselves, rather than their ill-equipped advisor. With the objective of eradicating fraud and non-compliance, SARS has been very clear that “Our mandate requires us to collect revenue”.

In October 2021, came the introduction of the High Wealth Individual Unit (“HWIU”), headed up by Ms Natasha Singh. Just a month prior, in September 2021, SARS Commissioner, Edward Kieswetter, in the National Tax Indaba, noted that SARS’ position as an organization is to focus on collecting the “lowest hanging fruit”. 

The interpretation of this statement was clarified by SARS’ actions with one of the most recent examples of this being the favourable ruling by the Western Cape High Court on the admissibility of a transcript, from an enquiry, in a matter which has been on-going for years now – the Wiese case.

No Escape even for Legal Execs

Commissioner Kieswetter, like all strategic movers, has bided his time well, taking out a number of pawns, before moving in on a King; this judgement, if gone without appeal, will serve to set a formidable precedent, bolstering SARS’ audit and prosecution capabilities even further.

What is a point of interest in this matter, is the alleged involvement of Africa’s largest law firm, Edward Nathan Sonnenberg (“ENS”), former executive, Gert Viljoen. We have historically seen a number of law firms finding themselves in similar, but far less damning situations, due to not fully considering the possible tax ramifications when issuing advisory to wealthy or affluent clients, especially when it comes to offshore structuring.

Viewed in conjunction with the recently released Interpretation Note 127, bringing section 31 of the Income Tax Act, 58 of 1962, under further scrutiny, it appears SARS has its sights set on the shrewd advisor, together with their non-compliant clients, in matters of both a domestic and international nature.

SARS Fully Backed by the Presidency, and National Prosecuting Authority

Just in review, with the 2023 Budget Speech around the corner, we note quite saliently from the 2022 Budget Speech the highlights of many proposed developments in South African law, including tax rate changes, increased excise charges, and most relevantly, SARS’ focus on the eradication of non-compliance and fraud, with the resounding statement that:

“To assist with the detection of non‐compliance or fraud through the existence of unexplained wealth, it is proposed that all provisional taxpayers with assets above R50 million be required to declare specified assets and liabilities at market values in their 2023 tax returns. The additional information will also help in determining the levels and structure of wealth holdings as recommended by the Davis Tax Committee.”

This statement aligns well with Kieswetter’s statement pre-dating the speech, in April 2021, noting that SARS has profiled a number of High-Net-Worth Individuals, who the revenue authority deems to be living beyond their means, with a focus on specified assets and liabilities, with a market value exceeding R50-million rand, or R75-million, in practice. 

A Level of Solution-Based Thinking

For the tax professional looking to save face, and ensure their compliance, and market reputation, remains unblemished, there are various solutions available from a legal standpoint.

When a tax bill, has amassed over a number of years, and spanning into the hundreds of thousand, or even millions, the Compromise of Tax Debt, if negotiated properly, is one such solution, permitting a financial professional, or their clients, to negotiate their tax bill, to what is objectively deemed an affordable settlement. This is done by means of a Compromise Agreement (“the Agreement”), which is entered into with SARS.

The Best Strategy to Remedying Non-Compliance

Where you unintentionally find yourself on the wrong side of SARS, there is a first mover advantage in seeking the appropriate tax advisory, ensuring the necessary steps are taken to protect both your business, and clientele from suffering for what could have been simply human error. However, where things do go wrong, SARS must be engaged legally, and we generally find them utmost agreeable where a legally correct tax strategy is followed.

As a rule of thumb, any and all correspondence received from SARS should be immediately addressed, by a qualified tax specialist or tax attorney, which will not only serve to safeguard the taxpayer against SARS implementing collection measures, but also being specialists in their own right, the financial professional, and their clients, will be correctly advised on the most appropriate solution to ensure prison food never becomes a reality.

Written by Jashwin Baijoo, Head of Strategic Engagement & Compliance at Tax Consulting SA