The proverb still rings true – you can lead a horse to water, but you cannot make it drink. In this case, despite the South African Revenue Service’s (“SARS”) referral of criminal taxpayers to the National Prosecution Authority (“NPA”) as well as the Zondo Commission’s damning findings levied against various high-profile persons, it appears that the NPA is reluctant to pull the trigger and initiate prosecution proceedings against these individuals. 

In more recent years, SARS have clinically put measures in place to improve the efficiency by which taxpayers are investigated for criminal tax offences and referred to the NPA for prosecution. The two major developments in this direction were SARS updating its Memorandum of Understanding with the NPA in 2019, rejuvenating the collaboration between the two institutions, and National Treasury’s amendment to tax legislation dealing with criminal tax offences, the change being that taxpayers may be found guilty of certain offences on the basis of negligence, therein removing the obligation on the NPA to prove criminal intent.  

The question at the moment is where are the stream of public prosecutions of high-profile, wealthy tax offenders which the public so desperately wants to see?

Kieswetter Frustrated 

In May 2021, SARS and the NPA issued a joint media statement, whereby the enhanced collaboration was stated to specifically target key challenges of tax-related criminal activity and non-compliance, affirming that even though the authorities have different mandates, they shared a common goal – the eradication of fraudulent activity.

This effectiveness of the NPA has, however, been called into question with Commissioner being quoted in the media as stating that he has hope that the NPA: “gets their act together so that we can see more taxpayers in orange overalls, behind bars”.

The Commissioner is clear in his narrative that SARS cannot be blamed for the failures of the NPA and has further repeatedly stated that SARS’ achievements under his tenure have not been sufficiently recognised, in particular with regard to the increase in revenue collection which greatly exceeded projections for the most recent fiscal year. 

High-Net-Worth Sniping

The NPA’s lacklustre efforts have not left Kieswetter deterred as the next phase of his revenue collection strategy is starting to be realised. While South Africa has not yet seen the introduction of a new ‘wealth tax’, the Commissioner is determined to see through initiatives to significantly increase revenue collection from so called High-Net-Worth Individuals (“HNWIs”).

It is not a coincidence that April 2021 saw Kieswetter's announcement of the creation of a HNWI Unit, dedicated to HNWI tax compliance, as well as his intention to engage the services of renowned tax expert Judge Dennis Davis. In tax circles, Judge Davis is well-known for his role in the Davis Tax Committee and the publishing of the Second and Final Report on Estate Duty prepared for the then Minister of Finance in April 2016.

The Report intricately details the use of Foreign Trusts and other structures which HNWIs have used for generations to protect their wealth from South African income tax. This information has always been available to SARS it merely needed the right team and leader to take the required action here. Any tax evasion found in these structures will naturally be ripe for referral to the NPA. 

If these steps were not enough, the Commissioner’s latest idea in targeting HNWIs was announced by the Minister of Finance in his February 2022 Budget Review, wherein it was proposed that all provisional taxpayers with assets exceeding R50-million in value be required to declare both assets and liabilities to SARS. This mechanism must still be unpacked, but it suspected that SARS might include a taxpayer’s ‘contingent rights’ to assets, which would compel HNWI’s to disclose their interest in foreign trust structures as well. 

All eyes on NPA

As SARS continues to concentrate its efforts on revitalizing the institution to its pre-Tom Moyane era glory, the South African public’s focus remains on the NPA, waiting for the high-ups to deliver on outstanding promises to put tax evaders behind bars. By all accounts, the Commissioner will have his list of alleged criminally non-compliant taxpayers ready soon, hopefully together with the supporting evidence, and which then leaves the baton with the NPA to deliver the much-needed result.  

Written by Darren Britz, Head of Tax Legal at Tax Consulting SA & Jashwin Baijoo, Legal Manager, Africa Tax and Compliance at Tax Consulting SA