Demonstrating the strong stance on criminalising tax non-compliance, Sars and the IDAC have joined forces to combat financial crimes, including tax crimes. This alliance will bolster capacity to make non-compliance hard and costly.

The scope of criminal charges for contravention of tax legislation does not stop with taxpayers being non-compliant as individuals. It extends to individual taxpayers controlling non-compliant companies, and which does not stop at the company (individual holding control) merely paying a fine for its tax misdemeanours.

Through various on-going tax fraud cases, Sars, has made evident that “personal liability” encompasses both financial liability as well as criminal liability, for the individual exercising factual or financial control over a company.

If found guilty of tax non-compliance, it can lead to a prison sentence and even if it is suspended, the responsible individual will have a criminal record against his or her name.

Fraud Charges Finds Durban Businessman Behind Bars

Recently on the chopping block is Durban businessman, Thoshan Panday, who is currently behind bars, contemplating the 27 counts of fraud, or alternatively, contravention of tax legislation, he faces!

Panday's recent arrest on tax fraud charges is part of a broader legal battle he is embroiled in, with prior accusations also extending to fraud, corruption, and racketeering charges. The intricate web of allegations highlights the far-reaching consequences that can stem from fraudulent financial practices conducted by individuals, through legal entities such as companies and closed corporations under their financial control.

Henry Mamothame, spokesperson for the Investigating Directorate Against Corruption advised that subsequent tax investigations revealed alleged financial prejudice suffered by Sars, to the tune of R7.3-million, due to Panday's deceptive tax practices. This includes submission of false tax declarations to Sars for both the 2010 and 2011 tax years, already being an imprisonable offence under the existing tax legislation.

Panday is still behind bars after he was denied bail in the Durban Magistrate’s Court on Monday, 9 September 2024. The State argued that he is a significant flight risk and still had the means to live in luxury, even after his assets were seized.

Imputation of Personal Liability Enshrined in Law

Already enshrined in our tax laws, is the imputation of personal liability on any person who controls or is regularly involved in the management of the overall financial affairs of the company, where the person’s negligence or fraud resulted in the failure by the company to pay its tax debts.

The tax laws do not specifically presuppose the existence of formal responsibility in respect of the finances of the company. They instead merely require that a person exercise a degree of control over or regular involvement with its overall financial affairs.

Specifically, the ambit of section 180 of the Tax Administration Act, therefore, also relates to those persons who exerted a form of pre-emptive or informal control over the financial affairs of the company, which may include shareholders, directors and other persons who were factually involved.

Contravention of tax laws not only tarnishes an individual or company's reputation but can also result in hefty financial penalties, legal repercussions, and potential incarceration.

The Panday case serves as a stark reminder of the grave consequences that individuals face when engaging in fraudulent tax activities, even when hiding behind the guise of a verified business.

Tax Compliance is Key

With Sars having to become aggressive in an effort to combat the criminal elements in our society, taxpayers need to be aware that even non-compliance on a smaller scale and due to negligence, carries with it the potential of criminal conviction.

Where you are already on the wrong side of the law, your only reprieve is to correctly and legally engage the revenue authority. Commission of any further criminal activity will not sweep prior acts under the rug, but rather exacerbate the already severe consequences.

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