New rule will have serious consequences for South African taxpayers

Tax and financial experts have raised concerns around one of the proposed amendments in the Draft Tax Administration Laws Amendment Bill (Draft TALAB) that could have serious consequences for South African taxpayers.

The issue revolves around the removal of the element of wilful conduct in respect of tax-related offences.

Under current tax regulations, a person must commit an unlawful act ‘wilfully and without just cause’ before the taxpayer could be found guilty of the offence.

The Draft TALAB proposes to amend the wording of these three provisions by removing the term ‘wilfully‘ from the legislation, thereby removing the obligation on SARS to prove intent before a taxpayer can be found guilty of one of these offences,

In a presentation on the bill to parliament this week, professional services firm PwC said that the effect of these proposed amendments will be to criminalize negligent conduct including genuine errors.

“In this regard, the Memorandum of Objects to the DTALAB states that negligent conduct should be criminally punishable and that the requirement of intent should be removed so that taxpayers can be held to the objective standard of reasonableness contained in the test for negligence,” it said.

“The effect of the amendment will be to punish negligent conduct as harshly as intentional conduct is currently punished, notwithstanding the requirement of proportionality that requires that the severity of the sanction should match the degree of culpability as closely as possible.”

PwC said that the proposed amendment will broaden the scope of criminal offences, making a greater range of conduct – and a greater number of taxpayers – subject to criminal sanctions.

Broadening the scope of offences is likely to result in a larger number of investigations and prosecutions, this may however not result in greater efficiency or higher success rates in prosecuting tax offences, it said.

“The (bill’s) memorandum of objects indicates that it is not possible for a person to wilfully fail to do something. This is factually incorrect.

“For example, it is quite possible for a person to deliberately fail to comply with a tax obligation, such as the submission of a tax return or the payment of tax.”

PwC acknowledged that, in the context of tax law, it would in certain circumstances be appropriate to treat negligent non-compliance as a criminal offence.

For example, it may be appropriate that the negligent non-submission of a return or non-payment of tax be criminalised, it said.

“However, it is unconscionable that less serious offences – such as failure to notify SARS of a change of address or to appoint a public officer – should be criminal offences purely on the basis of negligence.”