This article looks at a recent change to the non-compliance provisions in three tax Acts where it is no longer required for SARS to link poor compliance with wilful intent to prove a criminal offence – and how this affects taxpayers’ rights.
0n 31 July 2020, National Treasury and SARS published the 2020 Draft Tax Administration Laws Amendment Bill (Draft TALAB). It proposed, inter alia, to remove the term “wilful” to include both intentional and negligent conduct within the ambit of criminal offences.
Wilful intent no longer required.
Before exploring the recent tax law changes relating to tax compliance, it is important to lay the landscape of the applicable criminal legal concepts. The penultimate principle of criminal liability is summarised by actus non facit reum nisi mens sit rea, i.e. “an act is not unlawful unless there is a guilty mind”. (Own emphasis.)
In order to establish criminal liability, the State must therefore prove beyond a reasonable doubt that the accused has committed actus reus, i.e. unlawful voluntary conduct, with criminal capacity and mens rea, i.e. fault in the form of either intention (dolus) or negligence (culpa).
Dolus (intent) per the Merriam Webster dictionary means “the doing of anything that is contrary to good conscience” whereas culpa (negligence) means “the failure to use the care and diligence demanded”. The test for dolus is subjective, i.e. based on the specific circumstances, whereas the test for culpa is objective, i.e. the accused’s conduct is measured against the standard of a reasonable person.
In the South African context, intention includes both deliberate and foreseen conduct.
Dolus eventualis, i.e. legal intention, exists where the accused does not intend for the unlawful act to happen, but can reasonably foresee the possibility that it could happen and then proceeds with the intended conduct regardless. Practically speaking this is the difference between murder and culpable homicide: Murder requires intent (including dolus eventualis) whereas culpable homicide only requires negligence.
Both are unlawful and punishable by law, but the punishment will differ proportionally to the specific circumstances.
Removal of “wilfulness” from statutory offences
South African tax Acts stipulate specific offences in respect of which the taxpayer may be liable for a fine or imprisonment. The following provisions were affected by the recent Draft TALAB:
• Paragraph 30 of the Fourth Schedule to the Income Tax Act
• Section 58 of the Value-added Tax Act
• Section 234 of the Tax Administration Act
Each of these provisions required that a taxpayer must commit the relevant act “wilfully and without just cause” before the taxpayer could be found guilty of the applicable offence. The effect of removing “wilfulness” basically negates the requirement for SARS to prove intent before the said taxpayer, i.e. the accused, could be found guilty of the applicable tax offence and it is therefore easier for SARS to impose either the fine or imprisonment.
National Treasury and SARS contended in the Draft TALAB that the National Prosecuting Authority (NPA) is of the view that the current wording relating to criminal offences substantially undermines the ability of SARS to ensure compliance based on the objective standard expected of the reasonable person. No official communication from the NPA to National Treasury and SARS was included in support of this contention. Its motivation further contended that due to “wilful” being included in the tax Acts, it may hamper the criminal prosecution of non-compliant taxpayers by the NPA in seeking to prove the elements of the crime.
It was therefore proposed that the requirement of “wilful” conduct be removed with regard to criminal offences to enable the NPA and SARS “to measure a taxpayer against such objective standards where required”. On 8 December 2020 the Tax Administration Laws Amendment Bill was passed by Parliament.
What does this practically mean for taxpayers?
After all is said and done, it comes down to taxpayers ensuring that they acquaint themselves with South African tax laws and their basic compliance requirements. Unfortunately, “human error” and other negligent errors could result in costly court battles and possible criminal sanctions.
Corporate taxpayers should review their tax policies and standard operating procedures to ensure that proper risk controls are in place to prevent possible personal prosecution of their accountable directors. In addition to King IV’s corporate governance principle of “apply and explain”, a further burden is placed on corporate taxpayers to ensure tax compliance and being able to substantiate their tax position with the relevant supporting documents and information. This also applies to individual taxpayers.
Generally, the devil is in the detail and, as a starting point, taxpayers should submit tax returns timeously, but also with the correct information. Appointing public officers, updating bank account details or the change of address are not regarded by SARS as minor administrative compliance issues – they regard it as critical to be able to contact a taxpayer and / or serve legal documents where necessary. It is crucial to keep all the above updated, as well as any other information which SARS requires. More now than ever it is best to obtain sound tax advice prior to submitting tax returns, responding to requests for information or audits.
Is it controversial that “wilful” will be removed from the relevant tax Acts? Yes, it is, but until this is challenged in court (and reversed), this will be the playing field for taxpayers and SARS. It is therefore best to be extra careful to ensure you do not find yourself in the same position as someone who is accused of culpable homicide.