A smile can mean a thousand words: but it can also hide a thousand problems

Some of the thousand problems hiding behind Minister Tito Mbowen’s jokes, which in fact was acknowledged in the budget are; a weak economy; massive unemployment; one of the highest budget deficits in history; and rapidly growing public debt.

Also, the jokes and smiles also hide a thousand problems for unsuspected taxpayers.

COVID-19 had a severe impact on our struggling economy, and as a result, the expected tax base growth has deteriorated significantly since the 2020 budget. Personal income tax collection has been affected by rising job losses and lower earnings for those who are employed, while Corporate income tax collections have been contracting since 2018/19.

One plus one isn’t two anymore, and it would be normal for a taxpayer to start to feel uneasy. What was not said in the budget... why no increases?

With no real tax increases and a shrinking tax base, SARS intends to increase the collection of taxes by focussing on tax that should be collected but is not. To increase its collection capabilities, the budget provided for additional spending of R3 billion to SARS.

We all giggled when Minister Tito Mboweni was as confused as us when he started to explain that SARS is expanding its machine learning capabilities, and could have missed what was said after that. SARS will use that R3 billion to expand its specialised audit and investigative skills.

This brings us to what was not said in the budget speech.

Section 234(2) of the Tax Administration Act No28 of 2011, (the TA Act), was changed by the Tax Administration Laws Amendment Act No 24 of 2020, which commenced on 20 January 2021. Yes, the new section 234(2) of the TA Act commenced only a month before the budget speech.

Section 234(2) of the TA Act list a few things, that if a taxpayer fails to do them wilfully or negligently then such a person is guilty of an offence, and is liable, upon conviction, to a fine or to imprisonment for a period not exceeding two years.

Taxpayers might be shocked to know that the obligations include actions such as not keeping the required records or failure to submit a tax return.

To name only a few, a person might be in violation of section 234(2) of the TA Act if he/she:

• Fails to register for income tax if he/she is required to do so;
• Fails to retain records;
• Fails to disclose any material fact to SARS;
• Fails to submit a return to SARS.

The previous wording of section 234(2) of the TA Act only used the word wilfully. Wilfully is defined by the Oxford Dictionary as an act with the intention of causing harm or being deliberate.

By only including the word wilfully in the previous section 234(2) of the TA Act, taxpayers potentially could defend their actions by arguing that even if they did fail to comply with a certain section of the tax act, they never did so deliberately.

However, with the inclusion of the word negligently, SARS now only needs to show that a person did not take the care a normal person would have taken.

The well known legal maxim, Ignorantia juris non excusat, which simply means that ignorance of the law excuses not, is now part of section 234(1) of the TA Act.

With the budget giving SARS an additional R3 billion to put their money where their mouth is, taxpayers should be aware and take the necessary steps to get their tax affairs in order.

Even though the courts in the past recognised that our law developed in such a way that it could be wrong to assume that every person should know the law, especially complicated law like tax law, going through the process of defending your actions, might be costly and burdensome, with an added possibility of jail time.

However, with the increased capacity the 2021 budget is creating at SARS, and in conjunction with the wider scope of the new section 234(1) of the TA Act, taxpayers should take the prudent step to approach professional assistance and advice where in doubt concerning their tax affairs.

Author: Franscois Celliers, Consultant, Mazars in Gqeberha