The SA Revenue Service (SARS) should prosecute its own tax cases rather than relying on the overburdened National Prosecuting Authority (NPA), said retired judge Dennis Davis, head of the Davis Tax Committee. Successful criminal prosecutions of tax cases would act as a deterrent to tax non-compliance, which could result in more tax being collected at a time when SA faces a fiscal crisis and a yawning budget deficit.
The Davis Tax Committee was appointed by then Minister of Finance Pravin Gordhan in 2013 to “inquire into the role of the tax system in the promotion of inclusive economic growth, employment creation, development and fiscal sustainability”. It was recently announced that Davis would join SARS as a consultant, focusing on clamping down on tax avoidance and evasion.
Speaking during a recent webinar, Davis said the Committee should probably work on devising legislation to empower SARS to prosecute non-compliant taxpayers. “We do not think the NPA in its present situation is able to do that,” he said.
SARS Commissioner Edward Kieswetter said in a media briefing that, in line with the work of the Davis Tax Committee, SARS will increasingly focus on wealthy individuals over the next year. “SARS is aware of increasing number of south Africans who have financial assets offshore, they have more than ZAR400 billion in offshore accounts. We’ve identified around 10% of that, but we believe there’s still a lot to be explained.”
The Committee has also given its support to lifestyle audits for wealthy South Africans as a means of clamping down on tax avoidance. Davis said that a clear definition of ‘wealth’ needed to be established and that lifestyle audits would help with collecting information on the assets of the wealthy.
Kieswetter said SARS had the ability to access a number of databases that track high-ticket items, such as luxury cars and expensive property. It was often the case that more information could be established from the assets and liabilities of wealthy individuals, as opposed to the income and expenses that they declare.
“This highlights the parlous state of the South African economy and the considerable challenges that the South African National Treasury is currently faced with under the backdrop of economic decline, not only over the period of the pandemic, but also in the years before December 2019,” said Sovereign Trust (South Africa) chairman Tim Mertens.
“Some of the structural challenges ahead include addressing the steady degradation of the tax collection system over time, reviewing complex and at times confusing tax legislation, recovering the huge outstanding debt to SARS and rebuilding the forensic capability to hone in on exploiters of the tax system.
“Hitting already beleaguered taxpayers with further tax hikes is not an option but enforcing much tougher criminal measures against recalcitrant taxpayers is seen as a solution to redress the massive tax compliance imbalances and encourage all taxpayers to simply pay their fair share,” said Mertens. “The corollary of this, of course, is that taxpayers are perceiving that they do not receive value for money for their taxes, especially when there is well documented and endemic state corruption, wastage and mismanagement of resources.”