Is Tax Evasion a Criminal Offence in South Africa?

Few things in life are more hated than taxes. You’d be hard-pressed to find a person who enjoys checking their bank balance and seeing a portion of their income taken by the government. It’s understandable then that more than a few people try to avoid paying taxes by any means necessary. This might mean lying about how much money you’re really earning, or perhaps you might try to avoid payment altogether. Either way, it raises some serious questions. Is Tax Evasion a Criminal Offence in South Africa?

Yes, tax evasion is a criminal offense in South Africa. Tax evasion can be confused with tax avoidance, though the only evasion is actually a crime.

Taxpayers are often unsure as to what really constitutes tax evasion, this is vitally important as true evasion requires intent. It’s probably in our best interests to define our terms as clearly as possible.

What is Tax Evasion?

Tax evasion is the act of knowingly underpaying or refusing to pay your taxes. This may be done in a number of ways but the most common forms are as follows –

• Not declaring income/s or lying about the amount of income you receive
• Lying about expenses
• Charging VAT on products sold but not paying subsequent taxes on those products
• Charging employee taxes and keeping them rather than paying them to SARS

There are many other forms of tax evasion but they all amount to basically the same process. If you willfully attempt to pay less tax than you are supposed to, you are most likely committing a form of tax evasion. There are, however, many loopholes that enable individuals and businesses to lessen their tax burdens in ways that are technically legal.

What is Tax Avoidance?

Tax avoidance is the process whereby an individual or a business may use procedures within the tax system to legally pay less.

In other words, if you’re smart enough and you spend some time reading through the tax codes, you may find a few tips and tricks that allow you to pay less tax without breaking the law.

Tax avoidance can be a bit of a sticky subject and might confuse even the most accomplished tax dodgers, it’s probably most easily explained by using an example –

• If you were trying to buy something from overseas you may be looking at a pretty steep duties tax when the object enters the country.
• If you knowingly attempt to not pay this tax or pay less than is required, you may be committing tax evasion which is illegal.
• On the other hand, to avoid this tax some people may have a friend or family member in a different country buy the object and send it to them as a “gift”. If the object was less than R1400 it may get through customs without a duties tax. This is tax avoidance and is generally not illegal.

What is Intent and is it Always Required?

Most people never get any sort of rundown when it comes to paying taxes. You often don’t get taught exactly when to pay, how much to pay and when it can be avoided. For these reasons, many individuals often do not pay as much tax as they should. Surely these people are committing tax evasion, right? Not exactly.

One of the main factors when considering tax evasion cases is that of intent. Simply put, most cases argue that the taxpayer had to have knowledge of the relevant taxes (to a reasonable extent) and intended to not pay them or pay less than what was required. 

Many tax evasion cases have been decided by determining whether or not the defendant actually meant to evade taxes or if they were just unaware of exactly what they owed.

This may not always be the case though. The new legislation is on the move that may soon criminalise tax avoidance even when the intent is not clearly shown. If passed, these new laws could see a crackdown on unintentional tax dodgers by labelling them as negligent. 

What are the Penalties for Committing Tax Evasion?

The punishment for tax evasion depends heavily on the case itself. The investigation authorities are expected to consider the context of the individual and their infringement.

The two main influencing factors when determining tax evasion penalties are –

• The tax shortfall – The amount of money that hasn’t been paid during the evasion period. The financial penalties will range between 5% – 200% of the tax shortfall.
• The extent of criminal activities – The activities that the tax dodger used to avoid taxes. If, for example, the individual simply paid less than what was required but rectified the issue when confronted, there is a chance that they will only receive a financial penalty. On the other hand, if the individual lies or misdirects SARS when confronted with their infringement they may be charged with up to 5 years in prison.

SARS will often use the standard of a ‘reasonable person’ when determining wrongdoing. This is when the actions of the tax dodger are compared to the actions of a hypothetical ‘reasonable person’. The more the actions differ from this imaginary person, the higher the penalties are likely to be.

Tax Evasion Through the Black Market

South Africa has always had issues with illicit markets. Not all transactions happen in well-lit shopping centres and many citizens are able to buy and sell what they need without worrying about taxes at all. The Covid-19 pandemic and subsequent lockdowns have led to a massive spike in black-market trading and have done real damage to the standard tax system of the country.

Obviously, this leads to huge losses for the government purse as they lose out on money they would normally make through most taxes. The worry is that this thriving black market could result in even more citizens engaging in tax evasion as a means of saving money during the pandemic. This may also explain why harsher tax crime penalties are being proposed in an attempt to curb the rise of illicit trade.

Why are South Africa’s Taxes so High?

It’s no secret that the country has a bit of a tax addiction. According to the International Monetary Fund (IMF), South Africa is the 8th highest taxed country on the planet. This may not seem like much of an issue when you consider that other top 10 tax-heavy countries include thriving nations such as Denmark and Belgium. The problem is the lack of returns seen in South Africa.

A high tax rate can sometimes be justified if the government provides its citizenry with a whole host of benefits as compensation. Unfortunately, this country seems to have the tax rate of a 1st world Nordic nation, with few of the comforts that go along with it. Many individuals and institutions blame corruption within the government as the primary reason for this shortfall.

It’s no wonder then that many people in South Africa have a negative reaction to taxes and will do whatever it takes to lower the amount of money they are forced to pay.

In Conclusion – What is Tax Evasion and is it a Criminal Offence in South Africa?

Tax evasion is a blanket term used to describe any act that involves knowingly and willingly paying less than the required tax. This may include, but is not limited to, things like –

• Lying about your income
• Lying about expenses
• Sending falsified information to SARS
• Lying about your finances when questioned by SARS

Tax evasion is sometimes confused with tax avoidance which is a legal practice that involves finding loopholes within the tax system to pay fewer taxes than you otherwise would. For example, tax avoidance commonly takes the form of setting up residence in a low-tax country, known as a tax haven.

By contrast, tax evasion is a crime and can even result in imprisonment. Usually, the penalties for tax evasion involve fines that are determined by the amount of unpaid tax. There are, however, instances in which multiple illicit steps are taken to cheat the system which can lead to jail time. Judges often consider the context of the crime to decide whether or not a prison sentence is necessary.

The intent is a key element when punishing tax dodgers. If a person was unaware that they were committing tax evasion, they are often let off the hook and are simply required to pay the outstanding fees. Notably, though, there are policy suggestions in place which may soon label these individuals as negligent and thus prosecute them all the same. 

Disclaimer LAW101: All of our posts are for research purposes only. Law 101 aims to assist its readers with useful information on the laws of our country that can guide you to make decisions in line with the South African Governmental Laws currently in place. Although in many instances, our posts cite the constitution, they are intended to assist readers who are looking to expand their knowledge of the law. Should you require specific legal advice we advise you to get in touch with a qualified legal expert.

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