The South African Revenue Service (Sars)’ proposed Value-Added Tax (VAT) Modernisation Project is geared to combat challenges faced by traders, businesses, and Sars, including compliance inefficiencies, the risk of errors, and tax evasion.

Phase 1 will entail inserting key definitions into the VAT Act, including “e-credit note”, “e-debit note” and “interoperability framework”. 

While this VAT Modernisation Project clearly aligns with Sars’ strategic objectives of making voluntary compliance easy, and non-compliance both hard and costly, the streamlined process will also benefit taxpayers, reducing reliance on time-consuming paper-based invoicing and reconciliations.

Although this particular project is still at proposal stage, Sars has successfully implemented a number of other “Compliance Projects” and collection drives.

Sars Modernisations in the Age of Automation 

Sars’ compliance success, in this age of automation, can in part be attributed to their use of data-driven insights, derived from both South African and international sources. These system modernisations allow the revenue authority to detect any degree of non-compliance and hold the perpetrating taxpayer, and in some instances, tax aggressive advisor, accountable. 

Flowing from automated processing, the data-driven insights inform Sars of all transactional records pertaining to specific taxpayers, and using AI, the “fine-tooth comb” is no longer needed to extrapolate these records into strong legal cases for non-compliance. This collaborative approach enables Sars to gain access to a comprehensive dataset, facilitating more robust evaluations of taxpayers' financial activities.

With Sars' enhanced non-compliance detection capabilities and a sharp focus on both past and future non-compliance, correct tax and legal guidance has never been more critical. The most prudent approach is to heed Sars’ warning that non-compliance will be both hard and costly, and subscribe to the decentralised clearance model to be implemented under its newest modernisation project.

On the topic of VAT, and its concomitant tax obligations, taxpayers are often under the false impression that should their company default with Sars, the Directors / representatives have a degree of protection.

Personal Liability Under Section 180 of the Tax Administration Act (“the TAA”)

Section 180 of the TAA empowers Sars to hold third parties personally responsible for a company’s tax debt / compliance if:

• The person “controls or is regularly involved in the management of the overall financial affairs of a taxpayer”; and
• Sars determines that the person acted negligently or fraudulently concerning the taxpayer’s tax debt.

Where a tax obligation exists, this would include liability for capital sums due, as well as related penalties and interest.

Holding an official financial title within the company is not necessary. Merely being involved in financial decisions can make an individual a target. Directors, shareholders, financial officers, and even informal advisors can be held liable if their actions (or inaction) contribute to tax non-compliance.

Criminality of Non-Compliance: Sars Won’t Stop at Civil Liability

Sars’s collection arsenal is not limited to section 180. For example, sections 153 to 155 of the TAA impose personal liability on a “representative taxpayer”—any person responsible for managing the tax affairs of a company. This includes public officers, who may be held personally accountable for the company’s actions which may be construed as fraudulent or “tax evasion”.

The threat of personal liability extends beyond financial penalties. Sars has the power to initiate criminal proceedings against individuals controlling non-compliant companies. This means that simply paying a fine may not be enough; offenders could face criminal charges, and even imprisonment.

Enhancing Voluntary Compliance Through Technology and Trust

For compliant VAT vendors, this modernisation could be the tool needed to optimise administrative operations, reducing man-hours needed, and streamlining refund processing.

On the other hand, for those erroneously guilty of sub-par record keeping, or negligently running enterprises which are not tax compliant, there is a first mover advantage in seeking the appropriate strategic compliance guidance. This serves to ensure the correct protective steps are taken. Attorneys are needed, even in the age of AI!

As a rule of thumb, any and all correspondence received from Sars should be legally addressed, as often legal professional privilege is a must in instances of non-compliance. This will not only serve in safeguarding against Sars implementing collection measures or potentially criminal charges, but also being specialists in their own right, taxpayers and advisors will receive correct legal counsel on the most appropriate solution to ensure full tax compliance.

Written by Jashwin Baijoo, Associate Director and Head of Strategic Engagement & Compliance at Tax Consulting SA