Most dealings with the South African Revenue Service are administrative. An assessment is raised, a penalty is imposed, an objection is lodged, and the dispute is resolved within the machinery of the Tax Administration Act 28 of 2011. A significant number of taxpayers do not appreciate that the same Act also creates criminal offences, and that a matter which began as an audit can end in a criminal court.
The line between the two is worth understanding before it is crossed.
Two categories of offence
The Act distinguishes between non-compliance offences and evasion.
Section 234 criminalises a list of failures: failing to register, failing to submit a return, failing to retain records, failing to furnish information, and similar conduct. On conviction, a person is liable to a fine or to imprisonment for a period not exceeding two years.
Section 235 deals with evasion and with obtaining an undue refund. It requires intent, that is, an intention to evade tax or to obtain a refund to which the person is not entitled. On conviction the maximum is a fine or imprisonment for a period not exceeding five years.
Section 235 is the more serious provision, but section 234 is the one that catches taxpayers who never imagined they were at risk.
The change that took effect in January 2022
Historically the section 234 offences required conduct that was "wilful and without just cause". The Tax Administration Laws Amendment Act 21 of 2021, which came into effect on 19 January 2022, restructured the section so that a category of conduct is now an offence if it is committed negligently.
The practical significance is considerable. For the affected failures the State no longer has to establish that the taxpayer acted deliberately. Persistent administrative neglect, outstanding returns, records that were never kept, information never furnished, can found a charge without any allegation that the taxpayer set out to cheat.
This is the single development most often missed by taxpayers who assume that because they did not intend to defraud anyone, criminal exposure is impossible.
How a matter is referred
The Act separates the administrative and criminal functions. Section 43 provides for a matter to be referred for criminal investigation where there are grounds to suspect a serious tax offence, and once that referral occurs the investigation is conducted separately from the audit.
That separation exists for a reason, and it is directly relevant to taxpayers. SARS's information-gathering powers in Chapter 5 are compulsory: a taxpayer may be obliged to provide material and answer questions. Section 72 addresses the tension this creates with the right against self-incrimination, by providing that an admission of the commission of a tax offence obtained from a taxpayer under Chapter 5 is not admissible in criminal proceedings against that taxpayer, unless a competent court directs otherwise.
The protection is real but it is bounded. It attaches to material obtained under the compulsory administrative powers. Material gathered in the criminal investigation that follows a referral does not sit in the same position, and may be used in criminal proceedings.
Why the point at which a matter turns is critical
If a referral has occurred, the taxpayer is no longer simply managing a dispute about numbers. They are a suspect in a criminal investigation, and the ordinary constitutional protections in section 35 of the Constitution become directly relevant.
The practical difficulty is that the change is not always announced. An audit may continue while an investigation runs. A request for further material may be routine, or it may not be. This is precisely why legal representation at an early stage is valuable: the question of which process a taxpayer is actually in is one that should be asked and answered, not assumed.
Administrative consequences do not replace criminal ones
An understandable assumption is that paying an understatement penalty disposes of the matter. It does not follow. An administrative penalty and a criminal prosecution address different things, and settling the assessment does not by itself remove criminal exposure. Conversely, the fact that a criminal investigation exists does not suspend the ordinary obligation to pay assessed tax, which is dealt with separately under the Act.
Practical points
Bring outstanding returns up to date, because unfiled returns are the most common foundation for a section 234 charge and continue to accumulate exposure while they remain outstanding. Keep records, since failure to retain them is itself an offence. Establish, early, whether a matter has been referred for criminal investigation. Obtain advice before answering questions in circumstances where the answers may be used against you. And do not assume that an absence of dishonest intention is a complete answer, because for part of section 234 it is no longer the test.
This article is general information on South African law and not legal advice. It reflects the position under the Tax Administration Act 28 of 2011 as amended. Anyone who believes a tax matter may have criminal implications should obtain advice on their own circumstances.
