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In June of 2020, tax practitioners and legal advisors were confronted with proposed new legislation regarding certain actions (or defaults) by taxpayers that would have constituted criminal acts. Currently, the Income Tax Act, Value-Added Tax Act, and the Tax Administration Act criminalises certain behaviours if those offences are committed “wilfully and without just cause”.
This test, however, presents somewhat of a contradiction in that it requires persons to be both objectively negligent and subjectively intentional before their actions can be regarded as criminal. National Treasury proposed to remove the words “wilfully and” from the criminal liability test. The threshold requirement for criminal liability was thus proposed to be reduced to events in which a person has simply acted “without just cause”. This proposed amendment was met with significant objection for the following reasons:
– The standard required before a person can be found guilty of a criminal offence has been established by the Constitutional Court, where it was found that the basic tenant of blameworthiness and criminal liability is intent (dolus).
– The suggested amendment is a dramatic change in a legal approach that has been applied for numerous decades in tax law, where only intentional criminal conduct criminalises non-compliance.
– The removal of an element of a crime to simplify its prosecution is almost certainly unconstitutional.
– There are three types of intention recognised in South African law, dolus directus, dolus indirectus and dolus eventualis. Dolus eventualis does not require the accused to have purposefully committed an offence or even to have understood that their conduct inevitably would lead to an offence being committed. The accused must merely have foreseen a possibility (even if only a remote or slight possibility) that a prohibited consequence may occur as an indirect result of their conduct. This constitutes a very low threshold of intent, capturing a wide range of conduct, and is often compared to recklessness or gross negligence.
After these objections were considered, the National Treasury proposed a somewhat less dramatic change to the legislation. For this reason, two categories of actions will be created:
– The first category will include aspects of non-compliance that strike at key duties on which the tax system’s broad application depends: such as failing to register, submit returns, pay over tax that has been collected from a third party, and so on.
– The second category will include aspects of non-compliance where the nature of the non-compliance is such that the requirement of intent is implied: such as issuing a false document, obstructing or hindering a SARS official, assisting another person to dissipate their assets to impede tax collection, and so on.
The mechanism will be introduced as a “wilfully or without just cause” yardstick, as opposed to “wilfully and without just cause”. The maximum penalty of a fine or two years imprisonment will remain, and it will be left to the presiding officer to decide what sentence is appropriate on conviction, considering all the aspects of a case. It should be noted that although the above amendments appear to be more just and equitable, there seems to be a strong focus placed on criminalising defaults on tax-related matters.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)