Who can forget the businessmen who flaunted their new luxury cars at the height of the Covid crisis?
Gauteng businessman Hamilton Ndlovu was one of them. He posted pictures on social media of three Porsches, a Jeep and a Lamborghini Urus SUV which immediately got him into trouble with SA Revenue Services (Sars). The pictures and video he posted immediately drew fierce backlash from South Africans over Ndolvu’s lack of sensitivity for the plight of his fellow countrymen and women in the midst of a pandemic.
Sars reportedly froze his company bank accounts and conducted a search and seizure raid at his home after the North Gauteng High Court issued a preservation order, placing his assets under curatorship. Ndlovu later apologised for the social media bragging, but the damage was already done. This is a clear example of how social media can be your downfall.
Sars and the Special Investigation Unit were all over this case, particularly after allegations of tender irregularities related to personal protective equipment (PPE) came to light (though these remain unconfirmed).
This is a case that should have high net worth individuals (HNWIs) with an active social media presence quaking in their boots.
Tax Consulting SA’s Jean-Louis Nel recently drew attention to the case and what it means for other high profile HNWIs.
“It has been widely reported that Sars has committed to probing the tax affairs, and information disclosed by high-net-worth individuals on their tax returns, in order to determine their compliance with the respective tax legislation, with the establishment of the High Wealth Individual Taxpayer Segment (HWI).
“The gravitas of this commitment by Sars should not be taken lightly by HNWI, particularly if your lifestyle on social media is not reconcilable with your declared tax information which may result in a one-way ticket to jail in light of the recent amendments to Section 234 of the Tax Administration Act.”
Are the wheels of Justice already turning?
Nel says it has recently been proven that Sars’ sharpened teeth were put to the test when it obtained a preservation order in the Pretoria High Court against the luxury-car-loving businessman, Thabiso Hamilton Ndlovu, who had taken to social media to flaunt his recently acquired vehicles to the value of R10,5-million which did not sit well with Sars officials.
In obtaining the preservation order, Sars did not rely on the legality of the business or the tenders awarded to Ndlovu or any of the associated companies, but rather on the gross non-compliance with the respective tax legislations by the taxpayer. “The information available to Sars, including photographs of the vehicles of the taxpayer on social media, could not be reconciled with what was declared by the taxpayer, which gave rise to the investigation of Ndlovu’s tax affairs, and Sars seeking justice from the courts.”
The acting Deputy Judge President of the Gauteng division, Roland Sutherland, noted the following in respect of Ndlovu’s tax compliance:
“The delinquency in the rendering of the tax returns is an obvious and strong indication that the taxpayer is, at best, irresponsible and, at worst, is hiding income. When the conduct occurs over several years the inference of deliberate resistance to the payment of tax becomes even stronger.”
It is expected that Sars will apply the same methodology, including reviewing taxpayer’s social media accounts, when considering the tax affairs of HNWIs, and where there is a want for compliance with the respective tax legislations, Sars will act accordingly, and the courts do not take non-compliance lightly, as can be seen in the Ndlovu matter.
A specialised unit to “follow” taxpayers
The High Wealth Individual Taxpayer Segment (HWI) within Sars has an allocated budget of R3 billion to investigate and conduct specialised audits on HNWI, which may then lead to lifestyle audits and further criminal investigation. It has also been hiring staff to fill vacancies for this unit.
“This unit, empowered by the recent amendment to Section 234 of the TAA, now only needs to prove that a taxpayer’s non-disclosure was negligent, compared with juxtaposition of proving intentional non-disclosure to criminally charge a taxpayer,” says Nel.
You Can Run But You Can’t Hide
As alluded to in the 2021 Budget Speech, Sars has already identified certain HNWI and they may, as early as April 2021, receive letters from the tax agency.
“Sars will be gentle in their initial engagement upon their discovery of your non-compliance to remain fair, however, with April on our doorstep, it is advisable to immediately seek guidance from a tax attorney to avoid an orange jumpsuit and regularise your tax affairs through the Voluntary Disclosure Programme (VDP) under the TAA, where applicable.”