The South African Revenue Service (Sars) has now started acting on its threat that it will take legal action against taxpayers who are failing to submit their tax returns.

The agency has 30 million outstanding tax returns and has to date handed 36 dockets over for criminal prosecution to the National Prosecuting Authority.

In recent years the drop in compliance with the Tax Administration Act –  which requires taxpayers to file returns for Personal Income tax, Value Added Tax (VAT), Corporate Income Tax and Paye-As-You-Earn – has been significant.

Elle-Sarah Rossato, associate director at PwC, says a practical difficulty would be for Sars to rebuild its Criminal Investigative Unit. It will also have to ensure that they build proper case files for successful prosecution by the prosecuting authority.

The National Prosecuting Authority (NPA) used to have a dedicated tax prosecutorial team to consider the docket and pursue the matter criminally.

It has been successful in its case against the representative of SPS Distributors who paid an admission of guilt fine in the Port Shepstone Regional Court for non-submission of 50 outstanding tax returns.

Rossato says South Africans have become more reluctant to comply with Sars’s requirements. This does not only apply to the submission of returns, but they have even become reluctant to submit the correct amounts of income earned on their return.

“This all boils down to low levels of trust in the organization, which could be attributed to the ongoing ‘rogue unit’ war, the large VAT refund paid to the Gupta owned companies, the Jonas Makwakwa scandal coupled with large bonuses paid to senior Sars executives.

Rossato, who is the vice chair of the tax administration workgroup at the South African Institute of Tax Professionals, says tax morality is low.

“People are continually asking: What am I getting for my tax money paid to Sars?  The question is harder and harder to answer.”

The Davis Tax Committee says in its report on corporate income tax net consolidated tax revenues are projected to increase from 26.4% of Gross Domestic Product (GDP) in 2007-‘08 to a forecast of 28.5% of GDP in the current fiscal year.

“South Africa now has one of the highest levels of taxation globally when social security taxes are excluded, with taxation levels on an upward trend,” the committee says in its report.

The Tax Administration Act states that a person who willfully and without just cause “fails or neglects to submit a return or document to SARS or issue a document to a person as required under a tax act” is guilty of an offence and, upon conviction, is subject to a fine or imprisonment for a period not exceeding two years, says Rossato.

She adds that prosecution through the criminal justice system is a lengthy process which is governed by the Criminal Procedures Act (CPA).

If the taxpayer pleads guilty an admission of guilt fine can be signed and an order will be made as to when the returns must be submitted.

If the taxpayer pleads not guilty, the NPA has to prove that he has committed an offense. Once found guilty of the offense, the taxpayer will end up with a criminal record.

“It is difficult to say whether the sanction (criminal prosecution) fits the crime. Sars is probably issuing demands for submission of returns which are not being acted upon and therefore needs to find a mechanism to increase levels of compliance,” says Rossato.

Sars says the decision to resort to enforcement of compliance through criminal prosecution is a last resort.

“All the taxpayers that will appear in court were engaged beforehand and final demands were issued to them before the criminal cases commenced.”

It says the significant drop in the submission of returns was one of the key indicators pointing to decreased compliance and was highlighted by finance minister Nhlanhla Nene during the announcement of the tax revenue collection figures for the 2017-‘18 financial year.

Rossato says once Sars starts rebuilding trust in society, compliance levels should increase automatically.