Rich South Africans beware
The South African Revenue Service (SARS) has intensified its crackdown on high-net-worth individuals who live extravagantly while neglecting their tax obligations.
Tax experts at Tax Consulting SA highlighted a new case involving a wealthy businessman who was presented as having an extravagant lifestyle while ignoring millions accrued as tax debts.
The experts said that the taxman pursuing the matter in court showed SARS’ determination to enforce tax compliance, sequestering both the businessman and his family trust.
This signals “that the days of flaunting wealth while avoiding tax liabilities are numbered. It also sends the clear message that piercing a trust’s protection is easy when correctly attacked,” the group said.
In September 2024, the Gauteng High Court heard an application by SARS seeking the provisional sequestration of the businessman and his family trust.
SARS said the businessman continued to enjoy an opulent lifestyle with significant assets, including properties under the control of the trust, whilst consistently failing to satisfy his SARS tax debts totalling over R8 million.
This prompted SARS to seek the sequestration of his estate. The High Court agreed with SARS.
It ruled that there was a clear benefit to creditors in liquidating his assets, despite attempts by his legal team to argue otherwise.
SARS argued that his extravagant lifestyle was funded through undisclosed sources on the basis that his assets were subject to a preservation order in terms of the Tax Administration Act (TAA).
However, businessman continued to maintain an affluent existence.
“This raised questions about the true source of his wealth. SARS argued that such behaviour is indicative of a broader issue among wealthy individuals who use trusts and complex financial structures to evade their tax obligations,” Tax Consulting said.
The court found that the businessman’s actions, including attempts to transfer shares from the trust while under a preservation order, demonstrated a disregard for legal obligations and reinforced the need for sequestration.
SARS is cracking down
Tax Consulting said the case is an important example of how SARS is using its legal powers to pursue individuals who manipulate their financial affairs to avoid paying taxes.
“SARS has immense powers under the TAA to recover unpaid taxes, including the ability to freeze assets and apply for the sequestration of estates.
“The agency’s move to sequestrate high-profile individuals like this underscores its commitment to enforcing tax compliance and ensuring that those who benefit from the country’s economy contribute their fair share.”
Sequestration, while often seen as a last resort, is an effective tool for SARS in cases where taxpayers refuse to settle their debts. It allows SARS to recover outstanding taxes by liquidating assets, ensuring that creditors—particularly the state—are paid.
The tax experts said that this case sends a clear message to wealthy taxpayers: that SARS will no longer tolerate taxpayers who live beyond their means while failing to meet their tax obligations.
“High-net-worth individuals who have relied on complex financial structures to hide their wealth are now squarely in SARS’ sights.
“The use of preservation orders, asset freezes, and sequestration will likely become more common as SARS ramps up its efforts to target tax evaders,” they said.
The warning extends to the tax practitioners and services that wealthy taxpayers hire to handle their tax affairs.
The businessman in the latest case also tried to blame his advisors for his predicament. However, it has long been established that this is not a legal tax defence.
“If tax advisors are rogue, they should be sanctioned under their professional body and can be sued. However, this is a separate course of action and does not get the taxpayer off the hook,” Tax Consulting said.
“(This case) is a stark reminder that our SARS is turning a corner and increasingly taking a hard line against wealthy individuals who fail to pay their taxes.
“Compliance is no longer optional—those who continue to evade their obligations may find themselves facing the same fate.”
According to SARS’ latest annual report,of the cases referred to the NPA, the taxman scored a staggering 95.29% prosecution success rate for the 2023/24 financial year.
“SARS is no longer content with just recouping lost tax revenue. Criminal convictions are becoming an increasingly common outcome for offenders.”
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