Tax evasion: So nice SARS can punish you twice?

In the recent judgment of Motloung and Another v Commissioner for the South African Revenue Service and Others (5492/2021) [2022] ZAFSHC 327 the Free State High Court was tasked with determining whether or not a taxpayer found to have committed tax evasion can be charged an understatement penalty by the South African Revenue Service (SARS) and be held criminally liable in terms of the provisions of the Tax Administration Act 28 of 2011 (TAA).

9 Feb 2023 7 min read Tax & Exchange Control Alert Article

At a glance

  • The Free State High Court in South Africa ruled on whether a taxpayer found guilty of tax evasion can be charged an understatement penalty by the South African Revenue Service (SARS) and be held criminally liable.
  • The court considered the challenge to sections 222 and 235 of the Tax Administration Act, which provide for different punishments for intentional tax evasion.
  • The court held that the imposition of an understatement penalty is an administrative measure aimed at compliance, while criminal liability for tax evasion serves a different purpose, and therefore, the sections were found to be valid and constitutional.

The applicants challenged sections 222 and 235 of the TAA as being inconsistent with the Constitution of the Republic of South Africa, 1996 (Constitution) and therefore invalid, as both sections provide for two different punishments for the same offence – intentional tax evasion.


The second applicant (Reatlehise Development CC) submitted zero returns for value-added tax (VAT) to SARS for the period from March 2014 to July 2018 and submitted zero returns for corporate income tax (CIT) for the 2015, 2016 and 2017 years of assessment. By submitting zero returns, the second applicant purported to have generated no income and incurred no expenses for these periods. SARS included the second applicant in a full scope audit.

SARS sent an audit findings letter to the second applicant indicating that it had understated its tax liability and that it would be levying understatement penalties for the relevant periods, which was not disputed by the applicants. The applicants did not respond to SARS with reasons as to why the understatement penalties should not be levied.

SARS imposed a 150% understatement penalty in respect of the understated  CIT and VAT, for intentional tax evasion. The applicants admitted that SARS suffered prejudice of R819,607.09 in relation to VAT and R493,600 in relation to CIT. The applicants were subsequently criminally charged for intentional tax evasion. 

The applicants complained that they cannot tender a plea contrary to SARS’ finding, that is, that they were guilty of intentional tax evasion and liable for an understatement penalty on the basis of intentional tax evasion.According to the applicants, their right to a fair trial had been infringed due to their inability to plead to the contrary, which meant that they had fallen victim to the concept of double jeopardy.

Double jeopardy

Understatement penalty

The court explained that the concept of double jeopardy is simple and trite – nobody may be punished for the same offence twice. Double jeopardy has been included in section 106(1)(c) of the Criminal Procedure Act 51 of 1977. The concept of double jeopardy is also prohibited as per section 35(3)(m) of the Constitution, where it is provided that an accused has the right “not to be tried for an offence in respect of an act or omission for which that person has previously been either acquitted or convicted”, a fundamental right of the accused to a fair trial.

Section 221 of the TAA defines an “understatement” as:

“Any prejudice to SARS or the fiscus as a result of:
     a default in rendering a return;
     an omission from a return;
     an incorrect statement in a return or;
     if no return is required, the failure to pay the correct amount of ‘tax’.”

Section 222 of the TAA details the penalty which will be levied in relation to an understatement made by a taxpayer, providing that an understatement penalty will be payable by the taxpayer, over and above the outstanding tax payable.

The applicants argued that the understatement penalty in terms of section 222 of the TAA constitutes a criminal punishment, which is why it is distinguishable from the administrative penalties in section 208 of the TAA, that are automated and mechanical in nature. Essentially, their argument was that understatement penalties could only be imposed pursuant to an enquiry and therefore, the process followed in levying understatement penalties is the same as the process in the criminal court.

The applicants relied on the foreign case of United States v Halper 490 US [1989] in submitting that:

“Under the double jeopardy defence, a person who has already been punished in a criminal prosecution may not be subjected to an additional civil remedy based upon the same conduct where the civil remedy constitutes punishment.”

However, the High Court noted that the decision in Halper was overturned by the foreign decision in Hudson v United States 522 US 93 [1997], where the court decided that the concept of double jeopardy is not a bar to criminal prosecution, as administrative proceedings are not criminal in nature.

Criminal prosecution

The High Court referred to the decision in Federal Mogul Aftermarket Southern Africa (Pty) Ltd v Competition Commission and Another [2005] (6) BCLR 613 (CAC) where the Competition Appeal Court opined that in order to determine whether or not double jeopardy will apply, there must be a consideration as to whether there is a distinction between the proceedings. In other words, if the one proceeding is criminal in nature, and the other is non-criminal or administrative in nature, then the issue of double jeopardy will not arise.

The court also quoted paragraph 22 of Pather and Another v Financial Services Board And Others [2018] (1) SA 161 (SCA) as follows: 

“‘Criminal law’, observed Lord Atkin, ‘connotes only the quality of such acts or omissions as are prohibited under appropriate penal provisions by authority of the state. The criminal quality of an act cannot be discerned by intuition; nor can it be discovered by reference to any standard but one: is the act prohibited with penal consequences?’ And, criminal proceedings, according to Lord Bingham of Cornhill CJ, ‘involve a formal accusation made on behalf of the state or by a private prosecutor that a defendant has committed a breach of the criminal law, and the state or the private prosecutor has instituted proceedings which may culminate in the conviction and condemnation of the defendant’.” (our emphasis).

At paragraph 28 of its judgment the High Court remarked as follows about the authorities quoted above:

“The above authorities demonstrate that nothing precludes civil administrative proceedings and criminal proceedings from the single act. Administrative penalties and criminal proceedings do not serve the same purpose. The other [sic] is aimed at strengthening internal controls of the administrative authority and to promote compliance while the other is aimed at correcting a behaviour that caused harm to the society.” (our emphasis).

The court stated that the main purpose of a penalty is “to deter impermissible conduct that results in violation of the TAA and to enforce compliance”, and of course, to address the shortfall owed to SARS. An understatement penalty is not imposed to punish criminal conduct in the form of tax evasion, but rather serves as a regulatory function to assist SARS in respect of its obligations prescribed by the enabling legislation.

The High Court’s conclusion

The purpose of section 222 of the TAA addresses the shortfall flowing from an understatement by a taxpayer, deters impermissible conduct that violates the provisions of the TAA, and enforces compliance with the provisions of the TAA; while section 235 of the TAA criminalises intentional tax evasion and deals with the criminal state of mind of the taxpayer.

With reference to Pather, the High Court acknowledged that just because a penalty is designed to have a deterrent effect, does not make it non-administrative, and a decision to consider any regulation with a deterrent purpose as criminal in nature for double jeopardy purposes, “would severely undermine the Government’s ability to effectively regulate institutions”. In order to maintain a stable relationship between citizens and the Government, SARS has a duty to maintain effective tax administration.

Furthermore, in relation to section 35(3)(m) of the Constitution, the court indicated that the section relates specifically to accused persons and the protection of their right to freedom, whose right to a fair trial could be threatened by repeated (criminal) charges for the same act. The court stated that the fact that a single act may give rise to more than one consequence is not tantamount to double jeopardy.

The court consequently held that sections 222 and 235 of the TAA do not offend an accused’s right to a fair trial, and do not amount to double jeopardy, therefore, the sections are neither invalid nor unconstitutional.


The significance of Motloung is that intentional tax evasion can give rise to more than one consequence, and the double jeopardy defence will not be coming to your rescue. What is curious about the case, is that the applicants seemingly made no attempt to justify why they had submitted nil returns and why understatement penalties should not be imposed for intentional tax evasion. In terms of section 42 of the TAA, once SARS has issued a letter of audit findings, the taxpayer must be given at least 21 business days to respond to SARS’ audit findings. From a tax perspective, section 102 of the TAA states that SARS bears the burden to prove the facts on which the understatement penalty are based. This is one of only a few issues in respect of which SARS bears the burden of proof as opposed to the taxpayer, but one should appreciate that this is in the context of tax disputes regulated by the TAA. In a criminal trial, the burden of proof will be different and the state would be required to prove that the offence was committed beyond a reasonable doubt.

Of course, the case should serve as a lesson that taxpayers should comply with their tax obligations diligently, but also that an opportunity to respond to findings made by SARS in the context of an audit, should be utilised. This is especially where SARS makes allegations pertaining to understatement penalties, where it bears the burden of proving the facts on which the understatement penalty is imposed.   

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