Tax compliance is crucial: lessons from the Supreme Court's ruling

A recent ruling by the Supreme Court of Appeal has delivered a sharp message to taxpayers: ignoring your tax obligations and later blaming your accountant will no longer suffice. In Ntayiya v South African Revenue Service (848/2023) [2025] ZASCA 183, the court reaffirmed Sars’ authority to impose some of the harshest penalties available in South African tax law - and held that taxpayers cannot evade accountability by claiming that professional advisors simply got it wrong.

The case concerned a Mthatha-based attorney who submitted six years of nil personal income tax returns, all while earning income and purchasing luxury vehicles. When Sars uncovered the mismatch between his filings and bank records, it imposed a revised tax assessment, including a 150% understatement penalty for intentional tax evasion. It also taxed the private use of motor vehicles after the taxpayer failed to provide evidence that he used them exclusively for business.

The taxpayer initially sought to challenge the validity of the assessments. But when the matter reached court, he withdrew the relief that would have attacked the foundation of Sars’ actions. With that shift in strategy, the assessments became final and binding in terms of the Tax Administration Act - leaving the remaining arguments on penalties and motor vehicle taxation effectively toothless. After losing in the High Court, he attempted to undo the enforcement action by claiming repayments from Sars. The High Court dismissed the matter, and the SCA has now done the same.

While the case originated from a factual dispute between a single attorney and the tax authority, its impact is far broader.

A reminder of taxpayers’ duties

At the heart of the judgment lies a principle that South Africa’s courts are making increasingly clear: tax compliance is not optional, particularly for sophisticated taxpayers such as legal and accounting professionals.

The taxpayer argued that his former accountants had prepared incorrect returns and convinced him that he had no taxable income. The court rejected this defence. Professionals who run their own businesses, earn revenue, and authorise their own drawings cannot credibly claim to have been unaware of their own income. The SCA described his explanation as “woefully inadequate”.

Crucially, the statutory protection for “bona fide inadvertent error” requires proof that an error was both unintentional and genuinely unavoidable. The taxpayer put forward no such evidence beyond broad assertions. Without supporting records, the court saw the understatement penalty as justified.

The message is unmistakable: ignorance - whether genuine or feigned - will not shield taxpayers from severe penalties.

Documentation is everything

The judgment also reinforces the fundamental role of supporting records in the self-assessment system. Where taxpayers claim tax deductions, the burden of proving their legitimacy rests firmly on them. In this case, the taxpayer could not produce basic logbooks recording vehicle use. Instead, his advisors later suggested a 90/10 split between business and private mileage - and Sars accepted that estimation.

But an estimation cannot be weaponised later as a defence. The lack of documentation was the taxpayer’s failure, not Sars’.

It is a rule as old as tax administration itself: if you cannot prove your expense, you cannot deduct it.

A legal blow with practical consequences

Beyond the penalties themselves, the case highlights several practical governance insights that should not be ignored:

1. Finality of assessments has real biteIf a taxpayer abandons objections or appeals prematurely, Sars’ assessment becomes enforceable. After that, courts will not reopen the issue indirectly through later repayment claims.
2. Delegation of tax compliance does not remove accountability. When a taxpayer signs a tax return, they assume personal responsibility. Blaming advisors is ineffective unless backed by full disclosure, documented reliance, and corrective action.
3. Lifestyle versus declared income matters. Sars is entitled to draw inferences where luxury purchases contradict declarations of zero income. Bank deposits and asset acquisitions are compelling evidence.
4. Compliance failures damage credibility. The longer a taxpayer delays in providing key information, the harder it becomes to establish good faith.

Together, these factors establish a judicial climate in which taxpayer governance - not merely tax advisory - is essential.

The future of enforcement

The ruling aligns with Sars’ broader modernisation drive, which increasingly leverages data, analytics, and third-party reporting to detect discrepancies. Audits are now triggered more by evidence and less by random selection. That means taxpayers who fail to maintain documentation are more exposed than ever before.

For corporate boards, executives, and regulated professionals - including those who outsource tax administration - the stakes are rising. Where once a dispute might have been explained away as oversight, penalties now serve a deterrent function, signalling that South Africa will enforce its compliance regime with rigour.

This also marks a shift in the courts’ view of taxpayer behaviour. Instead of focusing solely on whether a taxpayer intentionally misled Sars, the legal focus is increasingly on whether the taxpayer exercised the level of diligence expected of them. The consequences of inaction are becoming the taxpayer’s responsibility.

The broader lesson

At a time when South Africa faces fiscal pressure and a pressing need to bolster tax collections, this case signals that Sars’ enforcement tools are working - and the courts will support their use.

Professionals and business owners in particular should view the Ntayiya judgment as a wake-up call:

• Review returns personally before signing• Maintain audit-ready documentation• Ensure swift responses when Sars engages• Prioritise dispute resolution governance• Separate personal and business tax affairs meticulously

The ultimate takeaway is simple: tax is not merely a calculation; it is a demonstration of integrity, governance, and accountability.

A turning point

While the Ntayiya case may be one individual’s misstep, it stands as a clear precedent that the courts will not tolerate loose handling of tax affairs. Sars has the legal authority - and now reinforced judicial backing - to act decisively where taxpayers understate their liabilities and cannot substantiate their positions.

The era of “I didn’t know” is rapidly closing. A new expectation is emerging, and it demands that taxpayers be informed, proactive, and transparent in every return they file.

* Oberholzer is a director at Kisch Tax Advisory Services.

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