Tax is an important weapon in clawing back ‘ill-gotten gains’

Money received by corrupt means is still income, and is subject to income tax.
Taxpayers might choose not to declare money received improperly as taxable income, but a Sars lifestyle audit can be extremely revealing – not to mention expensive and embarrassing. Image: Shutterstock

The level of corruption in South Africa, the complete lack of accountability and the ostensible lack of urgency in bringing offenders to book continues to irk honest law-abiding South Africans.

However, an important weapon available to the state to recover some of the ill-gotten gains is tax, says Aneria Bouwer, tax partner at law firm Bowmans.

She says income from “illegal activities” is still income and subject to income tax, even if the money ending up having to be repaid.

“In the context of corruption, it is more likely that these types of payments have not been declared at all in the tax returns of the recipient, or if they have been declared, that the nature of the amounts was not reflected correctly.”

Flow of millions

Media reports have highlighted a flow of payments to politicians and government officials that has amounted to hundreds of thousands and even millions of rands.

Bouwer says it is highly unlikely that a taxpayer who received a “corrupt payment” would have declared this amount as income in their tax return.

“Although the taxpayer would not be subject to tax if the payment was gratuitous, it is probably unlikely that the donor would have reflected the ‘donations’ in their tax return, especially in light of the donor’s potential 20% ‘donations’ tax liability.”

And it is quite likely that in many instances there would have been a liability since the monetary threshold for donations made by a natural person is R100 000 per annum.

Read: SA needs state-worker audits to halt graft, Treasury says

Bouwer says the South African Revenue Service (Sars) cannot just issue an assessment, but must take steps that are procedurally and administratively fair.

“It must follow the relevant steps as provided for in the Tax Administration Act.

“The act provides Sars with extensive powers in respect of audits and inquiries to assist it with information gathering.” 

One such tool is the ‘lifestyle audit’. Sars Commissioner Edward Kieswetter was asked about this mechanism during the annual Tax Indaba hosted by the South African Institute of Tax Professionals (Sait).

At the time he said the highest risk for the under-declaration of income came from large corporates and the high-net-worth individuals on Sars’s register.

They are the ones who would be offering bribes to public officials, but Patricia Williams, partner at Bowmans, “firmly believes” this is incorrect.


“Proper investigation would find that the people paying bribes would not be reflected on Sars’s system as being higher income corporates and individuals, but rather systematic evaders who are not registering their relevant affiliates for applicable taxes, or who are systematically under-declaring their income so that they do not appear on Sars’s system to be ‘large’ or ‘high net worth’ [individuals],” she says.

Proper investigations could include routine lifestyle audits of public officials.

However, there may be some practical obstacles to this given the current state of affairs at Sars. The tax collector lost highly skilled people during the time of Kieswetter’s predecessor Tom Moyane.

Williams says the commissioner has requested additional funding in order to facilitate the rebuilding process. “Practically, then, with so many areas in which Sars needs to work harder to improve its performance, large-scale lifestyle audits of public officials may not be possible at this stage.”

Sars should start selecting lifestyle audit targets

If Sars is not able to conduct large-scale lifestyle audits, it should start implementing these on a smaller scale, selecting people to audit on a “reasonable and fair basis”.

Williams says it makes sense for Sars to respond to the issues in the public eye that give rise to reasonable suspicions that there may be underpayments of tax.

Sait CEO Keith Engel agrees that a crackdown on the beneficiaries of corruption (bribery and tenderpreneurs) is key to restoring the tax system.

“The difficulty is indeed a question of capacity,” he says. “The problem of corruption requires the NPA [National Prosecuting Authority] and similar agencies to take the lead, with Sars as a supporting role player.”

NPA capacity

It would be an unfair expectation to put the onus of criminal enforcement mainly on Sars’s shoulders without rebuilding the capacity of the NPA, says Engel.

Williams points out that the constitution states that “people’s needs must be responded to”, and there is therefore arguably a duty on Sars to investigate issues of public concern that have potential tax implications. 

“Apparent issues identified by the media would be a sensible place for Sars to start in meeting this duty,” she says.

From a constitutional and administrative justice perspective, a selection process that is fair will be critical.

She refers to the Sars audit of EFF leader Julius Malema a few years ago, and the assessments and settlements that resulted.

“Sars needs to be careful not to behave in an unfair or unreasonable manner in its selection of cases for audit. Sars cannot lawfully target only members of certain political parties.”

She adds that apart from actually being fair, it is also important for Sars to be seen as being fair – to prevent further erosion of trust.



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Pardon me for being cynical, but how many convictions have we seen of what must be thousands upon thousands of corrupt individuals? I’m not holding me breath that, by some miracle SARS, is going to be able to go after the corrupt.

No guys, you misread. SARS will make all the other taxpayers refund the looted money…

First, we need capacity at SARS if we want to prosecute criminals. Then, we need capacity at the NPA. Then we need capacity at the courts. We have this lack of capacity at all spheres of governments because our political leaders lack capacity. This lack of capacity in Luthuli House represents the lack of capacity of the average voter. It is clear then if we want to prosecute criminals, we have to find a way to isolate the economy from the mindset of the average voter. This implies that we will have to privatise everything that we cannot afford to lose.

If that were really the case three quarters of the ANC would be sitting in jail.

If you are saying the STATE should be collecting taxes from ill gotten gains …. then would that not be benefiting from the proceeds of a crime?

In any case; saying crooks are not honest and not playing by the rules is like saying the sky is blue on a clear day – a completely obvious and moot point.

If bribes are accepted; both the parties are at fault and both should face punishment… which is lacking in SA.

what about embedding a wifi transmitter in all banknotes? 🙂

make it a law for all ISP’s to transmit the location and serial number of the notes to SARS,

and once plotted, it should be much easier to pin point big amounts of cash by location.

You have thought this through right?

1. damaged notes are not legal tender
2. at a minimum, receivers at all banks, gas stations, pay points etc.
3. drones hovering over suspected residences
4. drones following robbers with stolen money
5. once this is in place, the embedded software/hardware could read
the handlers fingerprints
6. right now you cannot be caught of you spend ‘hot cash’ in shops etc,
with this system that loop hole is closed
the moment you handle the money

more solutions/problems to follow, posted by zinger


Please take another moment to think this through again.

Besides that cash is dying, you are on to something, I will invest in that tech and become a thief. The data will be useful especially when deciding on profitable cash-heists.

Zinger, what are the potential problems and/or drawbacks?

You will become a thief should this be implemented?
(so explain why you think this is a bad idea?)

You will become a thief should this be implemented?

Yes, you would have just given me the tech to become one.

I am not saying it is a bad idea, I don’t think it is sustainable.

Zinger, i am of course also looking for sarcasm in your comments,
but i detect mixed signals … … …

Nail the gang bosses on the Cape Flats on tax. That is how Al Capone was caught.

groen, that is almost a hundred (100) years ago.

fake companies solved that problem,
even ray donovan did that with his Fite Club to account for
his income as a gangster.

same goes for the gangster bosses in cape flats.

rather, FOLLOW THE MONEY, as i suggested in this comment section.

so, they steal a hundred bucks and the government is happy to get 15% back ? nice, no wonder the civil servants are so happy to carry on looting – the ANC is under the impression that taxes are the answer to everything – this government has no idea how to govern, but is very skilled at relocating our tax money – what a farce.

I don’t know about clawing back ill-gotten gains but as a complementary form of prosecution it has some merit provided the State has the b..lls to prosecute. After all, that’s how the IRS were able to obtain a conviction of tax evasion against Al Capone in 1931.

End of comments.



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