By: André Daniels and Colleen Kaufmann
In recent times, the South African Revenue Service (Sars) has intensified its crackdown on high-net-worth individuals who live extravagantly while neglecting their tax obligations. A recent case involving Ngwane Roux Shabangu, a businessman presented as having an extravagant lifestyle, highlights Sars' determination to enforce tax compliance. Sars has moved to sequestrate both Shabangu and the Roux Shabangu Family Trust, signalling that the days of flaunting wealth while avoiding tax liabilities are numbered. It also sends the clear message that piercing a trust’s protection by Sars is easy where correctly attacked.
A legal perspective: The Shabangu case
On 19 September 2024, the High Court of Gauteng heard an application by Sars seeking the provisional sequestration of Mr. Shabangu and the Roux Shabangu Family Trust.
Sars states that Shabangu continued to enjoy an opulent lifestyle with significant assets, including properties under the control of the Roux Shabangu Family 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 Shabangu's assets, despite attempts by Shabangu’s legal team to argue otherwise.
Sars argued that Shabangu's 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, Shabangu 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.
The court found that Shabangu’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.
This 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.
The legal tools at Sars' disposal
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 Shabangu 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.
Implications for wealthy taxpayers
The Shabangu case sends a clear message: 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.
For tax attorneys, this case highlights the importance of advising clients to regularize their tax affairs before they face the full might of Sars. The use of preservation orders, asset freezes, and sequestration will likely become more common as Sars ramps up its efforts to target tax evaders. Tax practitioners must ensure that their clients understand the serious consequences of failing to comply with their tax obligations, particularly in light of Sars' aggressive enforcement strategies. Shabangu 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.
Conclusion
Sars' move to sequestrate Ngwane Roux Shabangu, and the Roux Shabangu Family Trust is a stark reminder that our Tax Agency is turning a corner and increasingly taking a hard line against wealthy individuals who fail to pay their taxes. As Sars continues to pursue tax dodgers who flaunt their wealth while ignoring their responsibilities, taxpayers and their advisors must take note. Compliance is no longer optional—those who continue to evade their obligations may find themselves facing the same fate as Shabangu.
This case serves as a warning to all: Sars is watching, and it has the legal tools to act swiftly and decisively. Now is the time to smartly deal with Sars' tax debts and avoid the consequences of losing it all.
Daniels is the head of tax controversy & dispute resolution and Kaufmann is a senior tax attorney at Tax Consulting SA.
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