Tax Court: SARS eFiling Fraud and a 150% Understatement Penalty
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SARS Tax Court IT 77272 (ADM) [2026] ZATC GQ (11 August 2026)
The taxpayer was a salaried employee of a government department. Her salary was her only income and she had no other source of income or business. She filed her 2020 and 2021 income tax returns on that basis.
Then, in August 2023, revised returns were filed for both years. Those revised returns told a very different story:
2020: farming assets purchased for R1.5 million, creating a farming loss of R750,000.
2021: farming assets purchased for R500,000, creating a farming loss of R700,000.
Both years included an IRP5 certificate that did not match the original IRP5 submitted to SARS. The revised versions showed PAYE credits of R700,000 for 2020 and R800,000 for 2021.
The farming losses were claimed against her employment income. The inflated PAYE credits produced a refund, and SARS paid R1,380,700.99 into her bank account.
Following a risk assessment in 2023, SARS selected her 2020 and 2021 tax affairs for audit.
What the audit found
SARS asked for invoices or other documentary evidence proving the alleged farming equipment purchases. She could not provide any. Instead, she told SARS that she did not conduct a farming operation and had not purchased any farming equipment. She gave the same response in relation to the 2021 farming loss.
The audit also found that the IRP5 certificates included in the revised returns did not match the original certificates submitted to SARS.
SARS calculated that she was liable for R3,618,686.47, comprising:
Capital: R1,391,006.04
Interest: R141,171.22
Understatement penalty at 150%: R2,086,509.21.
The taxpayer admitted that she had received the refund and that it was an undue refund. She also admitted that her eFiling login details had been used to submit the revised returns.
However, she denied submitting the fraudulent returns. She claimed that a SARS official had used her eFiling details to submit them.
What was in dispute, and what was not
The capital and interest were not in dispute.
The dispute concerned the 150% understatement penalty and whether SARS was entitled to impose it.
The taxpayer maintained that she had not submitted the fraudulent returns and that a SARS official had submitted them in her name to defraud SARS. She therefore argued that she should not be held responsible for the intentional tax evasion.
The taxpayer’s version in the witness box
The taxpayer said she had been dealing with SARS in 2023 about an old 2004 assessment. She struggled to upload documents and phoned the SARS call centre for assistance. During those discussions, she provided the SARS official with her login details and password.
She could not give the Court the official's name, the telephone number she had called or any other identifying details.
She said that she subsequently received R123,000 unexpectedly from SARS. A man then phoned her, claiming to be a SARS official, and told her that she had been overpaid. He instructed her to transfer R52,000 into a bank account he nominated. She said she did so, but produced no bank records or account details to support this.
A few days later, she received a further amount of more than R1 million. She knew the money had come from SARS and knew that it was not due to her. She said another caller instructed her to pay the money into a nominated account.
She did not report the matter to the police. She said she was afraid because the caller had threatened her.
She eventually paid R600,000 in six instalments of R100,000. She retained the balance and admitted that she used some of the money for herself.
What the Court said about the evidence
The judge did not find the taxpayer's version convincing.
No corroboration
She provided no bank statements, account details, names, telephone numbers or other documentary evidence supporting her version of events. The Court noted that she had also failed to provide evidence of the payments she claimed to have made to the alleged fraudsters.
Her conduct contradicted her version
The Court considered it significant that she knew the money was not due to her, did not report the alleged fraud and nevertheless retained approximately half of the money for herself.
The judge referred to her “gleeful acceptance of her share of the spoils” and found her explanation that she had been an innocent victim of fraud by SARS officials unconvincing.
Her version changed
The SARS auditor testified about her interactions with the taxpayer after the audit.
The audit findings letter was issued on 9 October 2023. The auditor then spoke to the taxpayer on 27 October 2023 and met with her on 22 November 2023.
According to the auditor, during the telephone discussion the taxpayer accepted the audit findings, confirmed that she had received the refund and said that she had submitted the returns herself. She did not suggest that a third party or SARS official had been involved. She accepted that she was liable to repay the money and asked only that the penalties be waived.
At the November meeting, the taxpayer again confirmed the substance of the earlier discussion, although she then said that she had submitted the 2020 return herself and had received assistance from a SARS official with the 2021 return. She signed the written record of the meeting.
Her objection letter dated 4 February 2024, headed “Request for the withdrawal of penalties”, also contained no allegation that SARS officials had committed fraud.
The allegation that a SARS official had fraudulently submitted the returns only arose during the appeal, after her request for the penalties to be waived had been rejected. The judge regarded this as a recent fabrication and rejected it.
The law the Court applied
Who carries the onus?
SARS bears the onus of proving the facts on which it relies when imposing an understatement penalty. The Court referred to sections 102(2) and 129(1) of the Tax Administration Act.
What is an understatement?
Section 221 of the Tax Administration Act defines an “understatement” as prejudice to SARS or the fiscus resulting from, among other things, an omission from a return or an incorrect statement in a return.
The Court found that the false statements in the revised returns, including the altered IRP5 and false farming expenses, caused prejudice to SARS because they resulted in an undue refund. They therefore constituted an understatement.
The understatement penalty
Section 222 provides that, where there is an understatement, the taxpayer must pay an understatement penalty in addition to the tax payable, unless the understatement resulted from a bona fide inadvertent error.
Section 223 sets out different penalty percentages depending on the taxpayer's behaviour. For a standard case, the percentages include:
10% for a substantial understatement;
25% where reasonable care was not taken;
50% where there were no reasonable grounds for the tax position;
75% for an impermissible avoidance arrangement;
100% for gross negligence; and
150% for intentional tax evasion.
The Court also explained that, depending on the circumstances, the penalty for intentional tax evasion can range from 10% to 200%. The 150% penalty in this case was based on SARS treating the taxpayer's conduct as a standard case of intentional tax evasion.
The eFiling rules were central to the case
The taxpayer had registered for SARS eFiling and had accepted the applicable terms and conditions.
The rules require taxpayers to create and secure their own user identity and access code. A registered user may not share their access code with anyone, including a SARS official.
The rules further provide that a registered user is liable for activities and transactions performed using their user identity and access code.
This did not mean that the Court found that a SARS official definitely had not accessed or used the taxpayer's credentials. Rather, the important point was that the taxpayer failed to provide credible evidence establishing a reasonable possibility that she was unaware of the fraudulent revised returns.
The section 235 deeming provision
Section 235 deals with tax evasion and obtaining undue refunds by fraud or theft.
The Court referred to section 235(2), which provides, in effect, that where a person has made a false statement of the relevant kind, they are deemed to have known that the statement was false unless they can show a reasonable possibility that they were ignorant of its falsity and that their ignorance was not due to their negligence.
The Court found that SARS had established a prima facie case that the fraudulent returns had been submitted using the taxpayer's eFiling credentials. The evidential burden then fell on the taxpayer to show a reasonable possibility that she had been unaware of the false returns.
The Court found that she had failed to do so.
The decision
The Court found that SARS had proved, on a balance of probabilities, the facts supporting the understatement penalty.
It further found that the submission of the fraudulent revised returns, with the intention of obtaining an undue refund, had correctly been classified as intentional tax evasion.
The Court also considered whether the 150% penalty should be reduced.
The judge explained that the understatement penalty is mandatory once the requirements of the legislation are met. In this case, once the conduct had been correctly classified as intentional tax evasion, SARS was obliged to impose a penalty under section 223(1).
Section 129(3) gives the Tax Court power to reduce an understatement penalty, but the judge said that this is not an unfettered discretion. Unless SARS has mischaracterised the taxpayer's behaviour, the Court's ability to reduce the penalty is very limited. The Court found no cogent reason to reduce the penalty in this case.
The Court Order
Section 130 of the Tax Administration Act permits a costs order where the grounds of appeal are unreasonable. The Court considered it significant that the taxpayer had not alleged fraud by SARS officials during the audit, objection or ADR process.
The Court found that the allegation of fraud against SARS officials was a serious but uncorroborated allegation and that the grounds of appeal were therefore unreasonable.
The taxpayer's appeal was dismissed with costs.
Counsel's costs were ordered to be taxed in accordance with Scale B under Rule 69(7) of the Uniform Rules of the High Court.
Key takeaway
The case highlights the importance of protecting SARS eFiling credentials.
A taxpayer whose credentials are used to submit a fraudulent return may face serious consequences. However, the judgment does not establish that a taxpayer is automatically guilty whenever someone else uses their credentials. In this case, the taxpayer was unable to provide credible evidence supporting her claim that she was unaware of the fraudulent returns.
The Court ultimately found, on the evidence before it, that SARS had proved intentional tax evasion and that the 150% understatement penalty was justified.
