High Court judge overturns 'lenient' sentence for tax practitioner's R3.5 million fraud

A WESTERN Cape High Court judge has set aside the 'lenient' sentence of tax practitioner Shafiek Khan who defrauded SARS of over R1.1 million, ruling that the wholly suspended prison term failed to reflect the gravity of his five-year tax fraud scheme that resulted in a R3.5 million liability.

This follows an appeal by the State against the sentence imposed on Khan by the Bellville Regional Court in September 2022.

According to the judgment, the five counts of fraud were premised on Khan’s fraudulent under-declaration of his gross income for the years 2004 to 2008 when he submitted his annual tax returns to the South African Revenue Services (SARS), and on his exaggeration of some of his expenses.

The State alleged that in 2004 and 2005, Khan under-declared his income and caused SARS to suffer tax prejudice in the sum of R10 511.36 and R116 947.10. 

The State further alleged further that in 2006 and 2007, Khan under-declared his gross income, which caused SARS to suffer tax prejudice in the sum of R108 646.60 and R486 907.30, and that in the 2008 fiscal year, Khan under-declared his gross income and caused SARS to suffer tax prejudice in the sum of R350 836.25.

According to the court papers, at the commencement of the trial, Khan pleaded guilty to the charges and was subsequently convicted on the five counts on September 13, 2022. 

On January 13, 2023, the trial court imposed a sentence on Khan, and took four of the five counts together for the purposes of sentence.

Khan was sentenced to five years imprisonment which was wholly suspended for five years on condition that the he is not convicted of fraud, theft, or contravention of section 104 of the Income Tax Act 58 of 1962, committed during the period of suspension, and that he pays the sum of R1 000 000 to the SARS on or before June 1, 2023.

On the fifth count, the trial court sentenced Khan to two years correctional supervision. 

According to court papers, aggrieved by the sentence imposed by the trial court, the Director of Public Prosecutions (DPP) of the Western Cape invoked the provisions of section 310A of the Criminal Procedure Act, and applied for leave to appeal in the high court.

“The Director of Public Prosecutions contended that the sentence imposed by the trial court was startlingly and inappropriately lenient in the circumstances and sought leave before a judge in chambers to appeal the sentence,” it read. 

In addition, the DPP called for the sentence to be set aside by high court,  and replaced with a more stringent sentence, commensurate with the seriousness of the crime. 

Judge James Lekhuleni, in handing down judgment, said he was mindful that sentencing was pre-eminently a matter of the trial court's discretion.

“I am also cognisant that interference with a sentence on appeal is not justified in the absence of a material misdirection or irregularity, or unless the sentence imposed is so startlingly inappropriate as to create a sense of shock.”

Judge Lekhuleni said in the present matter, it is common cause that Khan was found guilty of serious offences. 

“The respondent (Khan) planned and committed these offences over several years. The tax returns the respondent filed were a perversion of the truth. They were, to the knowledge of the respondent, false. 

“Notwithstanding an investigation by SARS officials, the respondent continued to provide false documents to SARS as proof of his alleged low income. The State pointed out in its evidence in aggravation of sentence that the respondent had, in the 2008 tax year, filed his tax returns and declared that his gross income was R15 840. SARS subsequently informed him that it was conducting an audit of his tax return, and the respondent submitted a revised tax return, but still under-declared his gross taxable income,”he said.

Judge Lekhuleni  said in addition, Khan  provided two different sets of income for the 2005 and 2006 financial years. 

“When he applied for a home loan, the respondent indicated that his net profit for 2005 was R960 583 and for 2006 was R1027 447. However, when he completed his returns to SARS, he stated that his net profit for 2005 was R56 358 and for 2006 was R64 955.

“What is highly concerning is that SARS informed the respondent of an audit of his tax income on 13 May 2009. A letter of assessment from SARS, dated 25 November 2010, informed him that he owed SARS tax in the sum of R2 948 647. Notwithstanding that, the respondent proceeded to purchase a BMW X5 on 28 May 2010 and a BMW X1 on 6 January 2011.

 “The respondent owed SARS a cumulative amount for the tax years 2004 to 2008, amounting to R1 168 447.61. Ms Basson from SARS explained to the trial court what the adjusted inflation amount was at the time of sentencing. Her evidence was that with inflation, the amount of R1 168 447.61 had grown to R3 507 088.00. This did not include any penalties or interest, which SARS could impose,” he said. 

Judge Lekhuleni, said Khan, as a registered tax consultant, and as someone with a financial background, should have acted responsibly and in the best interest of society and the fiscus. 

“The respondent owned several properties, some registered in his wife's name, who was unemployed. As correctly pointed out by Ms Hendry-Sidaki, counsel for the appellant, the respondent could have paid back the outstanding income tax when SARS approached him, as he had the necessary funds in his account and could have sold one of his properties, but he elected not to do so.

“In my view, the court a quo was very sympathetic to the respondent. The sentence imposed by the court a quo was too lenient and failed to reflect the gravity of the charges for which the respondent was convicted. It is important to emphasise that this was a ‘white-collar’ crime committed by the respondent, a registered tax practitioner, over a period of five years,” he said.

Judge Lekhuleni, said fraud is a serious crime which has a corrosive impact on society. 

“Even if it is not a violent crime, it remains a serious offence that not only affects a particular complainant but also the country’s economic growth. More so, the respondent’s conduct was premeditated and persistent for five years. 

“The money the respondent defrauded SARS and the country at large is substantial. Clearly, the respondent engaged in this criminal activity exclusively for personal gain, which, to me, reflects avarice and nothing less. A wholly suspended prison sentence and correctional supervision were, in my view, a strikingly inappropriate sentence,” he said. 

Judge Lekhuleni further ordered that the proceedings of the trial court be set aside, and that the matter be remitted back to the Bellville Regional Court for trial before another regional magistrate, if the DPP still wished to pursue charges against Khan. 

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