The public has been aghast at the ongoing revelations at the Zondo Commission of Inquiry into State Capture, where implicated persons are quite comfortable admitting to having received a R2.6 million Aston Martin sports car as a gift, or security equipment, the use of a rental car, or other expensive services.
The South African Revenue Service (Sars), however, appears neither shocked nor horrified.
Sars’s attention is elsewhere, putting out a press release on September 4, 2020 stating that they had won a court judgment against a company called Carte Blanche on a technical matter (see Sars press release here.). They do not have to give reasons for performing a tax audit.
And it “noted the judgment” in the matter related to the seizure by its customs officials of a Lesotho-registered vehicle in the Free State town of Ficksburg (and the arrest of its owner) last May. Sars lost that case, as adequately covered by Moneyweb journalist Ciaran Ryan last month.
No press releases on state capture.
Come on, Sars
Sars Commissioner Edward Kieswetter has frequently been mentioned in the press warning tax dodgers of the consequences of their actions. He has also stated that Sars is endeavouring to improve compliance, based on the notion that making it easier for taxpayers to comply will reduce the level of non-compliance. Sars has also been going after value-added tax (Vat) fraudsters, and has put some in jail.
But all of the above is focused on those who are in the system. Why does Sars not get to grips with those who aren’t?
And where are the lifestyle questionnaires?
Are we to understand that Sars does not even have the expertise to put one together? Surely Sars could outsource this?
The Income Tax Act is quite clear on the deductibility of bribes or illicit payments: there is no deduction for any amount or payment (or agreement or offer) that “constitutes a corrupt activity” as contemplated in the Prevention and Combating of Corrupt Activities Act.
Law, and precedent
However, the taxability of the receipt of the amount, or the use of any benefit, hasn’t been specifically catered for in the act. But it has been clarified in case law, as seen in MP Finance Group cc (in liquidation) v Commissioner for South African Revenue Service 2007 (5) SA 521 (SCA).
MP Finance Group was a pyramid scheme that enticed gullible investors to hand over their money, and even though it was obliged to refund the deposits, the court held that operators of the scheme had accepted the deposits with the intention of retaining them for their own benefit. Hence, these deposits constituted a taxable receipt within the act.
Sars would claw back some credibility if it systematically raised tax assessments on every single gift-receiving ‘implicated person’ to appear before the Zondo Commission.
Sars can also demand to be told the identity of the magnanimous friends and relatives who are dispensing expensive gifts in cash or in kind, so that they can be charged with donations tax (plus penalties and interest).
And if the ‘implicated person’ cannot pinpoint the magnanimous friend or family, Sars can dip into their bank accounts and help themselves to the owed amount.
Who would be uncomfortable with the giftor of the Aston Martin being charged with donations tax, and the recipient being made to pay tax plus interest plus 200% penalties on the gift?
Many investigative pathways open to Sars
As for those who purchased R600 000 alcohol over a period of a few months, surely Sars would want to see the Vat invoices? And any enterprise that stocks champagne costing R7 000 a bottle would obviously be Vat-registered, and a profitable tax-paying enterprise.
But perhaps Sars and National Treasury can take the bull by the horns, and legislate for the taxation of ‘loans’, the use of money, the use of CCTV sets, the receipt of a backpack of cash, or any other asset that magically appears in the home of a politically connected person or family member – assets that have been provided, gifted or loaned from any entity or related party to that entity, including officials, directors, shareholders, lovers, wives, children and so on?
What action is being taken?
Many years ago, Sars arrested the partner of an accounting firm over some or other nebulous transfer pricing matter to make a point. Nowadays, apart from the occasional press appearance of the commissioner mentioning tax dodgers, and the odd press release, we see no action being taken against the recipients of the illicit proceeds from state capture.
Is Sars waiting for the National Prosecuting Authority (NPA) to do the necessary? Sars can surely proceed with civil action?
On this note, the virtual Tax Indaba 2020 to be held this week (September 7 to 9) will be covering sin taxes, illicit trade, and ‘taxing the tenderpreneurs’, as well as other topics. Commissioner Kieswetter will be making the keynote speech.