The recent appointment of Mr Mark Kingon in the South African Revenue Service (SARS) unit to investigate the tax affairs of the perpetrators of state capture is good news.
More good news, commissioner SARS, Edward Kieswetter, says SARS are getting good cooperation from the National Prosecuting Authority and more, “I express the wish that those who participated in state capture are held to account, prosecuted and face the consequences of their greed and dastardly deed”.
The ill-gotten fruits obtained by the perpetrators (gangsters) of state capture is taxable and subject to penalty, which will lead to SARS recovering all the ill-gotten fruits, to the extent not squandered.
The starting point in Income Tax is the definition of ‘gross income’ in section 1 of the Income Tax Act (Act 58 of 1962). The total of all amounts, in cash or otherwise, received by or accrued to the taxpayer is ‘gross income’.
SARS is authorised by section 95 of the Tax Administration Act (Act 28 of 2011) to make an estimated assessment based on information readily available to SARS. In an appeal against an assessment the burden of proof, in terms of section 102 of the Tax Administration Act, is generally on the taxpayer.
The obligation to pay tax is not suspended, in terms of section 164 of the Tax Administration Act, by an objection or appeal against an assessment.
Penalty
The understatement penalty in terms of section 223 of the Tax Administration Act is 150% for ‘intentional tax evasion’. The ill-gotten fruits of state capture are enormous amounts, which certainly fall to be taxed at the maximum marginal tax rate of 45%. This means tax plus penalty will exceed the amount of the ill-gotten fruit.
Tax recovery
The process of recovering tax and penalty on the ill-gotten fruits of state capture is simpler than getting a conviction in a criminal court where the state capture gangster is innocent until proved guilty. SARS is empowered to raise an estimated assessment based on the evidence before the State Capture Commission of Enquiry and charge the penalty. Then it is over to the state capture gangster to object and appeal against the assessment. In the meantime, SARS is empowered to collect the outstanding tax and penalty. The pay now argue later rule.
Judgement procedures
When a person fails to pay tax when it is due, SARS may lodge a statement with the clerk or the registrar of the court setting-out the tax due and certifying it as correct and in this way obtain civil judgement in terms of sections 172 and 174 of the Tax Administration Act. This is irrespective that the tax may be subject to objection or appeal. SARS gives the taxpayer 10 business days notice but may elect not to give the taxpayer notice if SARS is of the view that notice may jeapardise the tax collection.
Third party collection
A senior SARS official may, in terms of section 179 of the Tax Adminstration Act, give notice to a person (bank, debtor, employer etc) who holds funds for the taxpayer to pay these funds over to SARS. This notice is sometimes given without notice to the taxpayer and the person (bank, debtor, employer etc) and it is SARS practice to advise the person (bank, debtor, employer etc) not to communicate the notice to the taxpayer.
SARS must serve a collection notice on the taxpayer 10 business days before the third party is appointed, however, SARS does not have to give notice if they are of the opinion that the notice will jeopardise collection. If the person (bank, debtor, employer etc) releases funds to the taxpayer in contravention of the notice the person (bank, debtor, employer etc) becomes personally liable to SARS for the funds released.
The time is now
There is no point or reason for SARS waiting any longer. In my opinion, the tax recovery process should start immediately. This will deprive the state capture gangsters of funds to fight their conviction in a criminal court.
Frans Krause is extraordinary lecturer in taxation in the Law Faculty, Department Mercantile Law at the University of Pretoria, a chartered accountant holding the degree MCom (Taxation) from the University of Pretoria and a Certificate in Tax Law from Unisa.
