An Al Capone strategy better than problematical prosecution
In 189 TSH 2018 I canvassed aspects of donations tax relevant to ‘state capture’. Now it is time to look at its income tax implications.
SARS’s mandate (updated 27 February 2019) is to ensure tax collection and compliance. To quote, SARS promises to:
- Collect all revenues due.
- Ensure optimal compliance with Tax, Customs and Excise legislation.
- Provide a customs and excise service that will facilitate legitimate trade as well as protect our economy and society.
SARS is driven by the aspiration to contribute directly to the economic and social development of the country by collecting the revenue due to enable government to deliver on its constitutional obligations, policy and delivery priorities in pursuance of better life for all in South Africa….
On this basis, SARS should also pursue the beneficiaries of state capture.
Paragraph (c) of the definition of ‘gross income’ in s 1(1) of the Income Tax Act provides that there must be included in gross income ‘any amount including any voluntary award received or accrued in respect of services rendered or to be rendered’. Thus voluntary amounts paid to persons in public office in expectation for services rendered or to be rendered are taxable, and should be declared as gross income by their beneficial recipients.
Invalid or unlawful transactions
The fact that an underlying transaction, such as an alleged bribe, is invalid or unlawful is irrelevant in so far as the imposition of tax is concerned, according to MP Finance Group CC (In Liquidation) v CSARS 2007 (5) SA 521 (SCA), as reaffirmed, albeit obiter, in Abraham Krok Trust v CSARS (58/10)  ZASCA 153. Thus income tax is payable.
Estimation of assessments
The fact that bribes are made in cash should not deter SARS, since it may, under s 95 of the Tax Administration Act, make an original, additional, reduced or jeopardy assessment based in whole or in part on an estimate, should the taxpayer fail to submit a return as required or submit a return or information that is incorrect or inadequate, SARS is required to make such an estimate based on information readily available to it.
In addition to the collection of the capital portion of tax due (plus interest for late payment, when appropriate), s 223 of the Tax Administration Act provides for the imposition of understatement penalties, dependent upon six categories of a taxpayer’s behaviour. A standard case (first offence) for intentional tax evasion is 150% of the tax that was properly chargeable.
Better than criminal justice
An ‘Al Capone’ strategy will provide a more cost-effective and expeditious punishment by collecting monies (tax and penalties) from offenders and also possibly charging them criminally with tax evasion under ss 234 to 238 of the Tax Administration Act. The other laborious processes of the normal criminal justice system can follow (if ever), in due course.