The recent announcement that former SA Revenue Service Acting Commissioner Mark Kingon will be assisting the tax agency, alongside the Hawks and the National Prosecuting Authority, to investigate the tax affairs of the perpetrators of state capture was welcome news indeed.
The ill-gotten fruits obtained by the perpetrators (gangsters) of state capture are both taxable and subject to penalty, which will lead to SARS recovering some of its losses.
How it works
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 it.
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.
The understatement penalty in terms of Section 223 of the Tax Administration Act is 150% for 'intentional tax evasion'.
The illegally obtained profits 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 these ill-gotten gains by some 12,5%.
The process of recovering tax and penalty on the fruits of state capture is much simpler than getting a conviction in a criminal court.
SARS is empowered to raise an estimated assessment based on the evidence before the State Capture Commission of Inquiry and charge the penalty, done. 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.
The time is now
There is no point in SARS waiting any longer. In my opinion, the tax recovery process should start immediately. It will see ill-gotten funds recovered, and moreover, prevent guilty parties from using those funds to fight their convictions 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. Views expressed are his own.