Matthew Lester: The twists and turns of the Malema tax case

I wonder if a postgraduate tax student will choose to follow the twists and turns of the Julius Malema tax case. It is fascinating stuff and most relevant as it deals with the relatively new provisions of the Tax Administration Act. 

During 2014 many South Africans were angry that Malema was allowed to settle with SARS. But it all blew over only for the case to re-emerge in 2015. There is much speculation as to why.

Interestingly the case surrounds donations tax. Malema would obviously contest that the amounts were not earned for services rendered. That in itself could be disputed. But what is certain is that if the amount was not earned and subject to income tax then, by default, it must be subject to donations tax. So SARS is assured of donations tax at 20% rather than contesting an income tax assessment at 40%. So, at first glance, SARS has obviously settled on the basis of ‘a bird in the hand is worth two in the bush.’

Now some would say that SARS took the easy way out. No. This is where it gets fascinating. If SARS had sought to recover income tax and it is accepted that Malema has nothing then the whole exercise is academic. There would be no recovery.

But donations tax is different. The tax may be less. But the tax is imposed on the donor (Malema’s benefactors) or, failing them, on the recipient. There are thus two bites at the cherry. That’s clever. Somebody at SARS was thinking.

But how can last year’s deal be withdrawn? Settlements reached with SARS in terms of alternative dispute resolution or compromise of debt procedures are only valid if the amount agreed upon is paid. SARS is contesting this.

But even if the previous deal stands, it will only cover Malema up to the 2010 year of assessment. There are a few more years to come where no agreement yet exists. If subsequent years of assesment are to be settled on the basis of donations tax, and Malema is broke, then Malema’s benefactors are going to have to pay.

There will obviously be many more twists and turns. But if I was a betting man I would wager that the tax debts will never be settled. Thus SARS will be forced to pursue sequestration.

Many may rightly be concerned as to how Malema’s tax affairs have landed up in the public domain. Surely any taxpayer’s affairs should remain private. There is an important principal to this as well.

Malema’s tax affairs would have remained private if he had complied with the tax administration act. But if taxes are not paid and SARS has to resort to court proceedings, then the matter comes out in the open. Had the taxes been paid timeously the matter would have remained confidential.

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