18 August 2012
Posted by: SAIT Technical
By Michael Stein (Friday Page)
A recent, as yet unreported, judgment of the North Gauteng Tax Court gives rise to an interesting question.
What happened, in a nutshell, is that a registered vat vendor had conspired with another party, a close corporation, to defraud a bank. The vendor issued tax invoices to the other party for fictitious supplies. The other party then presented the invoices to the bank to support its claim that it was acquiring supplies for a business. The bank paid the vendor for the alleged supplies and the vendor paid the amounts to the other party. That party then had the audacity to claim vat input tax deductions for the fictitious supplies. But the vendor that issued the tax invoices did not account for the output tax reflected in the tax invoices and the Commissioner demanded the vat as well as 200% additional tax. The vendor appealed to the tax court, which upheld the assessment.
While the vendor's conduct was shameful and undoubtedly fraudulent, I question whether the court was correct in upholding the charging of output tax and the imposition of additional tax when there was in fact no taxable supply at all! All that happened was that a document was issued purportedly reflecting a taxable supply but there was in fact no taxable supply.
Section31(1)(e) of the Vat Act empowers the Commissioner to raise an assessment when, amongst other things, a vendor makes a supply that is not a taxable supply but represents that output tax is payable on the supply. But this provision would not apply in the present situation because there is fact no supply at all.
The vendor was almost certainly guilty of criminal conduct, both under the Vat Act and probably the common law, but to my mind did not make a taxable supply on which it was required to account for vat output tax, not to mention additional tax. And the other party, which was not involved in the case, was undoubtedly guilty of tax evasion and fraud. But its members had fled the country and so evaded the consequences of their criminal actions.
SAIT Technical Editorial Note: For a summary of the VAT case referred to in this article, please click here.