Author: Pieter Faber (SAIT Technical Executive: Tax Law & Policy)
This case is an appeal against the imposition of a 200 per cent additional tax in terms of section 60(1)(a) of the Value-Added Tax Act (No. 89 of 1991) (‘VAT Act’). The taxpayer is a close corporation owned and run by Mr Y which operates a retail business. The taxpayer was deregistered for VAT by SARS in 2000 and has not submitted VAT or income tax returns since 2000. During an audit of a client of the taxpayer, SARS noted that the taxpayer was issuing tax invoices and charging VAT notwithstanding that it was not registered as a VAT vendor. SARS conducted an audit of the taxpayer thereafter in 2010 whereupon it was established that the taxpayer, through the actions of Mr. Y, had unlawfully collected VAT and not paid it to SARS. Mr. Y attempted to avail himself a defence that he was unaware of the taxpayer’s obligation in respect of VAT and that he merely took over the business from his father. He also alleged that neither he nor the taxpayer had any assets to pay for the amount assessed. SARS conceded that the taxpayer may not have been aware of the deregistration and also noted that Mr. Y had been very co-operative during the audit.
The court stated that Mr. Y was not a credible witness as to the reasons for not complying with the law and that it was unlikely given Mr. Y’s understanding of commerce and his level of education, that he would not be able to grasp what the taxpayers obligation was for VAT. The court noted that under the Tax Administration Act, a penalty of 150% would most probably have applied. Considering all the mitigating factors and the legal factors to impose additional tax, the court held that a penalty of 100% would be more appropriate. Due to the taxpayer being mainly successful, having only appealed the penalty and not the capital and due to his co-operation with SARS, no cost order was made.
Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.