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Nkandla saga: Taxpayers in the dark

25 April 2016   (0 Comments)
Posted by: Author: Allan Greenblo
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Author: Allan Greenblo (Financial Mail)

They’ll ultimately have to pay for the constitutional court (Concourt) trial on Nkandla. They don’t know how much they’re paying for other public-body litigation. Neither do they know whether President Jacob Zuma will have to pay tax on Nkandla.

Amid the jubilation over the Concourt judgment in the Nkandla matter, some loose ends need to be tied up. They’re about money. Specifically, they’re about who pays for this triumph of the national good.

First is the costs awarded by the Concourt. It ruled that the president, the minister of police and the National Assembly "must pay the costs of the applications including the costs of two counsel”.

The thought that any of them might pay personally won’t remotely cross their minds. The bill will be borne by taxpayers. For about how much? Probably a lot less than the "reasonable costs” Zuma will have to pay personally for the visitors’ centre, amphitheatre, cattle kraal, chicken run and swimming pool at Nkandla.

Also bear in mind that the costs award, in effect, is for six counsel. This is because the successful applicants — the Economic Freedom Fighters, the Democratic Alliance and the public protector — each get the costs of two counsel. Corruption Watch, represented as a friend of the court, gets no costs at all.

Altogether, the four successful applicants employed four senior and nine junior counsel. Moreover, through the various processes to reach the highest court they also engaged respective sets of instructing law firms, for whom there is no costs compensation.

It gets worse. The president, the minister of police and the National Assembly were cumulatively represented by four senior and seven junior counsel. Their bill is wholly for the fiscus.

So not only are taxpayers likely to be left substantially out-of-pocket. The successful applicants, despite the costs awarded in their favour, are certain to be too.

Second are related issues: the reliance of political parties on donors to pursue court actions against the state, and the propensity of public bodies to head for the courts even on professional advice that chances of success are slim.

With public-sector bodies, funded by taxpayers or ratepayers as the case may be, the absence of personal liability for legal expenses allows legal action to become too easily a knee-jerk option. Similar to the Concourt matter involving political parties, the costs of litigation tilt the scales against anybody with resource constraints in seeking redress from public-sector bodies.

When the unrecoverable costs for these bodies are added up, from the larger organs of state to the smaller entities of municipalities, the total could be frightening. Who keeps score? How are the expenses approved? Most of these disputes don’t make it into the headlines, unlike, say, the state’s dismissed appeal against a high court decision that its failure to arrest Sudanese president Omar al-Bashir in SA was unlawful, but they proliferate nonetheless.

Thus is presented yet another challenge for finance minister Pravin Gordhan, simpler to identify than to implement. It’s to find ways by which the litigation exuberance of public bodies can be contained.

Third is the always-itchy subject of tax.

At one level, various supporters of Jacob Zuma have indicated their enthusiasm to pay for his home-improvement expenses. Before they reach for their wallets, they’d better check on how liability for donations tax will cause their generosity to expand.

At another level is Zuma’s own liability for tax. On a reading of the Income Tax Act, it seems that his liability could be either as "deemed income” or as a fringe benefit from his employer.

The tax rate on the former would be higher than for the latter, but for both it should arguably be computed on the total R200m-plus cost of Nkandla for which Zuma hasn’t himself paid. Alternatively, if he isn’t liable, then the integrity of the SA Revenue Service (Sars) requires an explanation of the reasons.

A fringe benefit, as defined by Sars, is a taxable benefit "deemed to have been granted where the employer has provided the employee with residential accommodation either free of charge or for a rental consideration which is less than the value of such accommodation”. This tax must be paid annually.

The Remuneration of Public Office Bearers Act sets out the terms for the salary, allowances and benefits of the president. Further, according to the Presidential Handbook, the cost of physical security measures at the president’s official and private residences shall be carried by the department of public works only when "used during the term of the president”.

In its judgment, the Concourt dealt exclusively with nonsecurity upgrades. But the bulk of Nkandla expense was for what purportedly passes as security upgrades, though Zuma and his family will obviously continue to enjoy these benefits after his term as president has expired. They’d then presumably be allowed to sell this private homestead, improvements and all, for their own personal accounts.

Two years ago, answering a parliamentary question on Zuma’s tax liability for Nkandla, Gordhan stated: "All South Africans pay tax on their income and fringe benefits, be the person the president or an ordinary worker. SA is one of the few democracies where we are all equal when it comes to taxation, in that we are all taxed, with the exact amount determined by our income and fringe benefits, minus any allowed exemptions and deductions.”

A precedent, going back to the 1980s, was discussed in the latest Today’s Trustee edition. It concerns a top businessman seconded to head a parastatal.

In terms of the parastatal’s security policy, a high wall was built around the businessman’s private residential property. The parastatal also supplied him with three motor vehicles. Security insisted that each morning the three cars leave his residence for his office at the same time, so that nobody could be certain of the vehicle he occupied.

Though he had resisted the wall and the vehicles, saying that they were unnecessary and that he didn’t want them, the parastatal was adamant that he comply with its security policy. Once he accepted the wall and vehicles, Sars hit him for fringe-benefits tax on them.

Taxpayers are entitled to know whether, and if so why, Zuma is entitled to different treatment.

Allan Greenblo is editorial director of Today’s Trustee, a quarterly magazine mainly for principal officers and trustees of retirement funds.

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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.


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