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When only a pound of flesh and not payment is enough

Friday, 23 January 2015   (0 Comments)
Posted by: Author: Pieter Faber
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Author: Pieter Faber (SAIT)

The recent case of Director of Public Prosecutions, Western Cape v Parker (103/14) [2014] ZASCA 223 (12 December 2014) reminded me of the works of William Shakespeare where the play, the Merchant of Venice, seemed an appropriate parody.

To set the scene for this discussion we may need to refresh everyone’s memories of the play. In short we have dear Antonio who is indebted by contractual bond to Shylock and on suffering loss of his cargo, Shylock claims the debt under the bond. Payment under the bond was no mere matter of money either, as a pound of flesh closest to the heart was the payment sought in front of the Duke. Shylock is offered three times the debt in money by Bassanio, who is Antonio’s friend but such payment is rejected as being insufficient and not following the letter of the law. Portia, who acting under deceit as Baltasar a doctor of laws, is the heroine of the play by using the letter of the law in the bond, prevents Shylock from taking the pound of flesh by demanding that he may only take it without taking a drop of blood, which per the letter of the law was not in the wording of the bond. This action by its very nature is impossible and Shylock realising as much, seeks to take the alternate money offer. The rest, as they say, is history (that ended badly for Shylock).

In the Parker case we see a similar scenario with SARS demanding ostensibly, to the letter of the law, that a VAT vendor who had failed to pay over VAT recovered be prosecuted. However, not only for his misgivings under the provisions of the VAT Act, but also be prosecuted and sentenced to jail for the common law crime of theft. The reason given by the National Prosecuting Authority was that the penal provisions under the VAT Act were not severe enough and they therefore were demanding "the pound of flesh closest to the heart” as the only manner of appeasing its claim against the vendor. The court invariably rejects SARS’ contentions as according to the letter of the law they are not entitled thereto but merely that which is provided for in the VAT Act. Similarly, the court also [at 11-13] like Portia did to Shylock, explains to SARS why enforcing the letter of the law, as it claims it to be, is not practically possible.

Discussions on sanctions for tax, both monetary and confinement, is a subject of much debate but a good starting point for such debate would always be the principles we seek from the Constitution, as it stands as our guiding light to a better society. We have been made fully aware of the necessary evil of the draconian powers of the fiscus as set out in the judgement of Metcash Trading Limited v Commissioner for the South African Revenue Service and Another (CCT3/00) [2000] ZACC 21; 2002 (4) SA 317; 2002 (5) BCLR 454 (24 November 2000) where even the court a quo made the comment that the powers were "dramatic and extensive”.  As a country with a jaded past we are also fully aware that the law is not always just, even though its enforcement may mislead one into thinking that justice is being done in accordance to such law.

As example of such principles of justice, when the Tax Administration Act 28 of 2011 was enacted as part of a legislative consolidation, the explanatory memorandum that accompanied it had this to say [at 2.1.]:

"International experience has demonstrated that if taxpayers perceive and experience the tax system as fair and equitable, they will be more inclined to fully and voluntarily comply with it.”


"In drafting the TAB, due regard was given to the following principles of international best practice in tax administration:

(a)   Equity and fairness to ensure that the tax system is fair and also perceived to be fair, which in turn should enhance compliance….”

A similar principled approached is followed in the Davis Tax Committees First interim report on BEPS [at 28] and tax system design which states (emphasis mine):

"…Equity requires justice and equal treatment of domestic and foreign companies….”

In the Parker case the court confirms that the relationship between SARS and the VAT vendor is that of debtor and creditor and not that of an agent or debt collecting agent. The question then arises whether in such relationship non-payment without the intent of criminality should face such serious a sanction as confinement?

In Malachi v Cape Dance Academy International (Pty) Ltd and Others (CCT 05/10) [2010] ZACC 13; 2010 (6) SA 1 (CC) ; 2010 (11) BCLR 1116 (CC) (24 August 2010) the Constitutional court had the following to say about detention for civil debt [at 40-41] (emphasis mine):

"Freedom is an important right. The detention of any person without just cause is a severe and egregious limitation of that right. It is difficult to imagine the circumstances in which a law that allows detention without just cause could ever be justifiable.

Other comparable jurisdictions have done away with arrest and detention that aims to prevent flight or to recover civil debts. I therefore conclude that the limitation is not reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom.”

This then brings us back to the matter of tax and sanction for non-compliance. Where the matter is recovering a civil debt should this constitute a criminal offence subject to a sanction of confinement? In both the Parker case as well as the case of AJC Olivier v Die Staat (A153/2005)(22 September 2006) the sanction of imprisonment was dealt with on the basis as to how objectionable the actions of the vendor was, including whether there was intent to deceive etcetera and as per the statements in the Olivier case [at 25], whether the sanction would serve as deterrent for similar actions in future.

When applying the constitutional principles of equity and fairness what does come to mind is the fact that where a thief commits common law theft, the money stolen is recovered and imprisonment applied. However, when the same thief steals from SARS, he has to repay the capital, twice capital amount as penalty, punitive interest thereon backdated and serve imprisonment. Similarly where a creditor seeks payment, he can recover the capital sum and possibly interest. When SARS as creditor seeks payment, it can recover the capital sum, late payment penalty, non-compliance penalties (in other words, additional tax) and retrospective punitive interest. In both instances SARS seeks not only its money but a pound of flesh as well over and above what society in general would seek from such person. This does not, in my mind, seek to instil a system of equity and fairness - the punishment should fit the crime. Coincidently the matter of additional tax as being punitive and properly should be within the ambit of the judiciary and not the executive, was raised in the Metcash case [at 73] but was not heard on the basis that the taxpayer had not previously raised this matter in the court of first instance.

Of further concern is the fact that unlike in the above mentioned cases of Parker or Olivier, criminal offences in terms of the tax Acts do not require some form of intent to deceive or defraud the fiscus, it merely requires non-compliance. This in itself is problematic where imprisonment is a consequence of non-compliance for something that society does not perceive as having an element of criminality, especially within a debtor-creditor relationship. For example, though caveated with the opening line of "wilfully or without just cause”, section 234 of the Tax Administration Act makes it a criminal offence, subject to sanction of even imprisonment of two years, where a person fails or neglects to update your personal particulars with SARS. This seems a matter of mere monetary penalty rather than criminality. 

SARS are quick to remind us that for many of these "minor” criminal offences they have never imprisoned or penalised anybody. In the Parker case the court makes the following statement (emphasis mine):

"The answer to these difficulties suggested by counsel, namely that the Director of Public Prosecutions would never charge the vendor under the circumstances contemplated in the example, provides no answer at all to the question whether a crime has been committed. The law cannot depend on whether or not the DPP decides to enforce it.

Herein lies the exact problem. The legislature has in its efforts to give SARS its pound of flesh, not only made a law which seems more punitive than just, but in practice is arbitrary. The fact that many taxpayers have not updated their details wilfully is such an offence and everyone still remembers the controversial concept of dolus eventualis in the Oscar trial which may apply to many a taxpayer. In short as set out in Magatho v S (732/12 [2013] ZASCA 34 28 March 2014 [at 9] this form of intent is when:

"A person acts with intention in the form of dolus eventualis if the commission of the unlawful act or the causing of the unlawful act result is not his main aim but he subjectively foresees the possibility that in striving towards his main aim the unlawful act may be committed or the unlawful result may ensue and he reconciles himself to the possibility.”

However, though many a taxpayer may have been guilty of this crime, few if any have been charged with such an offence notwithstanding that the law cannot depend on whether SARS decides to enforce it or not. In this lies the problem. It is clear that even SARS, in its lack of enforcement, (though not due to a lack of ability) acknowledges the overzealousness of these punitive measures for the offences. It seems rather a case where the legislature should review the criminal offences in the tax Acts and limit them to those that have a form of criminality and have mere monetary penalty for those that have no form of criminality. In fact, the lesson from the Parker case may be that criminal offences and imprisonment sanctions, even for tax matters, should properly lie in the Criminal Procedure Act and not in the tax Acts, which should just rather regulate debtor and creditor matters with civil monetary penalties.

As set out in the Olivier judgement, the law should punish with consideration of the facts and with due consideration that such punishment should also deter others from committing such offences in future. However, the law should be just and not seek a "pound of flesh closets to the heart” where three times the amount is sufficient recompense as was for Shylock, the letter of the law may not always give the desired result.



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