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Is it in the public interest to see Jacob Zuma’s income tax returns?

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Nina Keyser is a partner at Webber Wentzel, and a specialist in tax dispute resolution and tax controversy management. She has more than 20 years’ experience in tax litigation. Prior to joining Webber Wentzel, she spent eight years working as a legal adviser at SARS, resolving disputes between SARS and taxpayers, and providing legal and tax advice to SARS audit teams.

If former president Jacob Zuma’s tax returns were to be exposed to public scrutiny, would they show that tax was paid on, for example, the Nkandla upgrades and donations received from the Guptas?

Section 69 of the Tax Administration Act states that a South African Revenue Service (SARS) official must preserve the secrecy of taxpayer information. A SARS official who does not adhere to this rule is, under section 236 of the act, guilty of an offence and is, on conviction, subject to a fine or imprisonment for a period not exceeding two years. It is, therefore, not surprising that when the Financial Mail asked SARS to disclose former president Jacob Zuma’s income tax returns for the years that he was in office, SARS refused. No SARS official would be prepared to go to prison for two years for breaching taxpayer confidentiality.

The Financial Mail requested the information in terms of the Promotion of Access to Information Act (Paia), but section 35 of that act states that SARS must refuse access to information it acquired for purposes of administering the Income Tax Act.

The public interest exclusion in section 46 of Paia states that the information officer of a public body must grant access to information if it will reveal evidence of a failure to comply with the law, and if the public interest in the information outweighs the harm to the person concerned. Unfortunately, the public interest exclusion does not apply to taxpayer information. Consequently, SARS argued that it was not mandatory to disclose the information in Zuma’s income tax returns.

The Financial Mail challenged the constitutionality of section 46 of Paia, arguing that taxpayer information should also be disclosed if it will reveal evidence of a failure to comply with the law and the public interest outweighs the taxpayer’s right to privacy.

The high court agreed with the Financial Mail and made an order that section 46 of Paia is unconstitutional. Section 172(2)(a) of the Constitution states that this will be of no consequence until it is confirmed by the Constitutional Court. SARS, unsurprisingly, is appealing the high court’s decision.

What will Zuma’s tax returns reveal?

While we await the outcome of the next round of litigation, the question is what Zuma’s returns will reveal if the Financial Mail is successful.

Option A:

He did not file any returns.

SARS cannot disclose what it does not have in its possession. However, this would mean Zuma is already guilty of an offence. Section 234(2)(d) of the Tax Administration Act states that it is an offence not to submit an income tax return.

If Zuma did not submit his income tax returns for the first seven years of his presidency, as suggested by the Financial Times and Jacques Pauw in his book The President’s Keepers, he is already guilty of an offence and is liable, on conviction, to a fine or imprisonment for a period not exceeding two years. If he were to submit the returns late, that would be a mitigating circumstance, but it would not mean that he is not guilty of an offence.

SARS is entitled to disclose that Zuma has not submitted income tax returns to the South African Police Service or the National Prosecuting Authority in terms of section 69(2) of the Tax Administration Act, because failure to submit a tax return is a tax offence.

Option B:

He filed returns but did not declare the taxable benefits arising from the upgrades to his Nkandla homestead.

It is the primary obligation of the employer to declare any taxable benefits derived from employment on the employee’s IRP5 certificate. Given that FW de Klerk was the last state president of South Africa whose remuneration was exempt from income tax under section 10(1)(c) of the Income Tax Act, a provision that was deleted in 1994, Zuma would have been subject to income tax on any taxable benefits received.

Paragraph 2(a) of the Seventh Schedule to the Income Tax Act states that property of any nature acquired by an employee as a benefit or advantage of employment is a taxable benefit. As the improvements to Zuma’s homestead would not qualify as moveable assets, the value is not the cost to the employer, but the market value at the time he acquired it. It appears from the Public Protector’s report that the cost to the employer may have been significantly higher than the market value of the assets acquired by Zuma.

As it is extremely unlikely that the South African government would have issued an IRP5 certificate to Zuma reflecting these particular taxable benefits he derived from his employment, the question arises whether Zuma should have declared the taxable benefits he received in his income tax return. Where an employer fails to withhold employees’ tax (PAYE) from a taxable benefit, the employer remains liable for the payment of the PAYE to SARS in terms of paragraph 5 of the Fourth Schedule to the Income Tax Act. SARS can waive the employer’s obligation to pay over the PAYE if the Commissioner is satisfied that the failure to pay over the PAYE was not due to an intention to postpone or evade the obligation and there is a reasonable prospect of ultimately recovering the tax from the employee.

Under the circumstances, it seems unlikely that SARS’s prospects of recovering the tax from Zuma are reasonable. Therefore, ironically, the South African government, as the employer, remains liable for the PAYE to SARS.

This does not let Zuma off the hook. An employer who has not been absolved from paying SARS has the full right to recover the PAYE from the employee. Once the employee has repaid the employer, he may obtain an IRP5 certificate from the employer.

To the extent that Zuma has repaid the PAYE to his previous employer, he will have an IRP5 certificate, which will show that he has paid the PAYE on the improvements to his homestead. To the extent that he has not repaid the PAYE, he remains liable to SARS for the income tax on the taxable benefits he received.

If he did not declare the taxable benefits he received, whether it was on his IRP5 certificate or not, he is liable for tax evasion in terms of section 235 of the Tax Administration Act and liable to a fine or a period not exceeding five years’ imprisonment. This would also be information that SARS is entitled to share with the South African Police Service and the National Prosecuting Authority in terms of section 69(2) of the Tax Administration Act.

Although failure to declare income is a criminal offence, failure to pay income tax is not a criminal offence. Therefore, if Zuma had declared the taxable benefits arising from the Nkandla upgrades, but had not yet paid the income tax, that would not be a criminal offence.

Option C:

Zuma received an IRP5 certificate from the Durban security company mentioned in the high court, which paid him a salary during the first few months of his presidency.

When an employer issues an IRP5 certificate, that information is automatically given to SARS. Therefore, the information about the income received from the security company will have been pre-populated on Zuma’s income tax return, together with the information from his IRP5 certificate from the South African government. It is, therefore, unlikely that he would not have declared this income – if he submitted a return.

If the security company did not issue an IRP5, then the return will show whether Zuma declared this income or not. The fact that he subsequently had to repay the salary (as suggested by the high court) means he is entitled to an income tax deduction under section 11(nA) of the Income Tax Act in the year that the salary was repaid. The fact that the money was repaid later does not absolve him from paying income tax on it in the year that it accrued to him.

The security company, on the other hand, will not be entitled to an income tax deduction for the salary paid to Zuma, as section 23(o) of the Income Tax Act prohibits the deduction of any amounts paid in terms of the Prevention of Corrupt Activities Act — which seems likely to be the case.

Option D:

Zuma declared the donations he allegedly received from tobacco smugglers, Russian oligarchs and the Gupta family, in his income tax returns.

According to our courts, a donation is something that is made out of “pure liberality” and “disinterested benevolence”. A donation is generally not taxable in the hands of the recipient, as it is regarded as being of a capital nature. The taxpayer must, however, declare receipts that are not regarded as taxable in his income tax return.

A donor, on the other hand, must pay donations tax on donations made. If the donor does not pay the donations tax by the end of the month following the donation, the donor and the donee become jointly and severally liable for donations tax.

There is an exemption if the donation was made to an employee or for services rendered. The donation will then not be subject to donations tax, but will be subject to income tax under paragraphs (c) or (i) of the definition of “gross income” in the Income Tax Act.

Therefore, if the “donation” was in fact for services rendered, no donations tax will be payable, but Zuma will be liable for income tax. SARS would have to consider very carefully whether Zuma was also liable to register as a VAT vendor, because an independent contractor who renders services for consideration of more than R1-million per year must register for VAT. Failure to submit VAT returns and pay the amount due is a criminal offence in terms of section 58(2) of the VAT Act and is subject to a fine or two years’ imprisonment. DM

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All Comments 7

  • From a public perspective I have no interest to see Zuma’s tax records. All that SARS needs to do is to say if Zuma is tax compliant or not. Perhaps the tax laws prohibit SARS to do even that, but if Zuma is tax compliant just say it. If not, then SARS, SAPS, etc. must do their jobs. Al Capone ultimately went to jail for tax evasion by the way.

  • Interesting article, and from a pure technical point, Nina, everything you say is correct. However, as Prof. Pierre de Vos in his article pointed out, this is no ordinary case. We are talking about an ex-President, who many believes was involved in a number of irregularities in terms of State Capture and other cases. Since he refused to testify at the Zondo commission, the likelyhood is that he is hiding a number of things, including the validity of his tax returns. Since this occurred during the time of the previous commissioner of SARS, Tom Monyane (a known Zuma supporter), it is possible that things occured during the time which I believe the public is entitled to know. Remember that because of his status, it is also a known fact that there is a strong likelihood that neither the Police or the NPA were willing to investigate any tax fraud. How will we ever know the truth if everything is kept secret. Surely transparency is vital in this case, and trumps the need for privacy (as per Prof. de Vos).

  • Nice summary Nina — but what’s your sense of the Concourt’s likely position on it all? I’m inclined to agree with Coen, I wonder if there is room for an order to compel SARS to issue a statement as respects Zuma’s compliance without a full public disclosure of the detail.

  • Former prisoner Zuma made the issue public interest when he said publicly that he pays all his taxes and has nothing to hide.

    It would improve transparency and trust in general if all politicians’ tax returns were public records. Same for anybody whose company turns over more than R10m a year of government spend.

    Why are tax records such a big privacy deal? People have no qualms in their very public displays of wealth in the form of private planes, fugly watches, Plett holiday homes, R14m sports cars, R500k a year private schools, etc etc etc.

    Surely these people would be as proud for the public to know how much money they make and how heavy their tax burdens are?? Wear it as a badge of honor!

  • I don’t believe that the public wants or needs to see Zumas tax returns, it would probably just invoke peoples ire.
    However, for the authorities to conduct their investigation into Zuma’s financial affairs, those records need to be unlocked, which basically means they get into the public domain.

    Q

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