Edition: July 2016/ September 2016
Pay SARS the money
Another test for rule of law is the tax liability of Number One for Nkandla.
Indemnity provided by National Assembly doesn’t apply.
Has President Jacob Zuma complied with his income-tax obligations over all the
state-funded improvements at Nkandla?
Almost certainly not, a leading SA tax
There’s reported case law that the liability for
tax, incurred in a particular year, is not reduced or
defeated by the taxpayer (employee) having to repay
the benefit in a subsequent year. A relevant case is
reported as Income Tax Case 1346 44 SATC 31.
Here the taxpayer was a Wits University professor
who received a long-service bonus in the December
of a particular year on the basis that he would have
to repay part of it if he failed to return to service
for a stated minimum period in the next year. As it
happened, he died after February during the next tax
year. Nevertheless, SA Revenue Services taxed him on
the full amount of the bonus received in the tax year
prior to his death.
The objection that he had to repay most of the
bonus in the following year was dismissed. The court
ruled that the claim of the University, for repayment
of part of the bonus in one year, cannot operate to
reduce the professor’s tax liability arising from his
receipt of the bonus in the previous tax year. This
principle is well established and there are several
reported cases that confirm it.
Now apply the principle to Zuma. He received the
benefit of the improvements to his private residence
during the tax year when the improvements were
made. In a subsequent year he was indeed exonerated
by the National Assembly from any liability for
those improvements. Then, in an even later year, the
ConCourt held that he was obliged to pay for at least
some of those improvements.
The established principle, however, is that he has
to be taxed on the cost of the improvements in the
earlier year i.e. when he received the benefits of those
improvements. The fact that he must reimburse the
employer in a later year is irrelevant to his liability
for the year during which the improvements were
In the reported ITC 1346, it was debated whether
the professor would be entitled to deduct the amount
of the repayment to Wits for purposes of calculating
his income-tax liability for the later year during
which the repayment was made. The court did not
have to decide this question but it expressed doubt as
to whether any deduction would in fact be available.
So far as Zuma is concerned, should he indeed “pay back the money” to the state for the Nkandla
improvements, he would not be entitled to any tax
deduction in the year of repayment. Further, the
repayment would not reduce his liability for the tax incurred during the year when the improvements
were effected. The deduction is not allowed because
it does not comply with the Income Tax Act
requirements for deductible expenditure.
Note also that the ConCourt dealt only with
the repayment obligation in respect of some
improvements such as the swimming pool. But
all the improvements to Zuma’s private residence
(Nkandla), paid for by his employer (the state), are
fringe benefits in terms of the Income Tax Act. As
such, they are subject to full taxation in the hands of
It doesn’t matter that Zuma did not ask for
the improvements to be effected. Neither does it
matter that he might not like the improvements;
nor whether the improvements were correctly
considered as being required for security purposes.
All improvements to the private residence of an
employee, which are paid for by the employer,
are taxable as fringe benefits in the hands of the
The Remuneration of Public Office Bearers Act
(No 20 of 1998) specifically refers to the taxation
of remuneration and allowances granted to the
President. At section 2(2) it provides that the
National Assembly may by resolution decide what portion of the President’s remuneration shall be
exempt from tax as an allowance under section 8(1)
(d) of the Income Tax Act.
The National Assembly did not pass any
resolution of this nature in respect of the Nkandla
improvements. And it will be of no avail to the
President if the National Assembly, at this late stage,
were now to pass such a resolution. The tax liability
was incurred in an earlier year, so the passing of a
National Assembly resolution in a subsequent tax
year will not benefit Zuma’s tax position.
The collection powers of the SARS commissioner
are not discretionary. He is obliged to exact all the
taxes due by all taxpayers, and the President is not
above the law.
The only possible escape for Zuma would be for
the National Assembly to amend the Income Tax
Act in order to grant him a specific tax exemption
for Nkandla. But as all people are entitled to equal
treatment before the law, such an amendment might
well be open to constitutional challenge.
Will SARS do its duty and collect from Zuma the
tax due on the full cost to the state of the Nkandla
improvements? A joint statement by Finance
Minister Pravin Gordhan and SARS commissioner
Tom Moyane would provide assurance.