Edition: July 2016/ September 2016
in the dark
They’ll ultimately have to pay for the Concourt trial on Nkandla.
They don’t know how much they’re paying for other public-body litigation.
Neither do they know whether Zuma will have to pay tax on Nkandla.
Amidst the jubilation over the ConCourt
judgment in the Nkandla matter, some
loose ends need to be tied. They’re about
money. Specifically, they’re about who pays
for this triumph of the national good.
First is the costs award 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” President 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. Moroever,
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 award 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. Similarly to the ConCourt matter involving political parties, the
costs of litigation tilt the scales against anybody with
resource constraints in seeking redress from publicsector
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 SA Revenue Services
requires an explanation of the reasons.
A fringe benefit, 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 non-security upgrades. But the bulk of Nkandla
expense was for what purportedly passes as security
upgrades, although 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.”
There’s a precedent going back to the 1980s (TT April-June). 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.
Although 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.