Real Estate Investor Magazine South Africa May/June 2015 | Page 25

LEGAL

The VAT Vendor

Conundrum

Can A Vendor Be Charged With The
Common Law Crime Of Theft?
BY GRAEME PALMER

T

he basic principle of Value Added Tax (VAT)
is that a vendor must account to the South
African Revenue Service (SARS) for output
tax on supplies made after deducting any input tax
incurred.
However, can a vendor be charged with the common
law crime of theft, if this vendor collects the VAT and
does not pay SARS, but uses it instead for another
purpose? This was highlighted in the following court
case; the Supreme Court of Appeal (SCA) in Director
of Public Prosecutions, Western Cape versus Parker.

“It was the State’s argument
that a vendor acts as an
agent for SARS when
collecting VAT.”
It was common cause that Parker did not pay the
VAT he had collected to SARS. He was initially
convicted on 16 counts of theft in the Magistrates
Court and sentenced to five years imprisonment. On
appeal the State explained that, although failure to pay
VAT was a statutory crime in terms of the Value Added
Tax Act, 1991, it was punishable with only a two-year
sentence. In contrast, a conviction for theft allows for a
far harsher sanction.
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It was the State’s argument that a vendor acts as
an agent for SARS when collecting VAT. It therefore
follows that a vendor who uses VAT for a purpose
other than to pay SARS, misappropriates those funds
and is guilty of theft, despite the fact that the vendor
may be the owner of that money. In other words, the
vendor is in a position of trust in relation to SARS with
regard to the money collected.
Disagreeing with the State’s argument, the SCA
held that the relationship between a vendor and
SARS was one of a debtor and the vendor as creditor.
This is supported by the civil remedies available to
SARS to recover tax debts in Chapter 11 of the Tax
Administration Act, 2011. While the relationship
created between a vendor and SARS in the VAT Act
is unique, it does not confer upon a vendor the status
of a trustee or an agent of SARS. If this was the case,
the vendor will have to keep separate account books
or be sufficiently liquid at any given time to cover the
outstanding VAT.
The Court concluded that the VAT Act does not
incorporate theft as an offence. If the State finds the
sanctions inadequate the obvious solution is for them
to approach the Legislature to have them changed,
however, the SCA was not prepared to extend the
crime of the theft to resolve the State’s difficulties.

RESOURCES
Garlicke and Bousfield Inc.
MAY 2015 SA Real Estate Investor

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