Failure to pay over VAT is not theft. A Supreme Court of Appeal decision handed down in December 2014 (Director of Public Procecutions, Western Cape v Parker [2014] ZASCA 223) has dismissed the contention of SARS that the failure to collect and pay over VAT to SARS constitutes common law theft.

Failure to pay over VAT

SARS argued that a VAT vendor holds monies in trust on behalf of SARS, and misappropriation of such funds constitutes common law theft. The motivation arose from the fact that a failure to pay over VAT is a statutory crime under s 28(1)(b) read with s 58 of the Act.  This is punishable with a sentence of two years’ imprisonment. Counsel for SARS explained that the reason why it approached the court was because the penalty and punishment prescribed by the Act were too lenient for certain cases of misappropriation of VAT. It follows that a conviction for theft would pave the way for sterner sanctions and that is what the prosecuting authority sought.

SARS argued that the court started out on the wrong premise by asking whether SARS became the owner of the VAT collected by the vendor. In collecting VAT, so the State’s argument went, the VAT vendor acts as an agent for SARS. It follows, so the argument proceeded, that a VAT vendor who uses VAT for purposes other than to pay to the Commissioner, misappropriates those funds and is therefore guilty of theft, despite the fact that the vendor may be the owner of that money.

The court dismissed this notion and indicated that the VAT vendor is merely a debtor of SARS.  It is not a tax collector for SARS, nor is the vendor an agent of SARS.

The court found s 7(1) of the Act neither expressly or impliedly creates a relationship of trust. The relationship created by the Act is one of a debtor and his creditor. Also, s 40 of the Act pertinently described VAT ‘when it becomes due or is payable’ as a ‘debit to the State’.

In addition the section provided for SARS to civilly sue a vendor for outstanding VAT together with the 10 per cent penalty (and interest) provided for in s 39. Section 40 has since been repealed by the Tax Administration Act 28 of 2011 (the 2011 Act) which similarly makes provision for SARS to recover money due to it by way of litigation.

SARS could have criminally procecuted the vendor in terms of the VAT Act for committing a statutory offence.  However it preferred to use the provisions of the Criminal Procedures Act to go after transgressors, as a successful conviction sends out a stronger message.

The impact on the VAT vendor under the VAT Act would have been significantly different as any sentence would be considerably lighter with less stigma attached.

The Supreme Court of Appeal finding now prevents SARS from charging VAT defaulters under the Criminal Procedures Act.  We assume that the provisions contained in the VAT Act will in future be used to prosecute defaulters.