A BITTER TAX PILL
A R537m VAT fraud shows the possible pitfalls of Sars’s voluntary disclosure programme. But a decision in favour of the company has been decided by such a narrow margin that an appeal to the Constitutional Court may be in the offing
n 2004, accountant Hildegard Steenkamp, who worked for medical technology company Medtronic International (MI), began what the Supreme Court of Appeal has called “fraud of ... breathtaking proportions”.
Steenkamp scammed “a whopping ... R537,236,176” by submitting false VAT returns to the SA Revenue Service (Sars) and then applying for reimbursements from the tax authority to conceal her embezzlement.
Her fraud continued for more than 10 years, until she was arrested on December 13 2017. On the same day, MI contacted Sars, explained what had happened, fully disclosed the company’s default and applied for relief via the voluntary disclosure programme (VDP) offered by Sars.
The VDP allows a defaulting taxpayer to obtain “relief” from Sars if various requirements are met. Under the VDP, a taxpayer may avoid both prosecution and payment of penalties. But what about waiving interest due on the unpaid amount, MI asked Sars.
Sars said it had no power to waive interest under the VDP, and MI therefore had a choice: pay the post-relief amount of more than R457m, or withdraw from the VDP and follow “the normal course” in remedying its default. The latter option would expose MI to penalties of up to 200% of the capital amount owed for outstanding VAT, plus mora interest (interest charged when a debt is not settled timeously).
MI opted for the VDP route, complying fully and paying the due amount, including the interest. After payment, however, MI again asked for remission of the interest, and Sars restated that remission was not
Icatered for in the VDP. But was this correct? No, said the high court; there was nothing to stop Sars from considering such requests and adjudicating them on their merits. The commissioner then challenged the outcome at the appeal court, and it is this decision, split 3:2, that has now been handed down.
Appeal court deputy president Xola Petse, who wrote the majority decision, concluded that the issue could be resolved “on a narrow basis”. In his view, the central question was whether Sars could “lawfully refuse to even consider the request for remission”.
Under both the constitution and the Promotion of Administrative Justice
Act (Paja), the commissioner couldn’t simply decline even to consider an application, Petse said.
The constitution gives everyone the right to administrative action that is lawful, reasonable and procedurally fair. In addition, those whose rights have been adversely affected by administrative action have the right to be given written reasons. Paja provides the way for these constitutional rights to be made a reality.
The commissioner’s refusal to consider and determine MI’s request thus “altogether undermines one of the fundamental rights” of the constitution and was inimical to the constitutional duty borne by Sars as an organ of state. Petse found that, “at the very least”, Sars should have considered the MI application for remission and adjudicated it on its merits.
He added, however, that the appeal judges would not themselves decide the outcome of MI’s request to Sars for remission. As this is the prerogative of the commissioner, the commissioner should do so.
In their minority decision, the remaining two judges said the commissioner had been correct to find that he couldn’t so much as consider MI’s application.
What happens next? So much money is at stake and the outcome is so narrowly arrived at that a further appeal, to the Constitutional Court, must be something the commissioner will now consider.
It’s a case that shows the potential pitfalls of the VDP route, and the need for even the most honest taxpayer to think carefully before choosing that option. But it also raises the intriguing question of what happened to Steenkamp, whose R500m fraud threw MI into this dire mess in the first place.
She and her case were last mentioned on the internet in 2018, when she was given bail of R250,000. Was she ever convicted? Or is she another fraudster who found a way to beat the South African justice system?
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