Misappropriation of VAT theft

The other penalties aside, is misappropriation of VAT theft in the same way as stealing a car or television set is? SARS would like you to think so.

Peter O’Halloran - Tax advice

A supermarket owner was in arrears with his VAT returns and was charged in the regional court with several contraventions of the VAT Act. At the same time, the state, through the prosecution authority, charged him with theft!
The supermarket owner entered a plea of guilty to all the charges, but baulked at the five-year prison term handed down by the regional magistrate in respect of the charge of theft.

READ:Heed those SARS notices

Before the owner could appeal the sentence, it had to be ascertained if the High Court had jurisdiction to overrule the guilty plea. This proved to be so and the supermarket owner was given leave to appeal. After examining the appeal, the High Court judges held that the supermarket owner had not committed theft because the funds had at all times belonged to him as vendor and not to SARS. The conviction was duly set aside.

Not the end
In the Supreme Court of Appeal, the prosecuting authority asked the court to decide whether a VAT vendor who has misappropriated an amount of VAT it has collected on behalf of SARS can be charged with theft. Counsel for the state told the court that the underlying reason for the appeal was that the statutory penalty for misappropriation of VAT as provided under Sections 28(1)(b) and 58, which provide for a two-year prison sentence, was too lenient in certain cases, in its view.

Being able to charge a delinquent VAT vendor with theft would pave the way for the imposition of sterner sentences. In an attempt to overturn the High Court ruling, the prosecuting authority held that a vendor acts as an agent for SARS. Thus a vendor who uses the VAT they have collected for purposes other than paying SARS, misappropriates the funds and is guilty of theft.

In support of its stance, the state sought to rely on various cases dealing with misappropriation and upon various statutory provisions that seemed to imply a relationship of trust between the vendor and SARS. The court did not accept the arguments, holding that the relationship between a vendor and SARS is a relationship that is sui generis, or unique, and is in fact a debtor/ creditor relationship, not a trust relationship. This is supported by the VAT Act, which allows the creditor (SARS) to litigate for amounts owing to it.

The statutory penalty was imposed not for theft as such, but rather for non-compliance with the VAT Act. The court stated that the cases relied upon by the state were quoted out of context.

An argument doomed to fail
Taken to its logical conclusion, the state’s contention could result in a vendor who does not submit returns not being charged. It would also be possible to charge a vendor with theft, who, operating on an invoice basis, (payment of VAT to SARS before receipt thereof) had not even received payment from its customers.

For these and other reasons, the appeal had to fail.