The Vat Vendor Conundrum

Graeme Palmer
Graeme Palmer

The basic principle of VAT is that a vendor must account to the South African Revenue Service (SARS) for output tax on taxable supplies made after deducting any input tax incurred by him.  However, if a vendor collects the VAT and does not pay SARS,but uses it for another purpose, can he be charged with the common law crime of theft?  This question was recently considered by the Supreme Court of Appeal (SCA) in Director of Public Prosecutions, Western Cape v Parker.

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 5 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 2 year sentence.  In contrast a conviction for theft allows for a far harsher sanction.

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 his 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 would have to keep separate books of account 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.

This article has been written by Graeme Palmer, a Director in the Commercial Department of Garlicke & Bousfield Inc

For more information contact Graeme on telephone : +27 31 570 5496, cell : +27 83 637 1868, email :

NOTE: This information should not be regarded as legal advice and is merely provided for information purposes on various aspects of tax law.

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