He is liable for fringe benefit tax - auditor.
President Jacob Zuma has to pay fringe benefit tax on any personal benefit derived from the R206 million upgrades at his Nkandla residence, says Pretoria auditor Rudie van Zyl, who specialises in tax matters. This may leave him with a multimillion liability.
Public Works Minister Thulas Nxesi maintained last week that “allegations that the President had used state resources to build or upgrade his personal dwellings are unfounded”. He released a full report of the government task team on the Nkandla matter, which can be read here.
This is however contrary to preliminary findings of the Public Protector Thuli Madonsela, published earlier by the Mail & Guardian (M&G) from a leaked report and other documents obtained by the paper. The personal benefit she identified, was quantified by M&G to be almost R20 million.
In response to a Parliamentary question about the tax treatment of a holiday flight by then deputy president Phumzile Mlambo-Ngcuka in 2006, then Minister of Finance Trevor Manuel said presidents and deputy presidents were exempt from paying income tax on remuneration until 1994. This exemption was then repealed through an amendment to the Income Tax Act that was approved “by the new government of President Mandela to ensure that the tax laws apply equally to all South African residents.”
The minister stated that there are differences between the tax treatment of, for example, members of the legislature and civil servants. Members of the National Assembly for example got an allowance of R40 000 per year at that stage for traveling, entertainment and office expenses that could be set off in determining their taxable income.
Similarly, the minister said, the “unique nature of the responsibilities of a public office bearer” necessitates 24-hour security for the president and deputy president and it is not the practice of Sars to tax either of them on the value of such service.
Van Zyl says in determining Zuma’s tax liability the value of the benefit will be added to his annual salary of R2.6 million and he will be taxed on the total – in this income bracket at a rate of 40%.
In terms of the Income Tax Act that will include the value of improvements to his fixed property, the value of any movable property like furniture that was bought for his benefit and the value of obligations paid on his behalf like municipal accounts.
It also includes the value, and operations and maintenance of, the property for his personal benefit and personal benefit to his family members.
Van Zyl says in terms of s 16(b) of Schedule 7 of the Income Tax Act any benefit enjoyed by any other party on Zuma’s behalf, can also be regarded as a taxable benefit to him.
If it is found that the total R206 million was spent for his personal benefit, his tax liability will be R82.4 million, but that is not likely since some of the expense was incurred on state land for the state’s benefit, like accommodation for members of the South African Police Service who provide Zuma’s VIP protection.
If it is R20 million as the M&G calculated, it is still R8 million.
If costs for operations and maintenance are added, the number may increase further. A benefit to family members may bring the building of a tuck shop allegedly for one of his wives into the equation, Van Zyl says.
He further argues that if the M&G report proves to be correct that Zuma’s effected the appointment of his own architect, quantity surveyor, engineers and building contractor to the project, he should also be taxed on the benefit they derived, apart from any bona fide security expenses. M&G calculated that “the state paid Zuma's team more than R90 million, including R16.6 million for the architect, R13.8 million for the quantity surveyor and R56.3 million for the builder. This is more than 40% of the total cost.”
Taxed at a rate of 40% this element might add R36 million to Zuma’s tax bill.
Van Zyl says the obligation for declaring the tax benefit does not lie with Zuma alone. His employer has to declare the benefit within 30 days after the end of the tax year and show it on his IRP5. If the employer fails in this, the Commissioner has to determine the taxable benefit and instruct the employer to collect the tax.
The South African Revenue Service (Sars) is currently taking a wait-and-see approach. When approached by Moneyweb, Sars spokesperson Adrian Lackay said: “Once the facts around expenditure on the matter have been finalised and published, Sars will be in a position to determine whether any tax consequences may arise. Sars will then apply its legal mandate.”
- Moneyweb
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