Nkandla could cost Zuma millions in tax bill

President Jacob Zuma is liable to pay fringe benefits tax, just like any other employed person, the National Treasury has confirmed.

This makes the president liable to pay for any personal benefit on the R206 million upgrades to his private Nkandla residence. This could leave Zuma with a hefty tax bill amounting to millions of rand.

Should a situation arise where the state decides to settle the tax arising from the taxable fringe benefits on Zuma’s behalf, this will be a payment of an employee’s debt, which gives rise to an additional taxable benefit on the president.

So, whichever way you look at it, Zuma will be liable to pay millions in tax, according to tax specialists who spoke to Independent Newspapers.

“South Africa is one of the few democracies where we are all equal when it comes to taxation, in that we are all taxed, with the exact amount determined by our income and fringe benefits, minus any allowed exemptions and deductions,” said Finance Minister Pravin Gordhan in a parliamentary reply released on Monday.

Gordhan was responding to DA finance spokesman Tim Harris, who asked whether the president is eligible to pay fringe benefits tax on personal benefits derived from state expenditure.

“All South Africans pay tax on their income and fringe benefits, be the person the president or an ordinary worker,” said Gordhan.

Public Protector Thuli Madonsela’s provisional report, leaked to the Mail & Guardian last year, states that Zuma should repay the fiscus and explain himself in Parliament. A swimming pool, visitors’ centre, amphitheatre and a cattle kraal, among others, were all included in the security upgrade, Madonsela’s provisional Nkandla report found.

Madonsela will release her full report next Wednesday.

In the South African tax system, the more individuals earn, the more tax they pay. Zuma currently earns 2 622 561 a year following the latest 5.5 percent increase to his salary. For the 2014 tax year, the tax payable by an individual on first R638 600 is R185 205, which is subject to the tax table released by the Treasury last month.

Any income earned over and above R638 600 is taxable at 40 percent.

Sharon Smulders, head of tax and technical policy at the SA Institute of Tax Practitioners, said an individual can’t have fringe benefits unless he or she is formally employed. “Assuming it is taxable and it is a fringe benefit, then it would be liable for tax, like everybody else,” she said.

Smulders said schedule 7 of the Income Tax Act doesn’t exempt the president from paying tax, and any benefit enjoyed by a family member can also be regarded as a taxable benefit to him.

“The law is quite clear. These things (Nkandla benefits) are taxable unless he argues that Nkandla is a state house in the future and will qualify as government expenditure. But then he would have to move out,” said Smulders.

Sars spokesman Adrian Lackay said since 1994, under then-president Nelson Mandela, it was decided that the president, his cabinet and all elected public officials should be subject to income tax, “like any other South African”.

Until 1994, presidents and their deputies were exempt from paying income tax on remuneration.

This exemption was then repealed through an amendment to the Income Tax Act that was approved by the Mandela government “to ensure that the tax laws apply equally to all South African residents”.

- Political Bureau