Section 163 of the Tax Administration Act, 2011 allows SARS to approach the High Court for an order preserving the assets of a taxpayer or other person, to prevent them from disposing of or removing assets and therefore frustrating the collection of tax. In CSARS v Raphela and Others, SARS brought an application for a preservation order against Mrs Thembeka Mdlulwa (“Mdlulwa”).

PSR Solutions (Pty) Ltd (“PSR”) was awarded a tender to supply 1.5 million face masks at R30 a mask for the use by the Police. The tender was for R45 million and it should have attracted output VAT of R5.8 million. PSR and the company’s sole director, Mrs Raphela, did not have the funds to acquire the masks to fulfil the tender. Mdlulwa was approached for funding and paid R19.9 million to the supplier of the masks on 14 April 2021.

After delivery of the masks, PSR paid Mdlulwa R33.1 million on 21 April 2021 giving her a profit in excess of R13 million in 7 days, after the Police had paid 125% more than the actual cost of the masks. PSR did not account for the output VAT on the supply of the masks in its returns, SARS estimating an amount due on VAT, penalties, and interest to be at least R14.5 million.

PSR only had R1.2 million left in its bank account so SARS sought an order preserving the R24 million that remained in Mdlulwa’s South African bank account. Mdlulwa was permanently residing with her family in Spain and her residence in South Africa had not been maintained or occupied for several years.

Mdlulwa opposed SARS application stating that she was not the mastermind of the tender transaction. The court held that the restricted interpretation which Mdlulwa placed on section 163 was not supported by the wording of the section. The section contemplates granting an order against a taxpayer or other person, clearly being someone other than the taxpayer. Furthermore, collusion or an intention of dissipation on the part of the other person was not required, all SARS must show is a material risk to the assets.

It did not matter that the expatriation of some of the funds was done in compliance with the Foreign Exchange Control Regulations as those funds were already no longer recoverable. The court concluded that preserving the funds that emanated from the taxpayer and were now in the hands of Mdlulwa as an “other person”, were sufficient grounds for a preservation order.

Telephone: +27 31 570 5496; Email: graeme.palmer@gb.co.za