Owing VAT is not theft

Owing VAT explains: a company (as well as its directors/shareholders) or a Close Corporation (and its members) that receives VAT but does not pay over VAT to SARS, cannot be prosecuted for theft. SARS has tried this route often in the past and each time the Courts have found that not paying over VAT that was collected, is not theft.

Court case

One of the latest court cases where this was decided is in the matter of Grayston Technology Investments (Pty) Ltd and Another v S [2016] 4 All SA 908 (GJ).


The events leading up to this case were the following:  Grayston Techonology Investments (Pty) Ltd (“Grayston”) was a company that swiftly did business. The business collected VAT but never paid over VAT to SARS for a period of eight years.  The company also did not pay over the PAYE of the staff, although it had deducted the monies from the employees’ salaries. The company also did not submit its tax returns. As often happens, the company used the VAT and the PAYE it deducted for running business expenses.


The relevant issues here are (a) the collection of VAT and not paying it over; (b) not handing in tax returns and (b) deducting PAYE from the staff but not paying it over.

The company was voluntary liquidated in 2011.  SARS took the matter to the regional court and the only shareholder of Grayston as well as Grayston was charged in the regional court with failure to submit tax returns and of theft of the VAT monies that were collected, but not paid over to SARS.  Both the shareholder and the company was convicted of both charges in the Regional court, but then appealed.

Appeal court

The appeal court was asked, inter alia, to make a determination on whether failure to pay over VAT to SARS constitutes theft.  The court held that collecting VAT but not paying it over to SARS does not constitute theft, because the relationship between SARS and a VAT vendor is nothing other than that of a debtor and creditor.  This means it falls under civil law and not criminal law and therefore, not paying over VAT cannot be a crime.  The court said that if a VAT vendor receives VAT in its bank account, it does not mean that the money is received on behalf of SARS by the VAT vendor as SARS’ “agent”.  Nowhere in the VAT Act (Value Added Tax Act 89 of 1991), the law of agency or any trust relationship is there an obligation of a VAT vendor to act on behalf of SARS.

Relationship with SARS

Owing VAT is not theft because, the court said, a VAT vendor is not a collecting agent of SARS. Since the relationship between SARS and a VAT vendor is only that of debtor and creditor, SARS only has a personal claim against the VAT vendor. This means that, instead of taking criminal action (theft charges), SARS can only issue summons like any creditor would and follow the collection procedure.

Is there fraud when owing VAT

Owing VAT is not theft because, further, the court said, that it can only be theft if there is an element of fraud involved and the VAT vendor takes something for himself that does not belong to him. As the output VAT does not belong to SARS at any time before it is appropriated, the failure to pay over the VAT to SARS cannot be theft.


When it comes to PAYE, a different relationship exists between SARS and the employer. The employee also remains liable for the PAYE if the employer does not pay the PAYE over to SARS (even if the employer deducted it from the employees’ income and did not pay it over to SARS. It is not discussed here as the topic of this article is VAT.

Owing VAT is therefore not theft and the directors/shareholders of a company/close corporation can rest assured that they cannot be charged with a crime if they did no pay over VAT.