Fin24

LG accused of tax cheating in SA

2010-07-08 07:34

Cape Town - Electronics giant LG is “cheating” the South African Revenue Service (Sars) by importing TV set components separately to avoid millions in import duty.

Sars revenue tax attorney,  Petrus Erasmus, claimed the scam in court papers submitted earlier this week to Chief Justice Sandile Ngcobo.

The dispute between LG Electronics SA and Sars refers to  plasma screens and inductors (called “interface boards” in the court papers) which LG imports into South Africa from its manufacturing arm in Korea.

LG imports the two components separately and argues that it therefore does not need to pay import duty on them. The fact that the plasma screen and inductor can be assembled by any non-specialist using a cable, which is supplied, to create a TV set, does not make the importation of the two separate components taxable as imported TV units, says LG.

Earlier this year the Appeal Court found for LG. Sars has now submitted an application to Ngcobo to contest the appeal court's decision.

In his papers, Erasmus said the fact that LG imports the components separately is “pure eyewash” and amounts to fraud designed to escape import duty.

According to Erasmus, it is clear from invoices that almost every large retailer in the country buys LG’s television sets for resale to the public.

It is evident that after their arrival in South Africa, LG connects the two components or sells them as a single package. LG is thus importing the components for local sale as TV sets, and therefore is liable to Sars for import duty.

Erasmus said the appeal court decision tests, inter alia, Sars’ constitutional duty to levy taxes in compliance with international agreements.

The chief justice is considering the application.

- Sake24.com

For business news in Afrikaans, go to www.sake24.com.

Comments
  • Leon - 2010-07-08 08:24

    A taxpayer is free to arrange his affairs as efficiently as possible. If it makes business and economic sense there is no reason why LG cannot follow this route. This does not amount to cheating but is more of a weak last resort argument by SARS

  • derek - 2010-07-08 08:32

    THIS IS QUITE SCARY. THE APPEALS COURT HAS ALREADY RULED, NOW 1 PERSON IS ASKED TO OVERTURN A RULING BY 5 TO 7 JUDGES?

  • DV8 - 2010-07-08 08:35

    I'd certainly buy 2 components and assemble them myself if I could save on the cost. Sell the components seperately LG. That way, I wouldn't be buying a TV, and there would be no need for the forced purchasing of a TV License.

  • TK - 2010-07-08 08:40

    Who's ripping who? SARS must have their slice of every single pie. There are multitudes of businesses which import components that can be assembled to make many things. I'm sure there are companies importing the power cords for those same TV sets. Are we going to charge them import taxes on TV's because the TV simply won't function without a power cord. Retards!! When foreign companies stop importing their products and technologies what will we be left with? Locally manufactured and designed crap!!

  • Todd - 2010-07-08 08:40

    Getting around tax laws is not illegal. It supports the lifestyles of thousands of lawyers across the world. SARS must take the hit and plug the loophole. Simple.

  • Caveat - 2010-07-08 08:49

    Why call it tax cheating before they are found guilty? The matter was already dismissed in a previous court, and this is an appeal.

  • Berns - 2010-07-08 08:54

    LG is correct. You pay customs on what the product is at the time of import, not on what the intention of the product is or what the product eventually will become. Hope SARS gets a bloody nose!

  • Jumbo - 2010-07-08 09:08

    SARS................reaching guys........CKD cars....?? stop worrying about collecting more and more........rather get the government to worry about how much is filtered off and wasted rather than being used for the countries benefit! Hell, I would love a business where everyone works for me for half the year, at no cost to me.....and then i still put measures into place to enforce payment without due process in many cases...... Guys, SARS will never be satisfied........since as the more they can collect.......the more the fat cats (and Julius) can redistribute for their own benefit!!! NEVER ENOUGH.........Go LG!!!

  • ralph - 2010-07-08 09:15

    Come on Sars. Get a life. They have the right to run their business as they choose. We all try our best to pay as little tax as possible - why not LG. I suggest SARS tax bonuses paid out to ESKOM to make up the "lost revenue"

  • Atticus - 2010-07-08 09:18

    haha, awesome, fight the system. I just became a fan of LG

  • James - 2010-07-08 09:20

    So why does SARS not go into LG's bank account and withdraw what they 'think' is due to them like they do to innocent citizens????? Isn't this double standards ? Before calling it a scam perhaps the blood sucker needs to consider whether it is a case of 'tax avoidance' or 'tax evasion'. Since it is in accordance with SARS own import duty rules it is tax avoidance and perfectly legal. How can you appeal something which is legal and has been found so by a court of law.

  • 460.16 - 2010-07-08 09:57

    Adding a TV tuner to a monitor does not make it exclusively a TV. SARS still does not understand this! A monitor is fully rebate able if it has a certain resolution under rebate item 460.16. Todays plasma and lcd flat screens has a multitude of applications, they are not just TV's. SARS should make submissions to Brussels to reclassify Plasma and LCD displays into a specific tariff before they start to levy duties. Maybe they will levy 25% duty on all cars soon that has built in TV's?

  • Telstar - 2010-07-08 10:07

    We can see who the ill- advised people are. The fact of the matter is not tax ovaoidance, nor tax evasion. Its fraud. The test should be intent. The intent is to import a TV in parts to sell it as a whole. You and I are being robbed by a foreign company.

  • Tax Tired - 2010-07-08 12:53

    ANC money collection scheme ie SARS rolls on. The monies collected simply get distributed to ANC BEE front companies who pocket the money and dont deliver, so why pay tax ? SARS seem to ingnore ANC who dont pay...how many ANC prosecutions have there been ? - NONE NONE NONE !!!!!

  • Mike - 2010-07-08 14:34

    The point is that by assembling the 2 components, jobs are being created...hence a tax break should be encouraged.

  • sss - 2010-07-08 14:48

    @TK. SARS is not the retard, you are. every product can be classifiable in terms of an international harmonised system of classification. this system of classification has its own rules of interpretation. TV's are classifiable within tariff heading 8528 the subheadings depending on size, whether colour or not etc. the rate of duty is dependent on the classification, the origin and the purpose for which it is imported. Duty rates are determined by ITAC not SARS. import Duties (Part 1) in South Africa have no revenue intention but revenue consequence. these duties in South Africa are protectionist in nature.Power cords have their own classification and pay duty (free is also a rate of duty) accordingly (whose the retard now). what SARS is appealing is whether the court applied its mind correctly in this matter of interpretation. since this is a civil matter and not an appeal on a criminal matter (elements of mens rea and actus rea) should be proven, SARS assertion that the MO applied by LG is 'Eyewash" is not an assertion of fraud but an assertion of avoidance. If SARS loses the case, it will have to take measures to rectify the loophole in order that it administers the protectionist policy instituted by Trade and Industry.

  • MJS - 2010-07-08 15:57

    This is nothing. SA business INC has been doing anticompetitive behaviour and collusion to prevent competition. Big corporates are thriving with tax breaks whilst the smaller or ordinary businesses are struggling eg Coca cola sells cheaply to PNP,CHECKERS,etc but more expensively to ORDINARY SHOPKEEPERS

  • jason - 2010-07-08 16:30

    LG had to pay R90m a couple of years ago for doing the same thing, basically they are saying to SARS we will do as we please, funny how the other big players pay there taxes.

  • Gerardo - 2010-07-08 17:20

    SARS are a bunch of idiots. I own a company that assembles imported components and employs 10 people to do the work. Duties on the complete product imported is 20%. If you import the 2 components and assemble locally, duty is 5% on the one and 0% on the other. When I asked a senior SARS ofgficial in pretoria the reasoning behind this she told me that the laws were to promote local industry to assemble and create jobs. how is that different to what LG are doing??????

  • Intfrt - 2010-07-08 20:18

    SARS dug this whole for themselves ! They tried to protect some players in the market, while sucking the others dry.The rules changed for the protection of one supplier and it came back to bite SARS.Stop waisting our money and enriching laywers with tax money.

  • Mark - 2010-07-09 08:18

    Whatever LG's supply chain model (foreign v local assembly), do we as consumers benefit? If they pay 20-25% less than importers of assembled TVs, are their locally assembled TVs that much cheaper? Or do local assembly costs erode the duty differential? How much VAT, PAYE, SITE, CIT and STC does SARS collect from LG locally as a result of this business model? How much would SA gain by having SARS assemble elsewhere rather than in SA? How many South Africans are employed by LG to assemble these TVs locally? How much VAT, PIT etc do these employees generate for SARS? I think this matter needs a more studied analysis than has been applied so far.

  • Shethal - 2010-07-09 08:47

    Hi Peet, Very interesting comments from the public, most favour LG

  • Mark - 2010-07-09 08:59

    Oops... I meant: "How much would SA gain by having LG assemble elsewhere...", not SARS. My bad

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