LG fights tax fraud charge

2010-07-09 09:58

Johannesburg - LG Electronics South Africa says it is confident that it will be exonerated of any wrongdoing in a case of tax fraud levelled against it by the South African Revenue Service (Sars).

LG has been accused of evading tax by importing television components separately and assembling the final product in South Africa, avoiding duties on pre-assembled systems.

CEO Peet van Rooyen said this is not the first time such a claim has been brought before the courts.

In 2007, an application was brought before the High Court to determine the appropriate tariff heading for certain screens imported by LG, he said.

"On this occasion and again in front of the Supreme Court of Appeal, LG Electronics was exonerated with Sars being criticised about its approach towards this case. It was with some surprise that LG was served with papers filed by Sars before the Constitutional Court where Sars, once again, seeks to appeal against the two clear and unambiguous decisions in favour of LG.”

Analysts say that importing parts and manufacturing locally is common practice.

Said Steven Ambrose, MD of technology consulting firm WWW Strategy, "This has been going on since the beginning of TV in SA and, as far as I know, led to lots of local assembly of televisions, some even in Botswana."

Ambrose added that the practice has decreased due to a reduction in duties charged for electronics in recent years. He said the practice was regarded as an act of tax minimisation, not evasion, but that the final outcome will depend on Sars.

"Sars has final say, however, and usually decides in favour of the fiscus. Even if LG win in the courts, Sars can change the law using determinations for customs purposes," said Ambrose.

Arthur Goldstuck, MD of research and consulting firm World Wide Worx, said: "The high cost of electronic goods in South Africa relative to mature markets makes it incumbent on manufacturers and distributors to find ways of cutting costs out of the chain.

"If it means local assembly to avoid taxes legitimately, then it is not only a good idea, it should be actively pursued in the interests of lower costs," he said.

Local technology professionals told that a similar practice was common for computers sold in South Africa, but that it was no longer necessary as the ad valorem tax rule pertaining to IT products had been scrapped about five years ago.

Televisions are different, however, as they are not classed as IT. But if a monitor is imported separately from the television tuner component, it can be classed as IT and then the tuner can be installed locally to create the final product.

LG issued a statement on Friday, in which it said: "LG Electronics South Africa is confident that claims made in recent media reports that it is guilty of tax evasion will be met with the same rulings delivered by the High Court and Supreme Court of Appeal - rulings that exonerated LG Electronics of any wrongdoing in respect of South African Tax Law."


  • Frank - 2010-07-09 10:18

    surely this is creating employment locally as the components do not assemble themselves. there is therefore benefit to the fiscus anyway as there is PAYE and corporate tax on whatever entity assembles the TVs.

  • BoB T B - 2010-07-09 10:25

    SARS should redirect their focus on service delivery and accountability of the revenue they do manage to collect. It's rediculous that they want to wave their stick to collect revenue but let government throw it down the toilet on the other end. The day is soon coming where SARS will not be able to demand taxes as a result of poor service delivery by government! Taxpayers are getting fed up!

  • Aki - 2010-07-09 10:43

    If SARS wins who will be the loser? LG can pass the costs to consumers.

  • TaxPayer - 2010-07-09 10:45

    Instead of wasting tax payer money on legal costly courtroom battles, SARs should rather focus on making taxi owners and ANC millionaires like Malema pay tax. It is sad that not a single ANC connected businessman has been prosecuted for tax fraud - is Pravin and Oupa sleeping or just blind when it comes to 'comrade' tax evasion ?

  • Mark - 2010-07-09 11:37

    If the monitors can be used as IT equipment, without any modification, then by all means classify them as IT equipment. And then sell them as IT equipment. If, however, these monitors require the tv tuner components to actually be of any use, then classifying them as IT equipment seems somewhat spurious.

  • Luke - 2010-07-09 12:47

    I agree with Frank, local assembly is surely creating jobs in South Africa. So what if it means less tax for Sars? Job creation means more tax payers in the system to create more funds for government to misappropriate.

  • TurboChris - 2010-07-09 13:38

    Manufactures don't pass the saving onto consumers but rather their share holders, electronic goods in SA is very expensive! Have you seen the price of a hi-fi, nearly fell off my chair!

  • Sam - 2010-07-09 14:11

    I an shure the Semi knoked down procedure not adopted bt most TV brands

  • Stupid - 2010-07-09 14:55

    With Joubert SC representing LG, I doubt strongly whether LG will lose the constitutional appeal. LG 3 SARS 0

  • Nasdaq7 - 2010-07-09 16:29

    So basically SARS want Chinese workers to build it.

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