Since the Treasury detailed how President Jacob Zuma will have to pay back slightly more than R7.8m for nonsecurity upgrades at his Nkandla home, there has been much speculation about who will foot the bill on his behalf.

If these funds are raised from third parties, tax issues will arise. A donations tax of 20% is inevitable, but this is not the only tax that should be applied, based on precedent in similar situations.

EFF leader Julius Malema and the South African Revenue Service (SARS) were in court in April because SARS considered itself no longer bound to the tax compromise that it had entered into with him. This was after Malema had already paid the full compromise amounts he owed SARS. This matter could not be resolved as motion proceedings; it has been referred to trial.

A very substantial component of Malema’s tax disputes arose from SARS’s determination that he should pay income tax on donations and dividends received. SARS claimed “these payments were not made out of pure liberality but with the motivation of self-interest, or at least an expectation of a quid pro quo”.

The parties agreed to deal with this matter in terms of the tax compromise provisions, and so neither SARS nor Malema “had their day in court” regarding this allegation.

The court, in certain tax cases, has stated that there was “no equity in tax”. One of the reasons for this is that when comparing people in different situations, there is no clear conclusion on what would be equitable.

However, the Constitution has changed the way in which laws must be interpreted and applied. Section 1(a) of the Constitution lists human dignity, equality, and human rights and freedoms as SA’s founding values. Section 7 states that the bill of rights is a cornerstone of democracy in SA, enshrining the rights of all people and affirming the democratic values of human dignity, equality, and freedom. Section 7(2) says the state must respect, protect, promote, and fulfil the rights in the bill of rights.

SARS is bound by these values. Equality, therefore, becomes an essential component in the application of tax laws. Two individuals, in their capacity as tax-paying citizens, should be treated equally as regards the interpretation and application of tax laws to their receipts and accruals. If, therefore, SARS adopts the stance that donations and dividends received by Malema in his capacity as a politician comprise “income” that is subject to income tax, so too should any donations and dividends received by Zuma be classified as “income” subject to income tax. In this case, Zuma would pay the 41% marginal income tax rate.

If SARS determines that donations received by politicians are not subject to income tax because these are “not designedly sought” and not part of a “scheme of profit making”, and therefore not of a revenue nature, then this interpretation should be consistently applied to all politicians. This would result in reduced tax assessments for Malema in relation to the tax years after the compromise period. To fund the R7.8m needed as an aftertax amount, Zuma would need to receive “donations” of slightly more than R13.22m, on which income tax of about R5.42m would be payable, leaving R7.8m to settle the Nkandla repayment.

This, of course, does not begin to address the tax on the actual Nkandla additions and improvements. SARS is obliged to apply the tax provisions as they stand, without fear or favour.

SARS should be determining what the value is — if any — of the Nkandla additions and improvements that were commissioned by Zuma’s employer, and assessing the relevant fringe benefits tax, if this has not already been paid.

If SARS’s determination is that there is no taxable value to this fringe benefit, the reasons behind this should similarly be applicable to other employer and employee relationships.

If, for example, SARS determines that no taxable value arises when an employer provides additions and improvements to a private residence that were not specifically sought by the employee, then other employers should be allowed to provide this type of gift to an employee without employees’ tax consequences. SARS’s approach should be made clear to provide for the constitutional right to equality among taxpayers.

This article first appeared on the Business Day Live website on the 26 July 2016.