rown Investm
Brown Investments Ltd, is a company based in East London. It has a financial year end of 30 April.
At its annual general meeting (that took place in March 2023), the shareholders of Brown
Investments Ltd appointed Eagle-Eye Inc. as its external auditor. During the current audit of Brown
Investments Ltd.’s financial statements one of the audit team members discovered that taxable
income is understated by the Senior Accountant Mr. Hustler, due to a certain amount of the sales
having been fraudulently not recorded. Further investigations conducted pointed out that Mr. Hustler
deliberately failed to report output tax and he was also underreporting input tax.
Mr Hustler was also in the habit of underpaying tax as he thought the government was corrupt and
paying tax was a waste of valuable company resources, he opted to increase the salaries of his
employees as he felt it was the moral thing to do. The auditors felt that Mr. Hustler’s actions resulted
in material understating of the VAT liability that would have been paid to SARS.
a) Determine whether it is VAT avoidance or tax evasion that exists in the above case. Support
your answers by linking with practical examples motivating why the case constitute tax
evasion or VAT avoidance
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