Capitalizing on Marriage: Should Lobola Be Taxed as Gross Income Tax?

Lobola is a price pride traditionally paid with cattle in the African culture, it also is seen as a token of appreciation to a bride's family for raising the woman who will assist her fiancé to build a home. Lobola is also used to maintain the wife following the dissolution of a marriage and its provision of security for the wife if she had to return to her natal family. According to the Mkabe case, the full payment of lobola is not a requirement for a valid marriage. In the Fanti case, the court confirmed the three requirements for a valid customary marriage under section 3(1)(b) of the Recognition of Customary Marriages Act: family participation, a lobola agreement, and integration of the bride into the husband's family. These requirements were confirmed by the Constitutional Court in MM v MN.

Gross income is defined in Section 1 of the Income Tax Act of 1962, in relation to any resident, it is the total amount, in cash or otherwise, received by or accrued to or in favour of such resident in relation to any year or period of assessment. In the case of any person other than a resident, the total amount, in cash or otherwise received by or accrued to or in favour of such person from a source within the Republic, during such year or period of assessment excluding receipts or accruals of a capital nature. I will assume that the potential taxpayer is ordinarily resident in South Africa, in respect of a year of assessment as defined in section 1 of the Act. As indicated in the Lategan case, for lobola to constitute gross income the lobola received or accrued must either be in cash or a form of an asset. Traditionally lobola was paid with livestock however, in the modern age it is paid in cash. The onus is on the Commissioner to establish that an amount exists. Where receipt of lobola would be in the form of livestock, as long as the livestock is capable of being valued in money and is capable of being monetized the courts are likely to include as part of the gross income of the potential taxpayer.

In terms of the definition of gross income in the Act, the taxpayer can either receive income (lobola) or it can accrue to him, thus the Commissioner must include the gross income at the earliest of the amount being received or accrued. An amount is said to accrue to a taxpayer once he becomes unconditionally entitled to receive it, in Lategan, the court held that the amount had accrued once the taxpayer becomes entitled, delivery had taken place and the seller had become entitled to the full price.

This is important to note because the marriage comes into existence when the lobola agreement is concluded this means the taxpayer becomes unconditionally entitled to receive full payment/ delivery of the asset and the amount may be paid in full at a later date to the family (taxpayer). The payment of lobola is often received by a representative of the family of the bride, acting as an agent on behalf of the family. In terms of the benefit principle as confirmed in Geldenhuys, amounts received by an agent on behalf of a third party do not form part of the agent's gross income, therefore the amount must be received by a taxpayer on his own behalf for his own benefit in order for it to be deemed to be a part of his gross income.

An amount is considered not to be a receipt for tax purposes if upon receiving the money a taxpayer immediately comes under an obligation to repay it whether it be then or at a future date. This is of great importance since lobola can also be used to maintain the wife following the dissolution of a marriage when she returns to her natal family. This means that while the family may receive the lobola if they intend to put it aside for the benefit of the bride in the event that she gets divorced, the payment of lobola will not be a receipt for tax purposes.

Receipts or accruals of a capital nature are specifically excluded from the definition of the gross income in the Act and are therefore not subject to gross income tax. Lobola should not be considered a revenue receipt because the income does not arise from business activity, personal exertion or employment capital. It is more likely to resemble fortuitous gains such as gifts, donations, etc which are generally regarded as being of a capital nature. Given the economic conditions in South Africa most husbands/ families of the husband are likely to pay lobola in installments until the full capital amount is paid, where a capital amount is payable in installments it will still be capital in nature as opposed to revenue in nature.

The ipse dixit of the taxpayer is found by asking what its intention was. However, where the objective factors are in conflict with the taxpayer’s evidence, little reliance will be placed on his ipse dixit. The ipse dixit of the taxpayer upon receiving the amount is likely to invest it for a later date in the event that the marriage dissolves and the wife returns to her natal family.Lobola can cost an amount from anywhere between R10 000 to over R100 000 most men who are required to pay lobola may not have the financial means to pay the amount in full and as a result, may opt to take out a loan. In the case of loans, a loan will only give rise to gross income if the borrower made it as a quid pro quo for a good or service that is interest-free or at a low rate of interest. In cases where a loan is taken out to be pay lobola, it is likely to be of a capital nature.

Where the payment is made for the loss or sterilisation of the taxpayer’s capital, the payment will be of a capital nature, whereas if the payment is made as compensation for loss of profits it is revenue in nature. The test is whether the payment is intended to fill a hole in the taxpayer's profit or to a fill a hole in his assets. The lobola is likely treated as payment intended to fill a hole in the tax payer's assets, this is because the husband has essentially taken a member of another family to be his wife, which essentially means the family of the bride has lost an asset. The payment of lobola is therefore not compensation but rather a payment intended to fill a hole in the taxpayer's asset. Therefore, the receipt or accrual of lobola can be proved to be of capital nature however, it may not necessarily be feasible and economically viable to tax the receipt or accrual of lobola in South Africa. The heart of this debate is the social and moral implications of taxing lobola rather than the legal implications.