SARS AT RISK OF IM­PLOD­ING

SARS AT RISK OF Mass res­ig­na­tions, fail­ure to main­tain stan­dards, lack of ca­pac­ity and ex­per­tise, and an anti-in­tel­lec­tual cul­ture blamed for low lev­els of rev­enue col­lec­tion

CityPress - - Front Page - DEWALD VAN RENSBURG dewald.vrens­burg@city­press.co.za

The SA Rev­enue Ser­vice (Sars) was at risk of im­plod­ing and the drop in per­sonal in­come tax col­lec­tions was the most ob­vi­ous red flag, lo­cal tax ex­perts said this week.

“The big­gest prob­lem we face in South Africa to­day is an ero­sion of the in­tegrity of Sars,” said Judge Den­nis Davis, chair of the Davis Tax Com­mit­tee.

“Un­til very re­cently, Sars re­ally was an in­sti­tu­tion of con­sid­er­able in­tegrity.”

He was speak­ing at a con­fer­ence on tax eva­sion and il­licit fi­nan­cial flows or­gan­ised by the Al­ter­na­tive In­for­ma­tion De­vel­op­ment Cen­tre, a non­govern­men­tal or­gan­i­sa­tion, in Cape Town.

“We can have as much de­bate as we like about this [il­licit flows], but if you do not have a Sars ca­pa­ble of ac­tu­ally deal­ing with multi­na­tional cor­po­ra­tions and cap­i­tal that seeks to evade tax, then frankly, you are go­ing nowhere,” he said.

Ivan Pil­lay, for­mer deputy com­mis­sioner of Sars, ad­dressed the same con­fer­ence.

“We have a weak­en­ing state – a frag­mented state in which large parts are dys­func­tional,” he said.

“What is Sars’ ca­pac­ity? I can­not give you a de­fin­i­tive an­swer. Some peo­ple have left who had skills. The op­er­at­ing sys­tem has been changed. It has not been changed for the bet­ter. It has ac­tu­ally bro­ken down. When an in­sti­tu­tion is de­te­ri­o­rat­ing, it will take some time to see.”

Yolisa Pikie, a for­mer ad­viser to Pil­lay at Sars, be­fore they both got kicked out in 2015 in a con­tro­ver­sial purge of of­fi­cials, high­lighted the loss of ex­per­tise.

“What is not well known is that 80% of all cor­po­rate in­come tax comes from only about 400 com­pa­nies,” said Pikie.

“We could never match the cor­po­rate tax of­fices and the ca­pac­ity they could draw from law firms.”

Pikie said mass res­ig­na­tions, which oc­curred in key Sars di­vi­sions from late 2014 into 2015, had af­fected the trans­fer pric­ing, in­di­rect tax and sta­tis­tics di­vi­sions in par­tic­u­lar.

“The en­force­ment divi­sion has col­lapsed and some of us have been kicked to the kerb,” he said.

WHERE DID ALL THE RICH PEO­PLE GO?

Davis said the lat­est tax ta­bles, pub­lished in the Bud­get Re­view, “make no sense”.

Trea­sury an­nounced that only 103 000 peo­ple would fall into the new top marginal­in­come tax cat­e­gory. These are peo­ple who earn more than R1.5 mil­lion a year in tax­able in­come and will be taxed 45%.

“That makes no sense to me. There have to be more ... I know more peo­ple on the Johannesburg Bar earn­ing R5 mil­lion a year than the tax ta­bles show,” said Davis.

Wealthy in­di­vid­u­als are man­ag­ing to es­cape the tax net and Sars is disin­gen­u­ous to blame it on the econ­omy, he said.

“We know the rev­enue is down by R14 bil­lion on per­sonal in­come tax. The com­mis­sioner [Tom Moy­ane] sug­gests that that is be­cause of a down­turn in the econ­omy,” said Davis.

“Un­for­tu­nately for the com­mis­sioner, cor­po­rate tax went up by R6.5 bil­lion. Tell me how that hap­pens.”

Like Davis, Pikie ar­gued that Sars’ miss­ing per­sonal in­come tax fore­casts was a ma­jor warn­ing sign.

“The best in­di­ca­tor [of de­te­ri­o­ra­tion] lately is the per­sonal in­come tax,” said Pikie.

“You can miss your tar­gets on value-added tax, cor­po­rate in­come tax, cus­toms and so on be­cause that de­pends on eco­nomic ac­tiv­ity.

“But 93% of per­sonal in­come tax comes from salaried peo­ple. That is the most sta­ble part of tax.

“If you are telling me you could not an­tic­i­pate that you would miss R15 bil­lion, then your sys­tems are start­ing to fail,” he said.

NEW POW­ERS

A new in­ter­na­tional tax­a­tion regime is emerg­ing from the Or­gan­i­sa­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment’s pro­gramme on base ero­sion and profit shift­ing, giv­ing coun­tries new pow­ers to catch tax eva­sion by multi­na­tional com­pa­nies and rich in­di­vid­u­als.

If Sars failed to main­tain its stan­dards, none of this would make a dif­fer­ence, said Davis.

“It would be ir­re­spon­si­ble to say that be­cause we have these new in­stru­ments, we will have the abil­ity to do more than we have be­fore.

“There is one rule in tax: The crooks em­ploy the best five lawyers to your one, and 23 ac­coun­tants and an econ­o­mist to your none.

“Some years ago, when Sars ac­tu­ally had a rea­son­ably good trans­fer pric­ing unit, it au­dited 40 com­pa­nies to see what the ef­fect of a se­ri­ously rig­or­ous au­dit would be. It col­lected R1.1 bil­lion on one au­dit in one year. We are talk­ing about a lot of money.

“It is all depen­dent on the in­sti­tu­tional ca­pac­ity to ac­tu­ally get the money ... Trans­fer pric­ing re­quires an ex­tra­or­di­nary amount of ex­per­tise,” added Davis.

Davis sug­gested that the re­cent tax amnesty, called the Vol­un­tary Dis­clo­sure Pro­gramme, would flop if tax dodgers were no longer scared of Sars.

“The more ef­fi­ca­cious your in­sti­tu­tion – if it is ac­tu­ally go­ing to ap­pre­hend crooks – the more likely it be­comes [that peo­ple de­clare vol­un­tar­ily].”

BIG­GER PIC­TURE

“We have a group of peo­ple lead­ing us who are cer­tainly not pro­gres­sive in their think­ing,” said Pil­lay.

“They al­ready start to mo­bilise on the ba­sis of eth­nic­ity and race. They are an­ti­in­tel­lec­tual. They seek to give more power to chiefs in the ru­ral ar­eas. They are misog­y­nists. In fact, they con­tra­dict so many things in the Con­sti­tu­tion that we are in se­ri­ous trou­ble.

“For a long time I won­dered why we were al­lowed to run Sars the way we were al­lowed to. I thought the an­swer was ob­vi­ous – as long as the money was com­ing in, the au­thor­i­ties would not act against us.

“That is the prob­lem when you an­tic­i­pate ra­tio­nal think­ing. I think they acted against us be­cause we were in the way of what they wanted to do.

“We did not seek to do these in­ves­ti­ga­tions that touched the friends of im­por­tant peo­ple ... Any gen­uine in­ves­ti­ga­tion [con­ducted] here [means] you are go­ing to bump into some politi­cian. That is the stage we are in.”

CRIT­I­CAL EYE Ivan Pil­lay

WARN­ING SIGNS Judge Den­nis Davis

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