HOW THE taxman WAS BROKEN
Sars has been severely compromised. And we know who’s responsible. Ferial Haffajee reports
Officials from the SA Revenue Service (Sars) say they met President Jacob Zuma four times on different aspects of tax compliance involving his family. The first was when his son, Edward, was in the taxman’s cross hairs in relation to his tobacco business. Illicit cigarette sales cost the country billions every year and two of Zuma Junior’s companies had been implicated in long-running investigations.
The second time was when Sars officials saw a risk in various businesses and trusts in which the president’s wives were involved.
A third time related to the president’s alleged meeting with Cape gangsters arranged by former ANC strongman Marius Fransman. On the agenda had been the gangsters’ various pains with Sars.
The fourth and final time was when former deputy commissioner Ivan Pillay met the president at the Union Buildings to talk about the tax implications of the renovation costs at Nkandla.
Sars has never been the president’s favourite institution after it summonsed him to court in 2007 for his failure to submit a tax return, although in a speech to the Sars Amakgwezi Awards ceremony in Johannesburg he recognised its role in securing development.
In 2014, Sars had opened a file to begin investigating whether the president owed fringe-benefits tax for the improvements to his estate. Three years later, that investigation lies dormant with Sars’ independence now teetering.
Sars commissioner Tom Moyane was not on the list of 104 candidates who had applied to be Sars commissioner when Oupa Magashule quit after a recording of him offering a young woman a job was made public. Instead, Moyane was handpicked by the president for the job. The two men’s relationship stretches back to struggle times when both were in exile in Swaziland.
Moyane appears to have started at Sars in 2014 with a clear brief of change for an institution that landed on the wrong side of power once too often.
In May 2015, he laid charges related to an alleged – but never proven – “rogue unit” against Pillay, unit head Johann van Loggerenberg, and former Sars commissioner Pravin Gordhan.
In the same month, Pillay quit Sars and so too did strategic planning executive Pete Richer, among other strategists who helped build the institution into the world-class revenue authority lauded in business school studies. Both Pillay and Richer were members of the ANC underground movement during apartheid.
By early this year, 39 senior managers had quit Sars, while 21 new senior appointments were made.
None of the current Sars executive committee members has tax experience. Moyane said this week that as long as executives had the skills, tax experience was not essential.
The one executive committee member with tax experience, Jonas Makwakwa, was suspended in October following revelations by AmaBhungane that he had been making untraceable cash deposits into ATMs over months.
For a Sars executive to be caught in this way is a serious red flag indicating a weakening system – the risk of corruption at the tax authority is high because it deals with big money. Like the Nkandla fringe-benefit investigation, the Makwakwa probe now also appears to be on the back burner.
This week, Moyane said the probe should be given time. He said Sars was hiring new skills specifically to deal with base erosion and transfer pricing.
The institution is weakening as this week’s revenue numbers reveal.
Unlike other institutions, the weakening of Sars is quickly visible under the harsh light of revenue numbers. The annual tax haul was revealed on Monday and while the final estimated collection of R1.14 trillion sounds impressive, the many zeros mask a problem.
The economy is stuttering to a near stop and the green shoots that economists were hailing until a few weeks ago have been crushed by the calamitous Cabinet reshuffle Zuma undertook at midnight last week Thursday. By Monday evening, just after the Sars numbers came out, South Africa’s credit rating was downgraded to “junk” by S&P Global. Fitch followed on Friday.
Lower wage settlements and bonuses and a near recession for business have meant a lower-than-expected VAT take. Other than dividend taxes, most other categories of revenue did not meet projections set out in the February 2016 budget.
Sars is globally lauded for always lifting revenue growth by inflation-busting multiples, but this growth is slowing. The authority missed its original estimates by R30 billion – the only other year this happened was in 2009/2010 when the revenue estimate was revised downwards by about R60 billion. And if Sars breaks, South Africa breaks. The government chose not to take development aid, so the fiscus is debt and revenue funded. Tax takes, with the largest coming from individuals as personal tax, pay the social grants bill that keeps South Africa stable.
A few years ago, Stats SA noted that: “If this [the annual revenue] was available in bank notes stacked in bundles of 1 000 notes each, the bundles – laid side by side – would cover an area equivalent to eight rugby fields.”
It is probably nine rugby fields by now and Stats SA has picked up the following trend.
“The amount collected from individuals has risen faster than the amount collected from businesses.”
And the personal tax burden is growing as you would have felt as a pay-as-you-earn citizen. Personal tax increases are set to raise an additional R16 billion in this tax year with R4 billion coming from the 100 000 superwealthy South Africans earning over R1.5 million per year. The remaining R12 billion is coming from the middle class.
Until now, Sars has kept the personal tax burden relatively low by finding new areas of undertaxation in the economy to develop revenue streams. South Africa’s underworld is huge and the revenue authority had made steady inroads by using investigations to extract tax from it.
The implication of Sars weakening is that working South Africans will pay more tax.
Sars appears to have been weakened or neutered because it began to hurt too many political and big business interests. Another Zuma is also ensnared in the Sars’ net. Sunshine-yellow T-shirts are the most important arsenal of the ANC in any election. Dished out to supporters in millions, they create a sea of ANC colours and a sense of omnipresence. A consignment of these is expensive and so the party imports them from China. Ahead of the national election in 2014, Khulubuse Zuma’s business partner Robert Huang brought in the container of T-shirts, but zealous Sars customs agents wouldn’t let it through without a duty payment of R20 million. Khulubuse is the president’s nephew.
Sars has been able to ramp up collections in the democratic era by improving customs controls.
The T-shirts needed to get on to the streets and Sars was obstructing the campaign, so the president’s lawyer, Michael Hulley, called Pillay, according to reports at the time. Pillay resisted and months later he was toast.
Huang came to South Africa in 1993 and went on to amass a fortune. In 2014, Sars seized and froze R541 million of his assets. Four sources say his case has been put on the back burner while the wife of a senior Sars man has been put on his payroll. Like the Gupta family, Huang operates by creating networks of influence among politicians. So does Mark Lifman. This high-rolling Cape Town businessman was slapped with an R388 million tax bill by the old Sars, according to reports. Brought into ANC circles by Fransman, he was snapped in 2014 wearing a party T-shirt at an Athlone birthday rally for Zuma.
News24 reported that by February this year, the Sars case against him was taken off a Cape Town court roll and it too lies on ice at Sars. Ditto the preliminary investigations, which the old Sars had started into the Gupta family and their tax affairs, as well as cases initiated to look into the Passenger Rail Agency of SA and Toshan Panday. Panday is a controversial Durban businessman who was also a business partner of Edward Zuma’s.
Asked at a media conference about these specific cases this week, Moyane said that “as a tax administration, we don’t speak of taxpayer affairs. Let’s allow investigations to take their course.”
Sars executive Randall Cornellisen said the R30 billion shortfall on Sars’ initial estimate for collection can only be ascribed to the economy. When that estimate was set, the gross domestic product growth forecast was 1.2%, but it was revised down twice more in the course of the collecting year. He said the Sars team had made a Herculean effort to reach the revised estimate of R1.14 trillion announced on Monday while paying out R700 million in refunds last Friday alone.
Sars had deployed head-office teams to boost regional capacities and sent teams to the ground, achieving the collection in a difficult economy. The refund backlog has caused significant tension in South Africa, from individual taxpayers as well as small businesses and also farmers.
On the other issues, Moyane promised a detailed interview, but cancelled it on Monday morning. Numerous requests for interviews and comment from the presidency have gone unanswered.
PARTY TIME President Jacob Zuma cutting his birthday cake with his wives in 2012. From left: Bongi Ngema, Nompumelelo Ntuli-Zuma, Zuma, Tobeka Madiba-Zuma and Sizakele Khumalo-Zuma
NEW BLOOD From left: Sars commissioner Tom Moyane, deputy finance minister Sifiso Buthelezi and Finance Minister Malusi Gigaba
FRIENDS IN LOW PLACES Marius Fransman and Mark Lifman at President Jacob Zuma’s birthday celebration in Athlone
HE AIN’T HEAVY Khulubuse Zuma
SON IS SHINING Edward Zuma