HOW THE tax­man WAS BRO­KEN

Sars has been se­verely com­pro­mised. And we know who’s re­spon­si­ble. Fe­rial Haf­fa­jee re­ports

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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.

PHOTO: SIYABULELA DUDA

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

PHOTO: GCIS

NEW BLOOD From left: Sars com­mis­sioner Tom Moy­ane, deputy fi­nance min­is­ter Si­fiso Buthelezi and Fi­nance Min­is­ter Malusi Gi­gaba

PHOTO: SUN­DAY TIMES

FRIENDS IN LOW PLACES Mar­ius Frans­man and Mark Lif­man at Pres­i­dent Ja­cob Zuma’s birth­day cel­e­bra­tion in Athlone

PHOTO: FOTO24

HE AIN’T HEAVY Khu­lubuse Zuma

PHOTO: FELIX DLANGAMANDLA

SON IS SHIN­ING Ed­ward Zuma

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