SARS has big problems. And some predate Moyane
SARS has more problems than just a dodgy boss, says Davis
When the SARS commissioner cleared his office, he left unhappy staff behind. In surveys, most were classified as “detractors” — people who would not recommend working at SARS.
The most unhappy were the group of executives and chief officers, the highestranking people at the revenue service. This was when former SARS boss Oupa Magashule resigned, not this week’s exit on suspension by Tom Moyane.
It also turns out that SARS has not been adequately assessing South Africa’s super-wealthy because its data is outdated.
It works on far fewer high-net-worth individuals than are tracked by New World Wealth, and there are only four dedicated auditors for a sector that should yield a higher take.
Instead, SARS uses tax amnesties to get really rich people to come clean on wealth exports without taxation.
And the customs processes at OR Tambo International Airport, Beit Bridge and Durban Harbour are so inefficient that the losses to the fiscus are apparent even to the untrained eye.
While SARS is now in crisis, big, intractable issues go back beyond the era of Tom Moyane, the commissioner so dramatically suspended by President Cyril Ramaphosa on Monday after he refused to resign.
As a new commissioner prepares to take the helm, it’s worth looking at what studies have found at SARS.
Public Enterprises Minister Pravin Gordhan plays a much bigger role in Ramaphosa’s government than that of a single-portfolio cabinet minister. His imprimatur is all over Moyane’s axing. And because SARS is his baby (he is credited with the re-creation of the taxation authority, taking it from the lumbering apartheid Department of Inland Revenue to being one of democracy’s best institutions), he may not brook criticism as he helps Finance Minister Nhlanhla Nene stabilise SARS. But there is much to fix.
Another example of poor data at SARS is its assumption that there are 750 000 small and medium-sized enterprises that are taxable. FinScope has found there are 5.98 million SMEs in South Africa. While many are informal or mom-and-pop microenterprises that are not tax viable, it still suggests there is an undercount at SARS.
It has also been found that the tax compliance burden on all businesses is 25 days but it impacts small and medium-sized businesses most.
All this is making South Africa’s historic tax gap worse and means it is not closing quickly enough, placing the burden on too few South Africans.
Other issues a new commissioner should look at include the fact that SARS has race problems, with black staff feeling marginalised. This contributes to destabilising SARS as it leads to leaks and infighting. Moyane added fuel to the fire with an edict that all senior managers at SARS were to be black African.
Moyane is said to have decimated the Large Business Centre, the auditing hub for big companies.
With almost 85% of Large Business Centre debt disputed, if anything, the centre needs strengthening.
A third area that needs investigating is whether eFiling is as good as it is assumed to be. A recent study has shown that 45% of eFiling is done in branches by agents, which suggests the system is still too inefficient.
There are so few public institutions to be proud of in South Africa that we have tended to put SARS on a pedestal, but research shows that a new commissioner is going to have to take a long, hard look at this jewel in our public crown.
Moyane messed up big time, and he did not have the skill or temperament for the job — but the problems at SARS do not start and end with him.
We have tended to put SARS on a pedestal
● Judge Dennis Davis, who headed the Davis tax committee, says the problems at the South African Revenue Service go “way beyond” commissioner Tom Moyane, who has now been suspended.
The need for a full inquiry into SARS is as urgent as ever, he says.
“One thing that is typical in South Africa is that we always tend to blame one person. Generally speaking, there are structural reasons way beyond that person that cause the problem.”
Was it coincidental that the problems at SARS coincided with Moyane’s appointment in 2014? “The fact that the problems at SARS seemed to escalate at that point may not be coincidental, but there were problems at SARS before he came. There was a previous commissioner who was fired by [then finance minister] Pravin Gordhan.”
But there wasn’t a R48-billion hole in revenue collection. “No, but neither was there the decline in the economy that we’ve had in the past three or four years.”
Half the shortfall could be explained by slow economic growth, Davis says.
Declining tax morality, erosion of the tax base and profit-shifting contributed to the other half. “These things would challenge revenue services around the world.”
We should be careful about blaming the decline in tax morality on perceptions of Moyane’s involvement in state capture, he says. “I’m supposed to be very well-informed about what’s going on at SARS. But when I read Jacques Pauw’s book [The President’s Keepers] there was a lot of stuff in there I was unaware of, and I’m sure the public was unaware of.”
Tax morality was declining before allegations surfaced linking Moyane and SARS to state capture, he says.
But there is an undeniable link between growing tax avoidance and government criminality.
The voluntary disclosure programme produced a “very low” R2.7-billion, much lower than similar programmes have produced in other countries.
Tax consultants told him that because of “widespread government looting of the fiscus”, their clients were not prepared to pay.
“That had little to do with Moyane. It had a lot to do with what we’ve just come out of — 10 years of a parallel state in which corruption was utterly rife.”
The revenue hole might have become a chasm under Moyane, but this was “after a very rapid decline in growth rates”, he says.
Even Gordhan, “who ran an extraordinarily efficient system”, would have struggled to make targets in such an economic climate.
Moyane, of course, blamed everything on the economic environment.
“Yes, but . . . the economic environment only accounts for a portion of the shortfall.” That is why there needs to be an urgent “scientific analysis” of the situation at SARS.
“It must go way beyond Moyane,” he says, but removing him was a necessary first step. “It would have been much more difficult to investigate SARS when Moyane was there.”
Moyane obstructed the Davis tax committee’s investigations, he says. “We didn’t have subpoena powers, so when we did our tax administration report we did not have access to a whole lot of things.”
His committee wanted to deal with the way SARS was handling profit-shifting,
There needs to be a scientific analysis of the situation at SARS as a matter of urgency Judge Dennis Davis Tax law expert
transfer pricing, high-net-worth individuals and fraudulent flows.
“We certainly did not get enough information from SARS.”
His committee tried to ensure that another Moyane would never be put in charge of SARS again. It recommended that future commissioners and deputy commissioners go through a far more “rigorous and open” selection process.
Leaving such a critical appointment to the president is “not sensible”, Davis says.
Assuming, as does the constitution that Davis helped to design, that the president would not abuse this power was “very ill-advised”, he admits.
“We need to have seriously circumscribed procedures based on the worst-case scenario, not the best-case scenario.”
Talking of worst-case scenarios, are there any conditions under which tax avoidance might not be considered immoral?
“That’s a debate we used to have in the apartheid time. It’s extremely tricky to suggest that tax avoidance could ever be legitimate in the legal sense. Morally, it’s a different matter.”
The bottom line is that “despite massive government corruption, if we didn’t have the social grants and other safety nets taxpayers provide we’d be in even bigger trouble than we are in”, he says.
“Tax avoidance would mean no safety net, and that would be disastrous in the South African context.”
If all taxpayers took the approach that “‘the government is stealing our money so we’ll stop paying tax’, the whole country would collapse and it would be a wasteland”.
Might one argue it has already collapsed, thanks less to rebellious taxpayers than to a thieving, grossly incompetent government?
“That’s an exaggeration. Aspects of the country are in a state of collapse, but despite Bathabile Dlamini's best efforts, social grants are still being paid.”
He says tax rates are “close to the high point” of what people can be asked to pay.
“There is no optimum tax level. It depends what you do with the money.
“If you increase the tax rate and all it does is fund a large, bloated public service sector, then it is totally inappropriate.”
He does not think tax has reached the point where it’s impeding economic growth.
“There’s every other reason you can think of for that including policy uncertainty, poor education systems, a whole host of ill-advised government expenditure, incoherent industrial policy. You name it, it’s all there.
“Increase the economic growth rate by getting some of this stuff right and you can start decreasing tax levels.”
Meanwhile, he supports a wealth tax, with reservations.
“If you push it too high, you may have a flood of money leaving the country,” he says.