Davis committee looks at giving Sars prosecuting powers

The SA Revenue Service (Sars) should be able to criminally prosecute its own tax cases rather than relying on the overburdened National Prosecuting Authority (NPA), retired judge Dennis Davis said on Tuesday.

The successful criminal prosecution of tax cases is likely to act as a deterrent to tax non-compliance, which could result in more tax being collected at a time when SA faces a fiscal crisis and a yawning budget deficit.

Davis said during a discussion on the future of taxation organised by financial services group PSG that he does not believe the NPA has the capacity to deal with the backlog of tax cases.

The NPA, under national director of public prosecutions Shamila Batohi, is attempting to address this but has been hamstrung by a lack of resources. In addition to the backlog of tax cases, there is a mountain of corruption cases that still have to be prosecuted.

Davis chairs the Davis tax committee, which submitted a report on the tax gap to finance minister Tito Mboweni. The retired judge said he is working on what is probably the last report of the committee, which is looking into giving Sars litigation powers.

The question being looked at is “can we reconfigure the legislation to allow Sars to institute prosecutions against taxpayers who are ultimately recalcitrant because, quite frankly, we don’t think the NPA in its present situation is able to do that”, he said.

“I cannot tell you the staggering amount of cases that are at the NPA at the moment — ranging way beyond a thousand, more than that — which have just collected dust. We are trying to negotiate ourselves around a prosecuting agency, which, quite frankly, at this point of time — and I accept that advocate Batohi is doing her level best to put it right — is not going to be able to do the job,” he said.

Sars commissioner Edward Kieswetter, who recently revealed that SA taxpayers have R400bn in assets abroad that the tax authority intends to probe, told Business Day that internally Sars is considering obtaining the ability to conduct criminal prosecutions.

Davis believes the prosecution of high-profile tax evaders will act as a deterrent for the non-compliance Sars is battling.

He also believes Sars should

have had representatives at the Zondo commission of inquiry into state capture to note those facing allegations of corruption to check whether they had paid the correct amount of tax. “This is the best way of dealing with corruption in SA,” he said.

Davis noted that there are many people who are not paying the correct amount to Sars because tax morality has declined dramatically. It is likely, he said, that the approximately 5,000 recorded individuals with taxable incomes of more than R5m a year is an underestimate and needs to be probed.

“There is a huge gap between people who are paying their fair share and those who are not.”

Sars also has a staggeringly high amount of outstanding debt, but the prospects of collecting it become dimmer with the passing of time, he said.

Davis discussed the degradation of the tax collection system under former commissioner Tom Moyane, which caused the departure of about 1,000 highly skilled and experienced tax experts, and the drive by Kieswetter to rectify this.

Davis said there is an initiative under way to recruit retired or soon-to-be-retired experts with substantial tax and forensic experience to work for Sars for two or three years to help recapacitate the organisation.

He is confident that if 100-150 of such people joined Sars the situation could be turned around very quickly.

Sars has reached out to the accounting and auditing profession and the SA Institute of Chartered Accountants is assisting with this.

Davis said Sars has lost the capacity to forensically focus on the right people, adding that part of the R3bn over three years allocated to Sars in the February budget would be used for this purpose.

Davis also believes the focus in SA should be on broadening the tax base to allow for a reduction in the corporate tax rate to 22% or 23% by eradicating unnecessary incentives — as the

Treasury has indicated it intends to do. The corporate tax rate was reduced in the February budget to 27% from April 2022, from 28%. The individual income tax rate could also be reduced so as to collect more.

Sars does not have the option to increase tax rates as other countries’ tax agencies do.

“There is no real potential for significant increases in taxes in SA,” Davis said, “especially when there is an incapable state that is not able to spend revenue effectively. What is needed is to close the gap between the nominal and effective rate of tax and reconfiguring the state to make it more capable.”

1,000 the number of skilled and experienced tax experts who left Sars during the reign of former commissioner Tom Moyane