POLITICS

Sars Special Report: An Institution In Crisis As South Africa Faces Junk Status

Don't be fooled by the talk of exceeding targets on revenue collections. The opposite is true and it's not good news for radical economic transformation.

03/04/2017 20:33 SAST | Updated 04/04/2017 11:19 SAST

A weakened South African Revenue Service will do nothing to help South Africa off the back of a damaging downgrade to junk -- or sub-investment grade -- by ratings agency S&P last night.

Tax collection across all categories except dividend tax is slowing down. Sars has faced an exodus of key skills while its investigative capacity has been denuded because of fighting over an alleged "rogue unit", which three different inquiries have found no evidence of.

A very expensive new operating model has confused staff. The era of big busts in the underworld and low-tax sectors appears to be over. Instead, personal income tax payers have been loaded with R16 billion in new taxes with the top tax bracket now paying Scandinavian tax rates, which are among the highest in the world.

The taxman on Monday announced that he and his team had worked to the last minute of the end of the tax year last Friday and collected a provisional amount of R1,14 trillion –- but this is R30 billion short of the promised R1,175 trillion in the Budget of 2016.

Back then, it was an article of faith to overshoot revenue projections year after year.

A trillion rand may be an impressive number, but yesterday's numbers mark one of the lowest levels of revenue performance since Sars was restructured by former Sars commissioner Pravin Gordhan.

Back then, it was an article of faith to overshoot revenue projections year after year.

The revenue trajectory is now headed south, but Sars commissioner Tom Moyane says this is because of a stuttering economy that is projected to grow at 0,3%, according to the latest projections.

It reverses a pattern of Sars overshooting its revenue targets to help pay for South Africa's social safety net, which funds 17 million grants every month.

Ratings agencies place great emphasis on South Africa's ability to meet its revenue estimates and on the strength of Sars, which has been lauded globally for its systems.

Former finance minister Pravin Gordhan had wanted to fire Moyane but was instead given the chop last Friday. He had been meeting ratings agencies and foreign investors when he was summoned back by President Jacob Zuma.

Because revenue numbers are down, all South Africans are paying higher taxes as announced in the February budget.

Sars Commissioner Tom Moyane announce his organisation had exceeded a revised downward tax estimate by R300,000, but the fact was they did not achieve the original achieved revenue projection. This may have an impact on the budget deficit and means Treasury will have to borrow to meet the shortfall.

This holds the spectre of higher taxes and a pullback in public spending, just as Zuma has promised radical economic transformation which equals a big bill for government.

Because revenue numbers are down, all South Africans are paying higher taxes as announced in the February budget.

But Moyane says yesterday's announcement is still a good achievement: "Much more significant is that for the second year in a row Sars broke the trillion-rand mark.

"Today's revenue result is another Sars success story that I for one am proud of as Commissioner of the great institution. Whilst marginally exceeding the target, make no mistake this still is a success story."

Sars is one of South Africa's most important institutions as it funds the fiscus and supports South Africa's social solidarity welfare system, which is the biggest on the continent.

Almost none of Sars executive committee have tax experience.

But the evidence shows Sars as an institution is weakening. While Moyane denied a brain drain at Sars, the institution has lost 39 senior managers since Moyane was appointed commissioner in September 2014 –- 21 new senior managers had been hired, but of them none had tax experience.

Almost none of Sars executive committee have tax experience. The one person with experience has been on suspension for six months after being captured on camera stuffing R1,2 million in untraceable cash into different ATM's. Sars executive Jonas Makwakwa was the only member of Moyane's exco who had tax experience but he is now suspended and a Sars investigation has been running on the matter for six months and counting.

At Monday's briefing, Moyane said Sars annual staff attrition was declining. He said that since he started, 279 staff had left and 321 new employees were hired. "A CFO [chief financial officer] does not need to know tax," said Moyane yesterday.

But three sources inside Sars and with knowledge of the institution say that it has lost key skills across sectors.

It has, for example, lost the highly skilled team who tracked tax losses through transfer pricing and other forms of corporate tax dodging and structuring. They have moved into the private sector.

Sars developed a reputation for paying refunds as soon as they were due.

In addition, Sars has spent R155 million on a new operating model designed by Bain&Co, the management consultancy, but two senior officials said that the model was not efficient or effective. The staff painted a picture of confused systems, which may have had an impact on tax revenues.

The Tax Ombud, Judge Bernard Ngoepe, has announced an inquiry into the high number of complaints about late refunds his office has received. Sars developed a reputation for paying refunds as soon as they were due, but this year Sars was been accused of holding back refunds to boost numbers by tax advisors and taxpayers.

Moyane said that 89% of VAT refunds had been paid while the balance had been allocated for detailed audits -– this was necessary because VAT fraud was rampant.

"To date, Sars has prevented R23,8 billion in fraudulent refunds from being paid and hence the additional scrutiny being applied to high risk cases," said Moyane.

Sars used to ramp up revenue by tapping the underworld economy for unpaid taxes and it did not shy away from tracking down powerful people to pay their due. But since Moyane took over these cases have been put on ice.

An investigation announced by Sars into... President Zuma has also gone nowhere.

So have politically sensitive cases. A claim involving businessman Robert Huang, who owed millions in customs duties for importing a consignment of ANC T-shirts through his company called Mpisi Trading, has been put on ice. An investigation announced by Sars into whether President Zuma owed fringe benefit tax on the renovations to his estate at Nkandla has also gone nowhere.

"As a tax administration, we don't speak of taxpayer affairs," said Moyane. "Let's allow the investigations to take their course."

But four former and existing Sars staff members say that investigations into underworld figures and politically exposed persons have not progressed since Moyane took office in 2014.

The Sars commissioner had promised The Huffington Post South Africa an interview but cancelled it on Monday.