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06/07/2018 12:49 SAST | Updated 06/07/2018 14:17 SAST

EXTRACT: 'Death And Taxes' – Sars And The Effects Of State Capture

'The scandals engulfing a once-proud Sars continued unabated.'

Jonathan Ball Publishers

EXTRACT: On the effects of state capture on Sars

With the exception of one fiscal year during the worldwide financial meltdown, in the period 1998 to 2014 – the time that I worked at the tax authority – Sars consistently collected the amount of revenue required by the state to implement its service delivery programmes and other initiatives, fund development and pay social grants, often collecting more than its target. Other revenue and customs authorities came to South Africa to study the successes of our tax authority, and Sars was invited to go and assist other governments with their programmes and with the modernisation of their own tax and customs authorities.

All this changed in 2014.

Tom Moyane commenced his duties as the new Sars commissioner on 1 October 2014. The executive committee was disbanded in November 2014 and, within months, 55 senior managers had left.

The existence of a totally fictitious "rogue unit" began to feature prominently – and deliberately, I would add – in the media from 12 October 2014. From that date, too, Sars' name started popping up with increasing frequency in one scandal after another.

In my research for the book, I collected over a hundred media articles about Sars published in the three years between January 2015 and April 2018. Rereading them broke my heart.

In early 2015, much fuss was made about Sars having collected R1-trillion "for the first time ever", for the fiscal year 2014/15. The tax authority's media statements about this suggested that it wouldn't have collected this amount had it not been for Moyane.

The reality is that, first, I firmly believe that Sars would have collected that amount with or without the presence of Moyane (who'd been appointed fairly late in that fiscal year, by which time the Sars team had already collected the bulk of the revenue) and, second, I know of at least R3-billion due to Sars by tobacco manufacturers, which was not collected that fiscal year for reasons unknown to me. I can only conclude that these cases were politically laden and sensitive, which may have had a lot to do with the unfortunate events that started unfolding at Sars in late 2014.

"In time, the full measure of the damage caused to the South African Revenue Service arising from false news coverage will manifest itself in a tarnished reputation, questionable independence and lower levels of compliance with tax and customs law."
Ivan Pillay

I was sad to read in a press report how a relatively insignificant case brought before the Gauteng High Court in 2015 had an effect on the "pay now, argue later" precedent that Sars had set so many years before: as a result, now (at the time of writing) there's a technical loophole using which unscrupulous tax dodgers can delay having to pay their dues.

The botched attempt in 2015 to reverse the tax settlement with Julius Malema was simply embarrassing.

A criminal trial in Durban in 2016 demonstrated that the standards of criminal investigation at Sars had dropped precipitously when a high court judge rebuked the tax authority for using information obtained during a tax inquiry as evidence in a criminal prosecution. This was Tax 101 and should never have happened: tax legislation is very clear on the fact that Sars may not rely on self-incriminating evidence given at a tax inquiry to prosecute a taxpayer.

In February 2016, senior Sars insiders accused a group "close to Moyane" of having become embroiled in a power grab which saw the alleged dismantling of the once effective Large Business Centre. How did Sars deal with this? Moyane and his close confidant and executive committee member Jonas Makwakwa sued the Mail & Guardianin both their official and private capacities.

Getty Images
Moyane appeared before the committee to present the revenue service's annual report and to field questions about the suspension, investigation and reinstatement of Jonas Makwakwa.

And the scandals engulfing a once-proud Sars continued unabated.

In April 2016, Ivan Pillay wrote in his right of reply following the retractions of the "rogue unit" stories in the Sunday Times: "In time, the full measure of the damage caused to the South African Revenue Service arising from false news coverage will manifest itself in a tarnished reputation, questionable independence and lower levels of compliance with tax and customs law."

In February 2017, during his last days as finance minister, Pravin Gordhan noted that "it takes many years to build an institution, to build confidence and trust, to build skills, culture, effectiveness, resilience. But it's very easy to break it down."

GULSHAN KHAN via Getty Images
South African Member of Parliament and former Minister of Finance, Pravin Gordhan.

Every time I read about the massive fraud and corruption at state-owned enterprises, I expected Sars to leap on to the cases and within days bring preservation orders and other enforcement actions. But nothing happened.

I was particularly incensed when I was asked for comment by the media following the massive 2017 leak of emails from the infamous Gupta family, wherein it was shown how the Guptas had used one of their lieutenants, with the help of someone inside Sars, to unlawfully access and obtain details about investigations concerning them and others; their reach into the tax authority was so deep that they knew of me by name by the end of 2013, well before the drama started at Sars.

Yet, when asked about this, Moyane kept quiet and did nothing.

Sars became a political project and it is now run by people who have no idea how to manage a tax administration system.
Pravin Gordhan

And when the Gupta leaks resulted in news article after news article exposing allegations of massive corruption and money-laundering, Moyane responded to a media question by saying that Sars didn't consider the emails of value in the pursuit of any tax investigations. I couldn't believe what I was hearing – the Dave King case, one of the largest in the history of modern tax audits in South Africa, had been instigated after Sars auditor Charles Chipps read about the sale of a painting in a relatively obscure magazine.

In September 2017, Gordhan, by then unceremoniously removed as finance minister, was reported to say that "Sars became a political project and it is now run by people who have no idea how to manage a tax administration system. They don't know what skills are needed and how to use them." It was part of "the whole conspiracy theory of replacing good people with bad to facilitate state capture," he noted.

In October 2016, it was revealed how Moyane's nephew, Nhlamulo Ndhlela, had secured a debt-collection contract from Sars estimated at a value of R220-million. Only after this saw daylight in the media did Sars approach the Gauteng High Court to have the contract set aside, with the explanation that Moyane had never been aware of this conflict of interest. Of course, the taxpayer had to pay for this court challenge.

"I took no pleasure in this bad news: if Sars failed, the country suffered – and it was the poorest of the poor who bore the biggest brunt."
Johann van Loggerenberg

By the end of 2016, more than 500 employees had left the tax authority in that fiscal year alone. Sars noted that this number wasn't a big deal and was comparable to staff turnover in prior years – which may be so, but I know virtually every single one of those who left Sars, and they were mostly superstars.

In my years at Sars, I learned that we could divide any working group into three broad categories: the lazy ones who were carried by work done by everyone else; the majority of staff who did their job well; and then that small percentage who could always be counted on to go the extra mile, who worked day and night, who were willing to learn and study while working – the superstars.

If the superstar group was strong, the balance of people would try to emulate them and the result would be a higher-performing group in totality. But once those at the high end were no longer operating at full tilt, then the greater group of people moved towards the negative lot.

During 2017, many more experienced staff members left the tax authority and the tax ombud also found that Sars was delaying paying taxpayers their refunds, calling it a "serious" problem. By December 2017, Sars was reported to be behind in its annual target by tens of billions. Moyane nonetheless promised the nation that the target would be met. It wasn't.

By the end of the 2017/18 fiscal year, treasury had revised the revenue target for Sars downwards by R42-billion, and even then Sars missed the new target by R700-million. (For the fiscal year 2015/16, treasury had to adjust the revenue target for Sars downwards by a massive R11-billion and in 2016/17 it was downwardly adjusted by a staggering R22-billion.)

It hardly needs stating that the loss of highly skilled staff and the continued downgrading of revenue targets – among many other signals – weren't indicative of a healthy and fully functioning tax and customs agency. What it came down to was that our government was growing poorer, meaning it had less money to spend on building new schools, hospitals, infrastructure and housing, funding services, growing the economy, creating jobs and assisting the poor.

I took no pleasure in this bad news: if Sars failed, the country suffered – and it was the poorest of the poor who bore the biggest brunt.

Jonathan Ball Publishers

* This is an abbreviated extract from "Death And Taxes" by Johann van Loggerenberg. It is published by Jonathan Ball Publishers.