informant payouts
Turning informant for the South African Revenue Service can take a long time to show financial rewards, reports Rowan Callahan
A tax informant who supplied the revenue service with information that allegedly led to the recovery of over a million rand, has still not received his reward after a four- year wait. His plight has highlighted flaws and pitfalls in a confusing payment system.
In 1994, “Michael Pearson” decided to become an informant for the South African Revenue Service (SARS) after he became aware of a television production house that was running a tax evasion scam. He was promised 10% of outstanding tax recovered, which is what the revenue service offers informants.
Not only did he bring the company’s unscrupulous dealings to the attention of the receiver, but he also carried out investigations for them. During these investigations, Pearson claims to have interviewed 12 individuals, including former employees, which led to the recovery of R1,2-million.
“I had to pay for this information; information doesn’t just fall from the sky,” an extremely disgruntled Pearson says. He reported the defaulting company for failure to pass on VAT collections, the illegal transfer of funds overseas and the false declaration of expenses (among other illegal practices).
“My phone was ringing every five minutes when they [the SARS] wanted information but once they got the information I never heard from them,” he says.
Pearson first queried the progress of the investigation two years ago and was told that the case had been finalised and that he should have paid already. In October last year, after receiving no positive feedback, he decided to seek legal assistance.
His legal team continued to question the whereabouts of his reward, but most of their letters of demand were ignored. One of the few pieces of correspondence he received after repeated requests for information makes mention of “difficulties being encountered in this case which the revenue service is unable to convey because of the secrecy provisions provided for in various tax Acts”. Subsequent to this letter, dated June 28 1999, Pearson has received no further correspondence.
While he is angry at the length of time he has waited, he is also upset at the non- disclosure policy of the SARS. “This case is a betrayal of trust,” he says angrily.
Revenue service officials were reluctant to disclose case details, citing the same provisions.
But according to one of the investigators contacted by the Mail & Guardian, they are allowed to say if the case is finalised or if they are still busy with it.
And that is the nature of the reward system – the rules governing payment are far too complex for any informant to be guaranteed payment. In the first place, according to the investigator, the reward is seldom 10% of monies recovered.
“I’ve never heard of 10% being paid out,” he says emphatically.
“The amount paid out depends on the quality of information and how much work investigators still had to do,” he adds. The branch manager gives recommendations of what the reward should be.
Despite this, informants like Pearson are led to believe that they will receive 10%. There are also a number of other tricky provisos.
One of the most important is that the information must be new information that the SARS is not likely to find during its own investigations. If they are aware of the information, there is no reward. The informants are also not supposed to be involved in the tax evasion scam and their taxes must be up to date. If they have any outstanding tax, that amount will be deducted from the reward.
As for the long wait Pearson has had to endure, the investigator says this is common in most cases. “We are very understaffed, so if we receive information we will evaluate the possibility of getting a prosecution. If the chances are slight, the resources allocated will be small.
If there is a good chance of recovery that case would be high on our priority list,” he says.
Priority cases brought to the SARS’s attention now will probably be dealt with at the end of the year. According to the investigator, cases usually last from six months up to a year, depending on the courts.
Despite all the red tape and the endless waiting, patient informants are usually paid out three months after cases are finalised.
After four years of waiting, Michael Pearson is planning to sue the SARS in order to recover his reward.