Political trap: Finance Minister Pravin Gordhan must trim costs and up social spending.
Against the backdrop of a R30.4-billion in revenue shortfall, 16 confidential letters expose the true extent of the war between Finance Minister Pravin Gordhan and South African Revenue Service commissioner Tom Moyane. The fallout has seen the tax boss pleading with President Jacob Zuma for help on four separate occasions.
The Mail & Guardian can reveal details of a series of encounters between Moyane and Gordhan, from April 1 up to 20 days before the budget speech. The letters between the two officials tasked with the country’s financial welfare reveals anger, deep-rooted distrust and disdain. The series of letters are dated April 1 2016 to February 2.
In one letter Moyane accuses Gordhan of subjecting him during a meeting to “horrible and intolerable working conditions through belittling, humiliating, denigrating, antagonising and disparaging my persona …
“I ask myself every day what have I ever done to you that has made you mistreat and beseige me as if I am a little boy.”
The meeting was described by Moyane as a “startling madness of vast proportions”.
In turn Gordhan warned Moyane that approving his own performance bonus was “unethical, immoral and illegal”.
Sars collects 95% of the national budget. This acrimonious battle cripples co-operation between Sars and the national treasury. During Gordhan’s budget speech he expressed “concern” about the “shape of revenue collection”, saying there was a R30.4-billion shortfall, the largest since the 2009 recession.
From April, the two clashed vehemently over reporting lines, with Moyane repeatedly refusing to be accountable to Gordhan. They had spats about arrangements for meetings and Moyane’s apparent reluctance to attend, his application for leave, the appointment of an acting commissioner for Sars when he was on leave and Gordhan’s refusal to shake hands with him.
In the letters, Moyane accused Gordhan of “alien” and “unflattering” behaviour, “wholesome extremism”, “deplorable conduct”, “interfering in the operation of the Sars”, usurping Moyane’s authority and “systematically orchestrating a vigorous campaign to denigrate” him.
To many of these letters, Gordhan did not reply. Where Gordhan did assert his authority, Moyane turned to Zuma for protection, declaring an inter-governmental dispute.
When asked for comment, Sars spokesperson Sandile Memela said: “Sars is seriously concerned that you [ M&G] are in possession of correspondence between the commissioner and the minister of finance, documents which are classified as confidential. It is not desirable to discuss the contents of Sars meetings with the minister in the media.”
Gordhan received a standing ovation from ANC and opposition benches alike after delivering his budget speech in Parliament amid tense political undercurrents. But for a second year running, flouting tradition, Moyane was not by Gordhan’s side when he, the governor of the Reserve Bank Lesetja Kganyago and Deputy Minister of Finance Mcebisi Jonas addressed the media on the budget.
Asked by the M&G if he was disappointed that Sars had failed to reach its target, Gordhan said it was important that the institution was not weakened: “You need a leadership that knows the business; and who are willing to humble themselves to learn the business. You can’t run a complex organisation without understanding the business.”
The correspondence between Moyane and Gordhan reveals that the Sars head lodged a formal inter-governmental dispute with Gordhan on April 14 2016. Moyane complained to Zuma that Gordhan “shout(s) at me in a very disrespectful and humiliating manner”.
The M&G could not confirm the veracity of Moyane’s statement: four sources from Sars and treasury who attend management meetings denied knowledge of Gordhan shouting at Moyane.
Sources in Sars and the treasury did, however, confirm the icy relations between Gordhan and Moyane.
Moyane further requested Zuma appoint a retired judge to facilitate their relationship and to determine whether Gordhan had supervisory powers over him and Sars, whether Gordhan could instruct Moyane on operational matters, whether he had a say about Moyane’s leave, and whether Gordhan had the final word on salary increments and bonuses.
Zuma seems not to have adhered to this request.
On December 12, Moyane again complained to the president, saying his relationship with Gordhan had “deteriorated to unbearable levels” and urged the president to heed his previous request.
Tension between Gordhan and Moyane has been building since Moyane laid a criminal complaint against Gordhan with the Hawks in May 2015 over the alleged “rogue unit” matter. Moyane later denied this, even though he was publicly fingered as the complainant by Minister of State Security David Mahlobo as well as by prosecutions boss Shaun Abrahams.
The cause of Moyane’s first dispute with Gordhan seems to be rooted in a fight over annual leave. On April 1, Gordhan rapped Moyane over the knuckles for “informing” Gordhan that he would take leave. The finance minister said Moyane should apply for leave like any other government official. Moyane took exception.
This prompted his April 2 letter, in which he accused Gordhan of subjecting him to “horrible and intolerable working conditions […] Your ill-treatment towards me has directly caused my ill-health.”
Delivering his budget speech on Wednesday, Gordhan said he had met “four times in recent weeks” with senior management at Sars. The M&G can, however, reveal that out of the four meetings, Moyane attended only two.
The meetings were dated January 30 and 6, 8 and February 13; Moyane attended the first and last.
The meeting of January 30 was disastrous, said a Sars source with detailed knowledge of the meeting. In a boardroom on the second floor of the ministry of finance offices in Pretoria, Gordhan gave Moyane and his senior management team a dressing-down that lasted for an hour and a half, the source said.
Three days later Moyane penned a furious letter to Gordhan, dated February 2.
At the meeting Moyane was accompanied by six members of his executive committee as well as group executive Dr Randall Carolissen, a Sars insider said. Gordhan brought his deputy, Mcebisi Jonas, his chief of staff, three political and economic advisers, a secretary and a deputy director general to the meeting.
For the second time in a year Gordhan refused to shake Moyane’s hand, said Moyane in his letter.
Gordhan referred to a Radio 702 interview with Sandile Memela in which he was confronted by complaints that Sars had delayed refund payments, said the source.
He got more irritated when advocate Neo Tsholanku, Sars’s new acting legal head, couldn’t satisfactorily answer tax-related questions.
“But it was Gordhan’s sense that the Sars management team don’t know the business of Sars, couldn’t answer questions and fumbled their presentation, that made him explode,” the source said.
The explosion is captured in Moyane’s letter, headed “complaint about the minister’s unprofessional conduct”.
Moyane said Gordhan had accused Sars management of “supporting one family against 55-million South Africans”, being “involved in politics” and that Sars officials were involved in a “conspiracy” and that Moyane was “involved in proxy wars”.
“I demand an explanation on the allegations,” said Moyane.
Gordhan also questioned Moyane on who he actually reported to.
Gordhan then sent the group packing, demanding a meeting for the following week, at which the Sars team was to be “prepared,” said a source who attended the meeting.
A “shocked” Moyane took “serious exception to the minister’s immature and unprofessional conduct”, Moyane said. He accused Gordhan of conspiring against him and demanded explanations and apologies.
“I will not tolerate being lectured and persecuted by the minister as if I was a schoolboy,” Moyane said.
All this just 20 days before the delivery of the budget.
The fiercest battle, however, seems to have been over Moyane’s relentless insistence on increasing the salaries of Sars employees and paying out half a billion rand in bonuses to Sars members.
This included management and himself — Moyane signed and paid out his own salary increase and performance bonus.
In his letters, Gordhan was determined to enforce “prudence and modesty in salary increases” and said that bonuses to Sars management could only be awarded “once the performance assessment takes place”.
The battle started amicably when Moyane asked Gordhan on April 11 and again on June 21 to authorise a salary increment for Sars employees and an incentive bonus pool of R561-million.
On August 1, Gordhan amended the recommendation, noting his concerns over Moyane’s proposal. In red ink and neat block capitals, he wrote: “The country is in a serious fiscal and economic crisis. This must guide my decisions. My decision takes full account of the great commitment of the staff on the ground. Government has been and will continue to promote prudence and modesty in salary increases.”
Gordhan amended Moyane’s recommendations in line with government’s policy to be prudent. On the bonuses, Gordhan wrote: “Given the fiscal circumstances, I am compelled to take this into account for the bonus as well. The final decision on the bonus will be taken once the performance assessment takes place.”
Eleven days later, on August 12, Moyane made an about-turn, challenging Gordhan’s authority in law to refuse his recommendation.
Moyane further noted that “employees have been growing restless regarding the payment of the performance bonus”.
“I am concerned that the further delay will destabilise the employees at a critical time. We are in the middle of filing season, and any disruption will negatively impact the filing season and the revenue drive.”
He continued: “I hereby inform the minister that I have already taken the decision to effect payment of bonuses and salary increments to Sars employees.”
Gordhan did not write back.
Moyane did, however, attend a meeting at treasury on August 15 where the matter was discussed. On the same day Moyane again wrote to Gordhan, this time also citing an anticipated falling-out with the unions as a reason to bolster his decision.
Gordhan replied on August 17. In his last letter to Moyane on this topic, Gordhan warned that it was “unethical, immoral and illegal for top management to determine its own salary increases and bonus payments without any external/executive scrutiny and approval”.
Gordhan further claimed that Moyane’s decision to increase salaries and pay out bonuses without his authorisation would amount to a contravention of the Public Finance Management Act (PFMA) and the Sars Act. “Should you proceed with making salary increments and bonus payments for senior managers without my approval as executive authority of Sars in terms of the PFMA, I am compelled to initiate an investigation and if allegations of misconduct are confirmed, to ensure that appropriate steps are initiated.”
Moyane did not take it lying down. The next day, in his last letter on the matter dated August 18, he accused Gordhan of “usurping” his power.
“I deny that you have any legal authority to determine salary increment and payment of bonuses to all Sars employees,” he wrote.
“Your unauthorised, unlawful and irregular interference in the administrative and operational matters of Sars is unlawful and contrary to the [Sars] Act … The decision to approve salary increment and payment of bonuses was made by my office as part of performing an office function, after a diligent consideration.”
In his letter, Moyane said he was “in the process of arranging an urgent meeting with the president”.
Two sources in Sars confirmed that, without authorisation, Moyane increased the salaries of Sars employees and approved the bonuses. Another source with in-depth knowledge of the drama said Gordhan was now “considering is options”.
Treasury had not responded at the time of going to press.— Additional reporting by Matuma Letsoalo
What lies behind the Sars delay in paying tax refunds?
Thousands of taxpayers have been fuming over the nonpayment of their tax refunds, previously paid out within 48 hours of their electronic returns being accepted.
This week’s Mail & Guardian exposé of the tattered relationship between South African Revenue Service (Sars) commissioner Tom Moyane and Finance Minister Pravin Gordhan shows that taxpayers are not alone in their frustration.
Gordhan himself has been annoyed by the delay and has grilled Sars executives on four occasions this year.
Last week the minister insisted that Sars provide him with a report on the matter by 4pm, hours after a joint pre-budget meeting.
At the meeting on February 13, Gordhan noted the difference between the December 2015 and December 2016 VAT refund numbers and questioned a shortfall of a staggering R4‑billion.
The minister also queried the carryover of R2‑billion in year-to-date savings, asking why that had also not been refunded.
There has been speculation that Sars increasingly withheld refunds to meet its own targets, albeit temporarily. This has been disputed by Sars in its interactions with tax practitioners. At an earlier meeting with Gordhan, on February 6, Sars brought along Fabian Murray, a group executive who is not part of the executive team, who apparently confirmed that Sars had held back R4‑billion in refunds in December.
A source with knowledge of the meeting claimed that a Sars executive initially responded to Gordhan’s queries by saying that Sars did not have enough staff to process refunds over December.
But this was contradicted by another Sars official, who said there had been enough employees on duty. Partial details of this meeting are confirmed by a set of abridged minutes.
This clash is but one of several indications of the deep-rooted distrust between the treasury and the revenue service. Gordhan stopped just short of placing the blame for poor revenue collection on the shoulders of Moyane at a media briefing on Wednesday.
Sars is short R34‑billion on its revenue target — the highest figure in eight years — and it appears that Gordhan has had a hard time trying to get the agency to be open about where the problems are. The minister said he is in discussions with Sars senior management.
It has also emerged that Gordhan did not bank on the Sars team providing him with accurate information on the tax refunds.
The M&G has been told that Gordhan, after listening to Sars spokesperson Sandile Memela explain the reasons for payout delays during an interview with 702’s Xolani Gwala, asked his staff to obtain a podcast of the interview.
In it, Memela said the word “stopper” did not exist in the Sars vocabulary and that he didn’t know “who had invented this word”. The phrase “stopper notification” — referring to when a taxpayer is flagged for auditing — has been raised formally by the South African Institute of Tax Practitioners after complaints over delays in refund payments.
Memela said the delay in processing and paying refunds was part of normal auditing processes.
This, he said, could be a result of insufficient information being provided by taxpayers, suspected fraud, outstanding returns or that Sars could not immediately consolidate information provided by taxpayers against that given by their bank, medical aid or employer.
Memela said this affected only 11% of taxpayers (about 600 000) and that most queries were resolved within 21 days of additional information being provided.
But the term “stoppers” is known by Sars staff the M&G spoke to, one of whom provided details of discussions for implementing the “manual stopper tracking solution”.
Denying that this stopper system exists is seemingly part of what annoyed Gordhan and intensified his concern about how informed Sars executives are on crucial issues.
Tax practitioner Rupert Ober-hol-ster said about 40% of his clients who were due refunds were caught up in the delay. “A standard audit can take up to 60 days and if there is an objection raised, that too can take 60 days. You’re looking at several months of delays as a result,” he said.
The M&G has been told that stopper notifications were previously loaded on refunds of R1‑million or more but at some point were dropped to R500 000.
A source said this has caused Sars to be flooded with additional audits: “Sars doesn’t have enough auditors to handle the extra volume triggered by the stoppers and this has impacted on the turnaround time of processing such claims.”
Advocate Eric Mkhawane, chief executive in the office of the tax ombud, said although Sars has a duty to reduce the risk of fraudulent claims, it also has to ensure that compliant taxpayers are paid back within a reasonable time.
“Even if a taxpayer is notified that he or she is being audited, once they’ve complied, by presenting in person to Sars, submitting all the relevant documents, there is really no legal basis upon which their refunds can or should be withheld,” he said.
The nonpayment of refunds is a “systemic problem” and the ombud has noticed a spike in complaints, he said. His office has written to Sars and is awaiting a response. — Pauli van Wyk & Jessica Bezuidenhout