/ 10 March 2017

SARS’s response to Judge Dennis Davis’s ‘attack on integrity’

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Fareed Khan, the executive responsible for compliance in enforcement, told the Nugent Commission on Thursday that units’ capacity had been stalled and decreased over the past four years. (Oupa Nkosi/M&G)

The South African Revenue Service (SARS) has reacted strongly after Judge Dennis Davis criticised the service at a meeting in Cape Town this weekend. 

Sars intends lodging a complaint against Judge Davis with the Judicial Service Commission, arguing he had “conflicted himself” with his responsibility to advise the country’s tax boss, Commissioner Tom Moyane. 

“Judge Davis is considered no longer a fit, independent or the proper person to lead and serve in any capacity within the specialist tax committee,” SARS said in a statement.

This comes on the back of the Mail & Guardian’s revelation internal SARS emails suggest the taxman may be manipulating its books.

Read SARS’s full statement here:

1. The South African Revenue Service (“SARS”) has noted with grave disbelief at the unprovoked and unwarranted attacks on SARS by Judge Dennis Davis (“Judge Davis”) when addressing the conference on tax evasion and illicit financial flows organised by the Alternative Information Development Centre, a NGO, in Cape Town, over this past weekend as published in City Press and Fin 24 on 05 March 2017. In his address, Judge Davis unashamedly misled the South African public and purported to undermine public confidence into SARS in a desperate endeavour to pursue a patently false narrative, by making the following statements:

1.1 “That the biggest challenge facing South Africa today is an erosion of the integrity of SARS;

1.2. That SARS has no capability of actually dealing with multinational corporation and capital that seeks to evade tax;

1.3. That he disagree with the number 103000 that falls into the new top marginal tax bracket of 45% and that he knows more people on the Johannesburg Bar earning R5 million a year than the tax table show. Further, that wealthy individuals are managing to escape the tax net and SARS is disingenuous to blame it on the economy;

1.4. That we know the revenue is down by R14Bn on personal income tax. The Commissioner for SARS suggests that that is because of a downturn in the economy, Unfortunately for the Commissioner for SARS, corporate tax went up by R6.5bn.

1.5. That the recent tax amnesty as implemented in terms of the Voluntary Disclosure Program (“VDP”) will flop if tax dodgers were no longer scared of SARS; and

1.6. That some years ago, when SARS actually had a reasonably good transfer pricing unit, it audited 40 companies to see what the effect of a seriously audit would be. It collected R1.1 billion on one audit in one year. We are talking about a lot of money”

2. What makes SARS even more perturbed is that Judge Davis was, for all intents and purposes, speaking in the said conference in his capacity as the chairperson of the Davis Tax Committee (“DTC”). Hence SARS’ shock on the degree of fabrication of truth contained in this attack and what the real intention of Judge Davis is.

2.1. The Judge ought to know that the challenges pertaining to transfer pricing affects all tax authorities across the globe and in particular the bigger African continent. SARS has been and is currently continuing to capacitate its transfer pricing unit and has an agreement with OECD countries such as United Kingdom for the training, capacity building and skill transfer to employees within this transfer pricing unit, including strengthening the unit by the advent of the new operating model which has led to the recruitment of 13 additional highly qualified specialists to the existing already skilled unit. SARS therefore denies that it has no capability to deal with non-compliance by multinational companies. It is disappointing that Judge Davis has publicly misled the South African public notwithstanding his first-hand knowledge of the aforesaid initiatives;

2.2. We find Judge Davis’ narrative which cast aspersions of wrongdoing at members of the Johannesburg Bar or any sector of society or category of taxpayers, including wealthy individuals, as non–compliant taxpayers quite bizarre and inappropriate. SARS respects and protects taxpayer confidentiality and will uphold taxpayers’ rights as enshrined in the Tax Administration Act 28 of 2011 (“TAA”). If anything, Judge Davis is morally expected to have advised the Commissioner of SARS on categories of taxpayers which are non–compliant, which could include members of the Johannesburg Bar of which he alleges to be non- compliant.

2.3. Judge Davis is expected to be fully aware that SARS is not in a business of scaring taxpayers into compliance, but its mission is a trilogy of educating and serving with enforcement being the last resort. SARS seeks to inculcate tax morality in its dealings with taxpayers and shall not use any untoward investigative methods or scare tactics that instil fear in taxpayers. SARS assures all taxpayers that every taxpayer shall be dealt with within the confines of the TAA with regard to issues pertaining to investigations, audit, and assessments;

2.4. SARS rejects the notion by the Judge that the Voluntary Disclosure Program (“VDP”) is expected to fail due to taxpayers not fearing SARS. SARS upholds that taxpayers are inherently good responsible citizens, patriotic to our country and respecting the tax laws and therefore sees no need to scare taxpayers into compliance. Enforcement remains a last resort. SARS shall continue to deal with all taxpayer disclosures with the required confidentiality, sensitivity and within the confines of the TAA;

2.5. SARS expected Judge Davis to be fully aware of the fact that the shortfall on revenue estimates is entirely due to economic factors based on macro-economic indicators developed by National Treasury. It is the Revenue Analysis Working Committee (“RAWC”), which is a committee of technical experts compromising of South African Reserve Bank (“SARB”), National Treasury and SARS, that is responsible and have the duty to recommend the Revenue Estimates to the Minister of Finance and SARS Commissioner, based on which the Revenue Target is set;

2.6. Judge Davis should therefore be fully cognisant that, according to the RAWC, the significant downward revision from the Printed Estimate of R1175bn by R30bn for the 2016/17 Financial Year accorded to the 2017, is attributed to economic performance of:

2.6.1. Customs Duties down by R6.5bn, as a result of contraction in real terms in imports;

2.6.2. VAT, similarly being dragged down by Import Vat collections to an underperformance by R11.3 bn;

2.6.3. PIT, for long being the anchor of Revenue Collections, underperforming by R15.2bn. The growth of PIT year to date, has declined from levels exceeding 12% to about 9% as a result of lower wage settlements, containment of bonus payments and job shedding.

2.7. All of the above are attributable to economic factors which were analysed by RAWC and taken into consideration when formulating the budget proposals. This process throughout the years, ensured integrity and transparency to the determination of revenue Estimates. We therefore find it suspicious that Judge Davis will ignore this and add his own interpretation of facts to what led to the R30bn revenue shortfall creating the impression that it is SARS that sets the revenue collection target for itself. Judge Davis should have been honest with the South African public on whose responsibility it is to grow the economy and create opportunities for more revenue collection.

3. SARS finds it shocking as well as unprecedented that where Judge Davis’ role is to guide and advise the SARS Commissioner, he was supported at the said conference by amongst others, the discredited former SARS employee, Mr Yolisa Pikie, who was dismissed at SARS as a result of fraud relating to misrepresentation of his academic qualifications and who is currently facing criminal investigation as a result of the said fraud as well as by Mr Ivan Pillay, a former Chief Officer for SARS Strategy, Enforcement and Communication who is responsible for the irregular appointment of Pikie and who himself resigned from SARS whilst under disciplinary investigation for the said appointment.

4. In light of the above imprudent statements and for the reasons fully detailed hereunder, SARS is persuaded that Judge Davis is part of a systematically orchestrated narrative that primarily seeks to decimate and undermine the leadership of SARS in order to engulf SARS into a crisis of lack of public confidence and illegitimacy. It is of paramount importance to note that it would seem that Judge Davis has for some time now behaved in a manner that could be perceived as advocating a veiled strategy to mobilise a possibility of a tax revolt by taxpayers against the State.

5 It is important to note the following:

5.1. Judge Davis is the chairperson of the Davis Tax Committee (“DTC”), a specialist tax committee (“committee”) appointed by the Minister of Finance (“Minister”) in terms of Section 11 of the SARS Act 34 of 1997 (as amended). The primary mandate of Judge Davis’ committee is toadvise both the Commissioner and the Minister on any matter pertaining to tax administration within SARS. Therefore it borders on a lack of integrity and ethical conduct by Judge Davis to publicly and unfairly attack SARS and its leadership on issues that the committee is legislatively required to render advice to the leadership of SARS, particularly with regard to the solutions thereof;

5.2. At no point has Judge Davis raised his concerns with regard to the erosion of the integrity of SARS and neither has he offered any advice with regard to issues of integrity affecting SARS. This is evidenced by Judge Davis Committee’s minutes of meetings with SARS and in particular the meeting of 08 September 2016. It begs the question as to why Judge Davis resorted to a malicious public attacks on SARS instead of a decent engagement with the leadership of SARS within the established forums;

It is therefore irresponsible and unfortunate that Judge Davis is pursuing a malicious narrative by publicly attacking SARS through the aforementioned statements at a critical juncture when SARS is on an overdrive mission with regard to the collection of revenue in order to satisfy the revised target of R1.144 trillion. It leaves SARS with no option to conclude that Judge Davis’ motive is to destabilise SARS and to cast doubt, particularly to its leadership.

6. In addition, it is not clear why Judge Davis would associate himself with the recent narrative that seeks to discredit SARS and its leadership, notwithstanding the success story of SARS since 1997, particularly in exceeding the revenue collection targets in the last two financial years, being 2014/2015 and 2015/2016. SARS undoubtedly can only conclude that Judge Davis has allowed himself to be used as a proxy in a recent campaign being waged against SARS and its leadership.

7. It is apparent that Judge Davis has violated section 12(4)(a) of the SARS Act by exposing himself to this situation in which he

8. It is SARS’ position that:

8.1. the relationship between SARS and Judge Davis has intolerably and irretrievably broken down as a result of Judge Davis’ statements;

8.2. SARS intends to engage the Minister of Finance urgently with a view that Judge Davis should recuse himself from the specialist tax committee, or that his membership to the committee be terminated;

8.3. SARS is also in the process of seeking a legal opinion on the prospect of lodging a complaint with the Judicial Service Commission with regard to Judge Davis’ aforementioned conduct given SARS position that it is treacherous and unprecedented for a judge to mislead the public.

9. SARS has sent Judge Davis a letter advising him of SARS’ discontent, its position as well as our further intentions.

10. SARS continues to be committed to meeting its mandate and all SARS employees are hard at work to collect all revenue due to the state so that Government can meet its obligations to the citizens of the country despite tough economic conditions.