/ 22 February 2019

Resurrected taxman cometh

Judge Dennis Davis has been brought in to assess the tax gap and the effect of an improved collection system.
Judge Dennis Davis has been brought in to assess the tax gap and the effect of an improved collection system. (Sharief Jaffer)

The South African Revenue Service (Sars) is still reeling from former commissioner Tom Moyane’s years of tenure, and the residual problems, compounded by a tough economic environment, have resulted in significant shortfalls.

But his ghosts will be exorcised if Finance Minister Tito Mboweni has his way. He made it abundantly clear that not paying taxes will not be tolerated.

“So please do render unto Caesar what belongs to Caesar because Caesar can break your bones,” he said at a media briefing on Wednesday before his budget speech to Parliament.

The revenue service, much like the rest of the country’s public entities, is on a path of renewal and the focus is on improving its efficiency by implementing the most urgent recommendations made by the commission of inquiry led by retired judge Robert Nugent.

At a time when the government is desperately in need of money, Mboweni announced that revenue collection for 2018-2019 is expected to be R15.4-billion less than what was estimated in the medium-term budget policy statement in October. The projected shortfall of R27.8-billion has now been revised to R42.8-billion.

Mboweni said value-added tax (VAT) repayment backlogs were responsible for half of that. In the medium-term budget policy statement, the treasury estimated that Sars still had to honour VAT refunds of about R20-billion but that figure was R8-billion too low.

According to the budget document, addressing Sars’s efficiency issues would raise revenue in the short term more effectively than increasing taxes substantially would.

The work has already begun. In the next few weeks, a new Sars commissioner will be appointed while a new illicit economy unit was launched in August last year to fight the

illegal trade in cigarettes and tobacco. “Those who produce cigarettes, for example, and sell them in the underground market will be dealt with very severely,” said Mboweni.

He was alluding to Sars’s seizure on Tuesday of long-time suspected tobacco smuggler Adriano Mazzotti’s assets.

Acting Sars commissioner Mark Kingon said the revenue service was establishing various measures to ensure tax compliance and steps were being taken in both the fuel sector and clothing and textiles industry to combat ghost exports and roundtripping.

Ghost exporting, according to Sars, is zero-rating supplies for VAT purposes on the strength of exports, whereas these supplies are not actually exported. Roundtripping is, according to The Wall Street Journal, selling “an unused asset to another company [and] agreeing to buy back the same or similar assets”, which makes a company look like it’s doing more business than it really is.

Kingon said the illicit economy unit was also dealing with evidence coming out of the state capture commission “where direct notice has been given of tax abuse”.

Former Bosasa chief operating officer Angelo Agrizzi testified that the company, which now operates as African Global Operations, would use fraudulent invoices that had no VAT numbers.

Agrizzi also told the commission that he would split his salary with his wife, although she did not work for Bosasa. They would submit this to Sars and be taxed at a lower rate than Agrizzi would have been if he had reflected the full amount.

Sars’s large-business centre division, which provided specialist services and ensured compliance by large corporates and high-net-worth individuals will be re-established by April this year.

Mboweni said he had commissioned Judge Dennis Davis to assess the tax gap — the difference between what Sars collects and what it expected to collect.

Davis told the Mail & Guardian he would appoint people with the requisite mathematical skills to assess this and this work would continue into next year.

He said he would also commission a study of personal income tax to assess how much of that tax the government would collect if an effective income tax system was in place.

“We need to understand why there is a gap between what we should be collecting and what we are collecting, and then look at those serious areas which create a tax gap,” Davis said.

He emphasised that Sars had to address tax morality by getting its auditing and investigative units back into shape.

“It is actually saying you have got to pay your fair share and we will find you and if we find you and you haven’t co-operated then there are criminal sanctions.”

Although it was easier to destroy an institution than to rebuild it, the revenue service could be rebuilt and there was no questioning that, over the next year or two, Sars would collect significantly more than today, he said.

Tebogo Tshwane is an Adamela Trust business reporter at the Mail & Guardian