/ 5 April 2019

Sars has mountain to climb

‘No fear or favour’: Mark Kingon
‘No fear or favour’: Mark Kingon, the outgoing acting Sars commissioner, says the tax authority is on the mend. (Paul Botes)

One of the toughest aspects of taking the hot seat at the South African Revenue Service (Sars) was “being thrown in the deep end” without the benefit of any handover or wisdom from his predecessor, recalls outgoing acting commissioner Mark Kingon.

Nevertheless, he describes his time in the role as “a privilege” — despite it having been a tumultuous year for the revenue service, as it came to grips with the legacy of former commissioner Tom Moyane’s leadership and the revelations of the Nugent commission.

It is the people at the institution, Kingon said, and having to engage with and encourage them, that were the best part of the job.

Unlike Kingon — who was thrust into the limelight after Moyane’s acrimonious exit from the tax authority — Edward Kieswetter, the newly appointed commissioner, will have the benefit of Kingon’s more than 30 years of experience when he officially begins work on May 1.

Kingon could not think of one specific piece of advice that he would give Kieswetter going into the job. “There is just so much … wisdom that I have gleaned over the last year,” he says.

But rebuilding the agency’s relationship with taxpayers, improving services to them and making it easier and more streamlined for them to pay tax is something Kingon is going to “urge as a direction”, he said.

This week’s preliminary revenue collection figures revealed a shocking shortfall for the year of R57.4-billion. This is R14.6-billion shy of an already reduced forecast of the February budget. There is much work to do.

Years of what Judge Robert Nugent termed “a culture of fear and intimidation” under Moyane resulted in the steady hollowing out of the agency — which lost skills, and saw key units of expertise and excellence such the large business centre “eviscerated, to the detriment both of governance and revenue collection.”

Crucial modernisation of IT infrastructure was halted in its tracks, leaving Sars behind the curve as technology advanced. The agency’s staff has shrunk from more than 14 200 in 2015-16 to just over 12 700 in 2018-19.

The latest in a series of missed collection targets has significant implications for the fiscus, noted Kyle Mandy, tax policy leader at advisory firm PwC, particularly the budget deficit and the country’s debt levels. Assuming this revenue cannot be made up, the shortfall could push the budget deficit for the current 2018-19 year up to 4.5% from 4.2%.

But, said Kingon, although it has been a challenge, Sars is in the process of addressing the findings and recommendations of the Nugent commission. The re-establishment of the large business centre (LBC), for instance, is an important turning point for the organisation.

Recent research by the SA-Tied project suggests that about R7-billion is leaving South Africa through tax avoidance, the bulk of which is from the top 10% of multinationals operating in the country.

There are definitely opportunities for the LBC, said Kingon, particularly when it comes to concerns around base erosion and profit shifting. Sars needs to be ready when it tackles the various tax avoidance schemes typically associated with these practices.

“You need to have your ducks in a row, legally and technically, to be able to challenge taxpayers on this,” he said.

Although definitive proof of an instruction to officials was never uncovered, the Nugent commission also heard allegations that taxpayers’ refunds were being withheld to inflate Sars’ revenue collections figures under Moyane. Nevertheless, clearing Sars’s growing credit book on value-added tax refunds has been an important exercise for the agency in the last year.

This week’s collections outcomes showed that the VAT refunds credit book had reduced from R41.8-billion in September 2018 to R24.7-billion by the end of the financial year. Refunds to taxpayers overall had also risen by almost 23% on the previous year, to reach about R288-billion.

The collections outcomes were worse than budgeted, but the agency has been commended by national treasury officials for its greater transparency over the refunds. At the announcement of the collections figures, Ismail Momoniat, the head of tax policy and finance at the national treasury, said that had Sars continued its practice of withholding refunds, it would likely have met its targets.

“Certainly the unwinding of the refund backlog is, hopefully, a once-off, never to be repeated,” said Mandy.

Although Sars had been at pains to “spin” the refunds issues as an effort to return money to the economy, rather than as an effort to correct past practices, Mandy said, it was nevertheless positive that “refunds now going forward are paid out or refunded timeously, or within a reasonable period”.

While Sars had started to implement reforms such as relaunching the LBC and resuscitating the illicit economy unit, it will take time before they begin bearing fruit, said Mandy. They need to get up to their former levels of ability, he continued, including reskilling and restaffing, before they can reproduce former results.

Last week the Mail & Guardian reported that Moyane loyalists still had too much influence at the agency and were thwarting reforms. Kingon did not want to comment on the allegations, except to say that the agency was “engaging on how to take the recommendations of the Nugent commission forward, to ensure it would be better placed [in future].”

As confidence in Sars has declined in recent years, so has taxpayer compliance and morality, compounded by the country’s poor economic growth and a tough business climate.

Kingon said he’d like to “restore tax morality to its rightful place [so that] people take seriously their obligations to pay their tax on time”.

But, argued Mandy, for this to happen, government needs to take action against people who are implicated in the numerous commissions of inquiry that are underway in acts of corruption or who have been found wasting taxpayers’ money.

In addition, he said Sars itself must act against taxpayers — most especially the politically powerful and connected — who are not paying their fair share.

“If Sars really wants to start improving tax morality, it needs to really start applying the law and collecting taxes without fear or favour … and treating all taxpayers equally, ensuring everyone pays what they should be paying, and [that] the law is applied to everyone, ” Mandy said.

The question of fringe benefits tax that former president Jacob Zuma owes on his Nkandla home is one such example. Kingon, in a previous role at the agency, was tasked with trying to get Zuma to file his taxes, according to journalist Jacques Pauw’s book The President’s Keepers. Kingon refused to comment on this, but he denied that Sars is sitting on its hands while the various commissions unfold.

“Both myself and the new commissioner designate are going to apply the law without fear or favour,” he said.

“We are taking serious note of all the allegations … that relate to tax morality,” he said. Sars is addressing them, he added, but it cannot go public with specifics about what it is actually doing in this regard.