It was inevitable that the South African Revenue Service (SARS) would hit the trillion rand revenue collection mark, and this had little or nothing to do with its ability to collect taxes under its suspended commissioner Tom Moyane, a former national treasury official told the SARS commission of inquiry on Friday.
This after Moyane’s legal representative, Advocate Dali Mpofu, had argued that Moyane was “the trillion rand man”.
Mpofu on Friday made submissions to the commission on behalf of Moyane, who is arguing that the commission’s process of hearing evidence without giving him a right of immediate rebuttal was unfair.
While attempting to counter evidence heard earlier in the week about SARS’s reduced revenue collection ability under Moyane, Mpofu said that during Moyane’s time at SARS the taxman reached the trillion rand mark for the first time “since 1652”.
But Cecil Morden, the former chief director in the economic and tax analysis unit at national treasury, told the inquiry that the “trillion rand man” argument was just smoke and mirrors.
He said that due to growth in the economy tax revenue would always exceed the trillion rand mark at some point.
Evidence led at the inquiry this week painted a damning picture of the tax agency’s decline in recent years, while testimony spoke to a culture of fear under Moyane and his second-in-charge, Jonas Makwakwa.
Makwakwa, who resigned from SARS in mid-March, has written to the commission to deny all the allegations that have emerged against him, including that he tried to meddle in the tax affairs of high-profile taxpayers. He will be meeting with the commission next week.
Mpofu also argued that the commission should steer clear of issues that may have bearing on Moyane’s ongoing disciplinary inquiry.
President Cyril Ramaphosa instituted both the SARS commission and the disciplinary hearing. Mpofu said that the airing of evidence in the commission that overlaps with the disciplinary hearing was prejudicial to Moyane.
Mpofu further sought a ruling that all the evidence heard this week be struck from the record.
Retired Judge Robert Nugent, who is heading the SARS commission, said he agreed that it would be prudent to steer clear of issues that could have an effect the disciplinary process. He said he would deliver a ruling on the matters put forward by Moyane on Monday.
The commission has until November to produce a final report into wide-ranging issues of governance at SARS, with a specific focus on the years between 2014 and 2018.
Moyane was appointed as SARS Commissioner in September 2014, and under his stewardship SARS saw a revenue shortfall of R49-billion in the 2017/2018 financial year.
Moyane, meanwhile, argued that SARS had previously, under former commissioner Pravin Gordhan, experienced a revenue shortfall of R60-billion in a single year. While figures shown to the commission may support this, the shortfall may have resulted from the 2008 financial crisis.
Smoke and mirrors
Morden painted a shocking picture of a decline in revenue collection, saying the matter “warranted further investigation”.
Morden was the chairperson of the revenue analysis working committee (RAWC) which comprises national treasury, the South African Reserve Bank (SARB) and SARS officials. The committee meets a minimum of twice a year, sometimes four times a year, and is primarily responsible for setting the revenue target that SARS aims to achieve.
He said that while various elements contributed to a downturn in the tax agency’s revenue collection, economic decline could not be blamed for the entire R49-billion shortfall.
“The undercollections in gross tax revenues versus budget worsened from -0.74% in 2014/2015, to -1.04% in 2015/2016 and -3.8% in 2017/2018,” Morden’s presentation to the commission reads.
“In absolute terms personal income tax performed the worst against budget in 2017/2018, and over a five year period VAT collections performed worst against the budget,” he added.
In 2015/2016 VAT refunds showed a massive decline — and which was subject to a tax ombud investigation — which likely indicated that VAT refunds were withheld to show a higher revenue figure.
SARS’ revenue figure is based on cash in the bank on the tax cut-off date and not calculated in accrual terms. A snapshot is taken at midnight on the cut-off date.
The effect of this was that in the following year, SARS had to pay out more value-added tax (VAT) refunds, which translated into higher shortfalls.
Essentially, the taxman may have cooked the books by holding onto VAT refunds for longer, making it seem as if more revenue was collected.
The commission will be inviting submissions from current national treasury, SARB and SARS officials to clarify this, and what other possible factors contributed to the tax shortfall.
Moyane, meanwhile, argued that the shortfall was due to a declining economy.
Morden also revealed that systemic problems may exist in customs and excise, specifically in the tobacco industry.
“The significant slowdown of and subsequent decline in nominal specific excise duty revenues from tobacco products in 2016/2017 and 2017/2018 respectively are clear indications of problems with enforcement and/or increased illicit trade,” Morden said.
On Wednesday, former SARS enforcement head Gene Ravele revealed that SARS had stopped inspections at tobacco manufacturers after his departure in 2015, and this likely led to an increase in the illicit tobacco trade.
The commission also heard from former deputy commissioner Ivan Pillay, who explained that the former High Risk Investigations Unit — or “rogue unit” as it became known — did exceptional work in tackling the illicit tobacco trade.
The unit was disbanded by Moyane in 2015 following extensive reports in the media, particularly the Sunday Times, labelling the unit “rogue”.
The commission heard evidence this week pointing to the effective dismantling of SARS’s enforcement capability, which Morden’s figures now support.
When domestic and import excise taxes are calculated together collected taxes show a 5.1% shortfall. This must be investigated, Morden said.
The commission will continue its work behind closed doors in July. Further public hearings expected in August. — Fin24