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South Africa

SARS Wars: Pravin Gordhan’s response to the Hawks calls for protection of democratic institutions

SARS Wars: Pravin Gordhan’s response to the Hawks calls for protection of democratic institutions

Replying to 27 questions sent to him by the Hawks earlier this month about an alleged “rogue unit” at SARS, Finance Minister Pravin Gordhan on Wednesday warned that South Africans should be concerned about protecting democratic institutions and ensure that these were not “arbitrarily tampered with”. And while he was under no legal obligation to reply to the questions, Gordhan said he was doing so in the public interest. By MARIANNE THAMM.

Finance Minister Pravin Gordhan stood his ground on Wednesday saying that the Hawks had no right to investigate him, demand answers or threaten him with retaliation should he fail to respond to 27 questions sent to him a few days before he was due to deliver his budget speech in Parliament in February. He went further, saying their actions in pursuing him had, in fact, been unlawful.

In a statement, Gordhan said while the Hawks had declined to respond to his questions seeking clarity on what offences they were investigating and on what authority they were acting, and while he had been advised by his lawyers that he was not obliged to answer the questions, he believed it was in the public interest that he provide the Hawks with “information I have at hand”.

Gordhan maintained that the unit, variously known as the Special Projects Unit, the National Research Group and the High-Risk Investigations unit, lawfully performed its functions and that its funding was done through normal budgetary processes applicable to SARS.

He said that findings by the Sikhakhane Panel of Inquiry that the establishment of the unit had contravened the National Strategic Intelligence Act was incorrect and based on a “superficial and clearly mistaken reading of the aforementioned Act”.

Gordhan said the unit was an essential part of SARS’ enforcement strategy, “as it is with most tax and customs administrations globally”, and that it had been established as a result of a commitment by President Thabo Mbeki in his 9 February 2007 State of the Nation Address. Mbeki had said that SARS needed to enhance its capacity to gather intelligence (departmental intelligence) and investigate organised crime related to tax and customs legislation, including for cigarette smuggling.

In respect of the legality of the investigation unit established during my time as Commissioner of the South African Revenue Service, I believed that the unit was lawfully established to perform very important functions for and on behalf of SARS,” said Gordhan.

Providing background to the establishment of the unit, Gordhan said that in terms of Section 4 (1) (a) of the SARS Act, SARS must “secure the efficient and effective, and widest possible, enforcement” of the tax laws listed in Schedule 1 and that these laws “had always vested SARS with wide powers for the investigation of tax matters including the investigation of crimes with tax implications”.

These powers were apparent from sections 4 and 4A to 4D of the Customs and Excise Act 91 of 1964; sections 74 and 74A to 74D of the Income Tax Act 58 of 1962 (before its amendment by the Tax Administration Act); sections 57 and 57A to 57D of the Value-Added Tax Act 89 of 1991 (before its amendment by the Tax Administration Act); and sections 40 to 66 of the Tax Administration Act 28 of 2011.

SARS has thus always had its own investigation and enforcement units engaged in a wide range of investigations including criminal investigations with tax implications. The unit’s establishment was in line with government’s commitment to crack down on crime generally and organised crime in particular.”

Gordhan told the Hawks that SARS had decided in about February 2007 to set up the unit “to penetrate and intercept the activities of tax and customs related crime syndicates” and that its initial intention was to employ and train members of the unit and later transfer them to the National Intelligence Agency (NIA) where they would continue to function as a unit dedicated to SARS.

The NIA, however, lost traction for the project as a result of which SARS decided to retain the unit within its Enforcement Division but with an appropriate mandate,” said Gordhan.

Returning to the findings of the Sikhakhane Panel – which also formed part of the controversial KPMG investigation and report initiated by current SARS Commissioner Tom Moyane – Gordhan said the panel also stated that section 3 of the National Strategic Intelligence Act 39 of 1994 “prohibits the conducting of covert intelligence gathering by structures other than the National Defence Force, the SAPS or the State Security Agency”.

There is no general prohibition in this section. It is merely a restriction imposed on those departments that are required by law to perform functions ‘with regard to the security of the Republic or the combatting of any threat to the security of the Republic’. SARS is clearly not such a department. It was never engaged in national security matters. It is accordingly not subject to the prohibition,” said Gordhan.

He added that his legal team had found that the establishment of the unit did not contravene section 3 of the act and that its activities were not subject to the provisions of section 3 at all.

The unit was, said Gordhan, part of the broader enforcement division of SARS – similar to the enforcement capabilities required in any tax and customs administration in the world.

In the South African societal and economic context, SARS had developed a compliance approach which consisted of good service to the compliant taxpayers, increased education about the importance of paying tax to those entering the economy, and different types of enforcement being utilised on the noncompliant taxpayers depending on the level of noncompliance.”

Noncompliance could include non-submission of a tax return, incorrect information on a tax return, different types of debt collection, aggressive tax avoidance, abuse of trusts, tax evasion, smuggling across borders, cigarette and other forms of illicit trade, trafficking of drugs, round-tripping to avoid excise duties and VAT etc. Enforcement actions were more effective, guided by good risk assessments and information from various stakeholders, Gordhan said.

He said relatively few staff were engaged with risk assessments – some 20-odd in the instance of the unit in question – and it was in this context that the unit was “core to the effectiveness of SARS to carry out its mandate of collecting revenue so that government can have the resources to fulfil its objectives”.

During his time as Commissioner and CEO of of SARS, the unit employed about 26 people – “a minuscule part of the 15,000 staff compliment of SARS”.

My knowledge of the unit’s day-to-day operations was consequently very limited. As far as I was aware, the unit lawfully performed its functions. I was not personally involved in the recruitment of its members but I am told that the process was in accordance with SARS policy.”

If the unit or any of its members had engaged in unlawful activities then they had done so without his knowledge or consent, he said. He added that he had no knowledge of an operation code-named “Sunday Evenings”.

Gordhan said the Hawks had refused to furnish him with exactly which offence the directorate was investigating and by what authority they had acted.

They merely referred me to the powers conferred to them by chapter 6A of the South African Police Service Act 68 of 1995. None of the provisions of chapter 6A entitle the Hawks to demand answers, set deadlines and threaten me with retaliation if I fail to respond. The deadlines and threats of retaliation were accordingly unlawful,” said Gordhan.

He added that the Hawks had “no reason to investigate me”.

Gordhan concluded his statement by warning that South Africans should protect democratic institutions “in a manner that assures public confidence that these institutions will not be arbitrarily tampered with. This is what the Constitution requires of all of us.”

He said these were “challenging economic times in South Africa and in the world. Our biggest challenge as a nation is to ensure that we are able to grow this economy so we can create jobs for our people and make inroads in addressing poverty. That is the work I would like to focus on with the National Treasury team.

SARS is an important fiscal institution. We cannot afford to let this key institution be distracted from its core mandate of revenue collection. The institution and its 15,000 or so employees are a crucial pillar of our democracy. Let’s all defend this critical institution.” DM

Photo: Finance Minister Pravin Gordhan (Greg Nicolson); SARS Commissioner Tom Moyane (Sapa)

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