Whereas Pravin Gordhan on Tuesday laid out the yardstick of an effective SARS to the Nugent Commission of Inquiry, Wednesday was all about how SARS got “broken” – resulting in a R48-billion revenue deficit that partially translated into a percentage point increase in VAT. It was devastating news to the poor, and the start of a deep crisis considering government’s extensive expenditure plan.
Five SARS officials testified on Wednesday – one of them is still working for the service while four resigned at various stages during Moyane’s tenure. The commission, chaired by retired judge Robert Nugent, focused on why numerous senior managers – highly effective and skilled executives with decades of experience – were either dismissed or felt the need to resign on their own during Moyane’s time at SARS.
When former Chief Operations Officer Barry Hore took the stand to testify before the Commission on Tuesday afternoon, he was the bearer of debilitating news: The Moyane era cost SARS at least R142-billion in uncollected tax, or the tax that was manipulated into looking like revenue income. (This is a figure that can be directly quantified, and does not speak to any knock-on effect that Moyane’s ill-informed decisions had.)
Hore suggested to the Commission that the revenue income figures were manipulated when SARS illegally held onto VAT payments while hiding their inability to collect more revenue. Hore’s figures were buoyed by the testimony of Sunita Manik, former head of the Large Business Centre (LBC) who also recorded her “suspicion of revenue manipulation”.
Their comments are based on a simple analysis:
If SARS’ true efficiency rate is to be measured, the service’s debt book must be analysed – a figure that is directly indicative of SARS’ ability to collect tax. The debt book is money that taxpayers owe to SARS. It is a very specific number that can be analysed to the cent because SARS knows exactly which entity owes it how much money. (Supposedly.)
In recent years Moyane has been accused of breaking SARS by making dodgy settlements and systemically decimating the investigative capacity while killing the reporting structure and chasing away the service’s best and brightest. Moyane has strenuously denied all accusations. But the numbers he presided over, and took much pride in, suggest a wholly different story.
The financial statements show a staggering R47-billion increase in SARS debt book over three financial years, starting by the end of the year 2013/2014.
Simply put: Since Moyane took over, it seems that SARS’ ability to collect revenue tanked by R47-billion.
Shockingly, that is on top of the estimated R48-billion revenue deficit reported by former minister of finance Malusi Gigaba in February 2018.
Add to that the previous year’s revenue deficit of R30.7-billion, and we have about R125.7-billion lost to the fiscus.
But Hore was not done yet:
“This is where the VAT payments are held up.”
Hore pointed at a graph indicating SARS’ “credit book” when he threw out the comment before a crowd of 30-odd glazed-eyed people staring at his 52nd slide during the Commission’s last sitting of the day.
SARS’ credit book is the money SARS owes taxpayers – refunds that are the lifeblood of businesses with a tight cash flow.
The credit book also contains VAT payments owed to taxpayers.
A three-year trend up to the year 2016/2017 shows an increase of R16.7-billion in SARS’ credit book.
Add the increase in SARS’ credit book since Moyane took over to the increase in the debt book over the same period, as well as two consecutive revenue deficits, and the sum of all the parts is R142-billion.
(Business South Africa had a proper meltdown in this time, accusing SARS of illegally withholding VAT and other refunds while making up non-existent excuses not to pay out what’s owed to taxpayers. SARS insiders accused Moyane’s leadership of deliberately manipulating the facts. Moyane has always denied the accusations, but even the tax ombud found evidence of VAT refunds being withheld for an inordinately long time.)
Hore’s testimony showed that Moyane’s reign at SARS curbed the service’s efficiency in a devastating manner.
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All five witnesses who appeared before the Commission on Wednesday had several common features: They are highly skilled, exceptionally well trained, have a long history of service to SARS and have strong personalities that allowed each to hold their own in a debate while not meekly accepting a decision they deemed contradicted their vision. The witnesses without exception referred to a “higher purpose” guiding their actions, a term coined and instilled by former SARS Commissioner Pravin Gordhan, which entailed a common vision of serving the country to the best of their ability.
The witnesses painted a picture of a Tom Moyane who ruled by force, creating a “culture of fear”, where debate and the challenge of decisions were met with marginalisation or dismissal. They criticised Moyane for making nonsensical unilateral decisions that ultimately broke the reporting structures in SARS while causing severe harm to its efficiency and ability to collect revenue. All of the witnesses criticised the botched restructuring model cooked up by consulting company Bain and Company for R300-million. Lack of proper consultation process with SARS officials ensured a half-baked model that had a devastating effect on SARS’ efficiency that was never fully implemented.
One such decision was the disbandment of the Large Business Centre (LBC), the backbone of SARS’ collection ability. The LBC was roped in to streamline tax collection from large corporate and individual taxpayers – so much so that it contributed about 30% to revenue collection annually, former LBC head Sunita Manik testified.
Her revelation stunned the commission, especially when she alluded that the decision to disband the LBC may have been for nefarious reasons.
“Maybe the LBC had too much power”, Manik said, and was too well protected.
“I could never veto a decision in the LBC. I deliberately set up its systems so that one person cannot interfere.”
Manik explained that decisions on big settlements were made by committees after robust discussions. Yet, Moyane and his right-hand man, Jonas Makwakwa, met with a big company in early 2015 in Cape Town without authorisation about its tax matters. (Makwakwa resigned after a series of scandals exposed by Scorpio.)
Moyane and Makwakwa allegedly assured the taxpayer that SARS would settle its tax bill for a figure half the original tax assessment. The “decision” was not endorsed by the relevant LBC committee, resulting in a flurry of angry letters between the taxpayer, Moyane and the LBC.
“If I want individual or political access to significant amounts of money, I’ll go to the LBC,” Manik said.
Evidence leader adv. Carol Steinberg picked up on what Manik tried to explain, summarising her words as:
“If someone is interested in corruption, a settlement that would benefit that individual from SARS, that is where you’d go?”
“Yes,” Manik said, “anyone who wanted access to easy money… would go to the LBC. I know that Makwakwa tried to sway the committee’s opinion (in the mentioned example).”
Another questionable decision by Moyane and his management were the installation of spy cameras in SARS offices and gardens, “even on top of copying machines”, Sobantu Ndlangalavu testified, describing the atmosphere as a “culture of fear”. Ndlangalavu is SARS’ group executive of tax public education. He described how SARS officials became so paranoid about alleged spying equipment “listening to us” in their offices that they started blocking the built-in cameras on their laptops with sticky tape. This was brought on when the trees around their office were uprooted one day.
When they enquired why this happened, “leadership” said the trees “posed a security risk”.
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One of Moyane’s first acts as commissioner – and perhaps one of the most detrimental decisions to date – was the cancellation of SARS’ expensive modernisation programme. This act alone cost SARS R3.6-billion in investment costs, where the modernisation programme would have been worth a potential R26-billion if it was allowed to be concluded, Hore testified. The statistics are calculated up until December 2014, when he quit after a series of acrimonious incidents between him, his staff and Moyane.
Hore testified how his IT team turned SARS into a highly efficient machine that saved months in time, billions in operational cost and heightened taxpayer confidentiality.
Commission panellist and tax expert Professor Michael Katz described Hore’s testimony as “clearly very impressive”.
The testimony of Tshebeletso Seremane, former head of SARS’ integrity unit, and Vusi Ngqulana, former head of debt collection, spoke to Moyane’s unilateral decisions in changing the job description of highly skilled SARS officials.
Seremane testified how she was kicked out of her job and sat around at SARS for months without anything to do. In her testimony, Manik confirmed that the same happened to her until she had had enough and resigned.
“When greed creeps in, when temptations creep in, rationality disappears,” Seremane said, arguing that she was ousted from her position because she refused to be part of the disaster Moyane was creating. Seremane was ultimately dismissed in July 2017 after she lodged a grievance over her position and revelations that Bain’s consultation process was not in good faith, that SARS was bullying and intimidating its staff and wasting money “fixing an institution that was not broken”.
She has since fallen on financial hardship and is still struggling to find a job.
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It is noteworthy that longstanding accusations against Moyane – the culture of fear, bullying of SARS officials, the illegal withholding of VAT payments – have one after another been confirmed by SARS insiders on Tuesday. For years Moyane has accused journalists of being a “third force” who listened to “aggrieved SARS officials with an agenda”.
Moyane’s troubles are set to increase by the look of Thursday’s line-up of witnesses who each have a mouthful to say about their former boss’ conduct. They include Gene Ravele, former head of enforcement and customs investigations, Ivan Pillay, former deputy Commissioner, and Adrian Lackay, former SARS spokespersons.
In the meantime, Moyane is facing four disciplinary charges after being suspended by President Cyril Ramaphosa in March 2018. The evidence now tumbling out of Moyane’s closet in the Commission of Inquiry is no good news for his disciplinary hearing: The more his disciplinary process is stalled, the more time Ramaphosa’s attorneys will have to proffer more disciplinary charges against Moyane. DM
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