ZONDO COMMISSION WILL DELIVER FOR KIESWETTER A DREAM START

The President has entrusted Edward Kieswetter as the new Commissioner for the South African Revenue Service. Boasting a stately CV and with an impressive track record, the Commissioner certainly looks to be the right man for the job under normal circumstances. But these are extraordinary times and the increasing question being asked by compliant South African taxpayers are why we should pay our taxes when SARS have in the past clearly not been doing their job.

South Africans are already grateful to the Zondo Commission on State Capture Inquiry, where the quality of Deputy Chief Justice Zondo as Chairman and the evidence leaders have made short work in exposing absolute blatant tax evasion, seemingly going on for much longer than just the past 4 years. We now know that the SARS media statements claiming that they cannot comment on taxpayer information are just an excuse for nothing to be done.

What are some of the key challenges the new Commissioner will face –

Game of Chess

Where you have been non-compliant on your taxes, you can still do a SARS Voluntary Disclosure Program (“VDP”) which waives penalties, but critically also prohibits SARS or the NPA from prosecuting. Dealing with the SARS VDP team on a near daily basis, we can attest that this is not a process which should be taken on where you do not have the correct legal expertise. However, where done correctly, you are fully protected and your sins of the past will be forgiven under law.

But there is a catch. A valid VDP can only be submitted where you are not being audited, which means we have a game of chess on our hands. The general rule of thumb is that where you have an ounce of wisdom, you will immediately submit a VDP, which in our experience makes a subsequent SARS audit very difficult. Or will the Commissioner issue audit notices to everyone as they are named in the Zondo Commission, to prohibit them from applying for VDP and face the full might of the law? We may have a case of first mover advantage.

Make the Accountant Sing

The mafia was broken by getting their accountant to testify. For Bosasa, it may very well be their tax advisor, Peet Venter, who critically is not an admitted attorney and thus offers no legal privilege for his client. Some cats he set amongst the pigeons with allegations he made –

  • Bosasa artificially increased its expenditure for tax purposes by using a dormant company, Miotto Trading and Advisory Services (“Miotto”) and Tax Risk Management Services (“TRM”). Peet Venter testified that TRM is directly associated with a tax litigator, Dr Daniel Erasmus. On Peet Venter’s version, he seemed to imply the whole arrangement was one big fraudulent tax affair. We expect that the directors of the implicated companies and Dr Erasmus will want to set the record straight before the Zondo Commission.
  • Payments to various beneficiaries were made from Bosasa, including payments toward Mr Hlaudi Motsoeneng’s legal bills and to Mr Andile Ramaphosa’s Foundation, amongst others. The Commissioner will no doubt be interested in whether donations’ tax declarations and / or payment of personal taxes where made hereon, depending on the true nature of these payments.
  • Mr Venter testified that he was instructed that he must handle the annual tax returns of the Bosasa directors, as well as that of Messrs Patrick Gillingham and Linda Mti. In the Tax Court case of ABC (Pty) Ltd v CSARS (IT13775), the rules were spelled out when personal tax services provided to employees constitutes a taxable fringe benefit. It would be amusing if there was tax compliance hereon, in context of the other alleged infringements.
  • Mr Venter was instructed to alter Mr Louis Passano’s (sequestrated Chief Financial Officer of Bosasa) payslip to reflect a reduced salary of R90,000, as opposed to his full cost to company of R135,000. The balance he alleged was paid by Mr Gavin Watson in cash, ostensibly to hoodwink Mr Passano’s creditors. This raises a myriad of tax compliance questions.

SARS Resources – Asset or Liability?

The Commissioner has two enemies to overcome on high profile and complex investigations –

  • Mr Venter testified that when it became apparent that Mr Watson’s associates would tell on him at the Inquiry, he informed Mr Venter that he knows a gentleman at SARS by the name of Gorbi who would assist in making any troubles with SARS go away. We note that failure by SARS to make quick work of those implicated in tax evasion at Bosasa (we have seen no arrests) may give some semblance of truth to a purported backdoor at SARS.
  • It takes a rare breed of tax auditor to properly unravel complex tax matters. This will require a team of investigators, who are given the space and mandate to throw the book at those implicated. There is no time to start recruiting now and outsourcing hereof is not an option. The Commissioner will have to search his ranks for a well-resourced team that can go to war.

Section 50 – A Secret Weapon?

Section 50 of the Tax Administration Act creates a legislative provision for an “Inquiry” whereby a judge gets appointed to preside in getting to the bottom of instances of tax non-compliance. This is a very powerful provision, but rarely used by SARS. The Commissioner may decide to invoke this section to hold an inquiry into those implicated under state capture.

Everyone implicated will then be able to state their case before the judge, as Venter hardly makes an exemplary witness, and one of the principles of legality is to always let both sides be heard.  More importantly, this will contribute greatly in both restoring public trust as well as a much needed reminder that getting on the wrong side of SARS is not worth the risk.