A report compiled by prominent members of the Davis Tax Committee, among others its chair, is at an advanced stage and will be finalised within the next two months, paving the way for criminal prosecutions of tax evasion by the South African Revenue Service (Sars) itself.
This will put South Africa on a par with other jurisdictions where revenue authorities have the power to do their own prosecutions, thereby expediting serious tax evasion cases.
The report, compiled by retired judge Dennis Davis and fellow committee member Thabo Legwaila, will consider legislative amendments to existing laws that may be obstacles in the way of providing Sars with investigative and prosecutorial powers.
Their report will be considered by the full committee before recommendations are passed on to the minister of finance. This may take time.
Davis said in an interview with Moneyweb that SA is looking at the National Prosecuting Authority (NPA) under the leadership of Shamila Batohi to hold “all crooks” accountable.
However, he pointed out that tax is a very specialised area – and the NPA has a lot on its plate as it is.
The result is that more than a thousand tax cases are currently gathering dust at the NPA.
The aim with legislative changes is to expedite criminal prosecutions of tax evasion.
“I do not want everybody to go to jail. On the contrary, I would prefer people to pay their taxes,” Davis said.
If a few high profile cases of particularly egregious forms of tax evasion can be successfully prosecuted, the deterrence factor will be enormous.
“You cannot justify people going to jail for stealing potatoes from the supermarket and a person who is engaged in a massive value-added tax scam gets off scot-free.”
Davis acknowledged that Sars will need to be “capacitated to some extent”, but since the entire inquiry into tax evasion is already done by Sars, it stands to reason that if it can conduct the prosecution it will take a lot of pressure off the NPA.
Davis has been appointed as a consultant at Sars for a year, with the option to renew his contract. The first “item on the agenda” is closing the tax gap – the amount of tax that is due to the fiscus and the amount that is actually paid.
There is no doubt that there has been a decline in tax morality and that taxpayers are “deeply suspicious” of Sars. This is mainly due to the devastation of the agency during the time when Tom Moyane was at the helm.
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Sars – can a leopard change its spots? (October 2020)
Sars puts through a sneaky change (February 2021)
The magnitude of corruption and downright theft of taxpayer money unveiled at the Zondo Commission of Inquiry into Allegations of State Capture undoubtedly impacted tax morality in the country.
It may recover if South Africans see that their hard-earned money is no longer flushed down the “corruption toilet”, said Davis. If everyone pays their fair share it is possible that the country and its institutions will be able to undergo desperately needed reconstruction.
Sars has lost some of its best-skilled people, but has been on the road to recovery since Moyane was replaced by acting commissioner Mark Kingon and with the subsequent appointment of Edward Kieswetter as commissioner. Its ability to – for the first time in years – exceed the revenue targets set by National Treasury is testimony to a significant recovery, said Davis.
“I am not suggesting for one moment that Sars as it is presently constituted has all the necessary skills, but the foundations are there. All you have to do is supplement them.”
After only one week at the revenue service he has been struck by the “extraordinary dedication” of civil servants who aim to make the organisation the best they can.
Davis believes the extensive powers bestowed on Sars in the Tax Administration Act (TAA) are necessary. However, when it comes to relatively small matters of tax collection he believes Sars needs to be more “user-friendly” by reducing red tape and ensuring that these issues do not land up in tax courts.
“It is totally ridiculous for an ordinary taxpayer to have to incur huge amounts of legal cost to deal with small matters. I understand that perfectly, but what do you do when you discover second-hand gold VAT fraud that runs into billions of rands? You would want legislation that will allow your tax authority to collect it.”
Davis is alive to some of the practices at Sars that have frustrated taxpayers and believes they need to be fixed.
The Davis Tax Committee has recommended the strengthening of the Office of the Tax Ombud to counter the powers bestowed on Sars in the TAA.
He is also in favour of the introduction of a Taxpayer Bill of Rights into legislation, but the country now has “bigger problems” where “significant amounts of rands” need to be collected.
That is his priority. Tax rates will remain where they are, or there might even be room to lower them if Sars collects what is due.