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Sars claims ‘astronomical’ R19bn in taxes from company accused of tobacco smuggling

Fears the company is spiriting trucks and other assets across the border to evade paying tax.
Tobacco at an auction hall in Harare. Verbena imported thousands of tons of tobacco that then ‘disappeared’ while millions flowed into its bank account. Image: Gideon Mendel/Corbis via Getty Images

A recent court case brought by South African Revenue Service (Sars) against Verbena Freight and Logistics Management provides a fascinating window into the world of tobacco smuggling and its staggering impact on the fiscus.

The Pretoria High Court ordered the final winding up of Verbena after Sars claimed an amount of nearly R19 billion in unpaid taxes.

In an affidavit before the court, Pule Mantso, operations manager within the debt management department which is part of the Illicit Economy Unit at Sars, claimed Verbena owes a staggering R18.99 billion in taxes – most of this (R18.88 billion) in the form of unpaid customs duty. Also outstanding is R31.38 million in value-added tax (Vat) and R73.65 million in income tax.

Verbena is described as a company specialising in cross-border transport and customs clearing and forwarding across southern Africa. The company has its own fleet of vehicles and a sister company based in Zimbabwe.

Sars audit

Sars launched an audit of the company in 2019, and found the company had imported 8.1 million kilograms of tobacco between March 2016 and February 2019, all of this supposedly “care of” eight other entities listed on the customs.

Mantso says the Customs Act does not provide for the import of goods “care of” a third party. Verbena also acted as clearing agent for the imported tobacco, which entered via the Beitbridge border post. In terms of the Customs Act, excise duty is payable on locally manufactured cigarettes.

Several requests were made to Verbena to provide details of the imports “care of” the third party entities, but no meaningful response was received.

In December 2020, attorneys representing Sars informed Verbena that it had been concluded that the imported goods had been removed to premises controlled by the company and had been used to manufacture illegal cigarettes.

Verbena was asked to refute these claims, which it failed to do.

In March 2021, Sars issued letters of demand for R18.88 billion in unpaid customs duties, which Verbena failed to pay.

Assets attached

Sars then obtained a judgment against Verbena, and the sheriff attached eight trucks and other assets with a total value of R2.2 million.

“This is dismally insufficient to make payment of the R18 billion due to Sars in relation to the customs debt,” deposes Mantso.

Sars also placed liens on several other assets belonging to the company, but found several of these had been unlawfully removed from the premises, which is a criminal offence.

Sars officials then tried to track down other assets in Musina in Limpopo, but three of the given addresses could not be found and a fourth was a residential address, with the occupants knowing nothing about Verbena.

Verbena’s attorney replied to Sars on July 12, saying most of the company’s vehicles were either in disrepair or had been exported out of SA, and as such it was no longer the owner of the exported vehicles. No proof of transfer of ownership or export was provided, says Sars, though eNatis documents showed that Verbena was still listed as owner of the vehicles.

Sars says it is assuming Roy Muleya and Ruth Dhliwayo are responsible for the management of the company.

Intensified investigations into illicit tobacco smuggling

Sars says it has intensified its investigations into the illicit trade in cigarettes which is reckoned to cost the fiscus billions of rands a year in lost revenue. Its investigations show large volumes of tobacco being imported to SA on the pretext of being re-exported, but in reality the tobacco is used to manufacture cigarettes that disappear into the local economy and avoid having to pay excise duty.

Read: Cigarette war goes radioactive

“Those responsible for the import, such as [Verbena], simply refuse to provide any details, documents or information regarding the whereabouts of the tobacco,” according to Mantso’s affidavit.

“When Sars then ultimately demands the duties, it is unable to recover the substantial amounts due as the transgressors have hidden or dissipated their assets. This makes recovery of the unpaid debt extremely challenging and, in most instances, impossible.”

Verbena was asked on numerous to explain to Sars what happened to the imported tobacco, but refused to do so.

What is known is that the tobacco disappeared and millions of rands flowed into the company’s hidden bank account, says Sars.

According to court papers, Verbena has been exporting trucks and other assets from SA since 2014, and Sars is asking the court for an urgent winding up order to prevent any further dissipation of assets.

‘Flagrant breach’

By acting as it did in respect of the imported tobacco, and by removing containers subject to detention in flagrant breach of the Customs Act, Verbena has demonstrated that it has scant regard for the law, says Mantso.

“Against this background there is a real risk of the respondent disposing [of] these vehicles to its Zimbabwean sibling, a step that would make it practically impossible for Sars to liquidate those assets in order to satisfy the judgment against the respondent.”

Sars holds the view “that there is a serious and emergent risk that the vehicles and possibly additional assets are being concealed or being moved across the border in order for the respondent to evade the payment of its substantial tax debt.” This explains why it was of utmost importance to grant a final liquidation order on an urgent basis.

In conducting its audit into the company, Sars says Verbena disclosed two bank accounts but withheld information about a third, an Absa bank account, on which taxable income of R68.4 million was calculated.

Sars should be ‘commended’

Fair Trade Independent Tobacco Association (Fita) chair Sinenhlanhla Mnguni says Sars, working with other law enforcement agencies, should be commended for making significant inroads in the fight against the illicit trade in cigarettes and other tobacco products.

“We have in recent times highlighted the surge in illicit cigarettes smuggled into the country via our neighbouring countries, particularly following the ill-advised, five month-long, tobacco sales ban.”

Mnguni continues: “We continue with our plea that the relevant authorities continue to monitor the situation at our various border posts, particularly Beitbridge, as there appears to be collaboration between the criminals involved in the smuggling of these cigarettes and some on-duty officials stationed at these border posts.

“We are of the firm view that better checks and balances need to be put into place by government to ensure that the system is foolproof and incapable of being easily manipulated.”

Failure to nip this in the bud will in all likelihood lead to the eventual demise of the local legitimate tobacco industry and reduce government taxes from tax the tobacco trade, says Mnguni. “We are however very encouraged by the latest efforts from various law enforcement agencies to tackle this scourge, and we are hopeful that working together we can succeed in eradicating this menace to our society.”

‘Get this rogue importer to name its paymasters’

Says Tax Justice SA founder Yusuf Abramjee: “These actions demonstrate that a new and determined Sars team appears to be finally getting to grips with one of the world’s largest illegal cigarette markets and this is good news for all South Africans.

“The breathtaking R19 billion tax demand is double the revenue that Sars will actually collect in cigarette excise this year,” says Abramjee.

“It’s imperative that authorities get this rogue importer to name its paymasters and that a national inquiry is conducted into our tobacco trade.”

Questions were sent by email to Verbena and its attorneys, but no reply had been received at the time of publication. Moneyweb also reached out to Verbena and its attorneys by phone, to no avail.

Read: British American Tobacco asked to come clean on spying allegations

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COMMENTS   31

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SARS aggression here will achieve nothing here . The debt is far greater than what the company is worth . It will be liquidated and SARS will collect cents in the Rand . Rather keep the entity alive and get the debt paid off over time . Aggression from SARS so often achieves nothing for all parties involved.

Very true, Aggression in nearly all Situations achieves nothing. All the jobs this company created will similarly disappear. Just like they are now criminalizing ordinary taxpayers. Once declared a criminal in SA you are no longer employable and there goes whatever little they got from you. Kieswetter think thug mentality will lead to more compliance.

This is what MW readers have been asking for, go for it SARS.
Why should anyone want to keep them going, it just means less money into our pension funds from legitimate companies.

Agree – the illicit gains have long been shipped offshore into unrelated accounts…SARS will get ZERO from this claim and the taxpayer will be paying for protracted court battles that will result in ZERO convictions. Weve played this music before…it’s an ongoing South African theme – the Judicial system “appears” to be doing its job…just like SARS is “appearing” to do its job here! Nothing will happen! Why has SARS waited so long to bring them to book? That is the question!

Why would the Sars bulldog apparently turn a blind eye for an apparently illegal cigarette factory in johannesburg?

Why would Sars not care about the illegal cigarette trade killing the legal highly taxed cigarette trade that pays R17 tax for every R37 cigarette pack?

I speak under correction here, but rumors are that some politicians and their families are connected with this illegal trade.

Disagree, may not get all the $$ but directors and shareholders (possibly) could well end up in prison for a very long time. Bravo SARS

I don’t agree. The likelihood of the hoodlums paying off the tax if left to live on is probably zero. Far better to shut them down and get the kingpins in jail. That way maybe the current purchasers of the tobacco will turn to legal sources.

Of course the main reason for the illicit tobacco trade is the exorbitant taxes levied on tobacco products. Illicit trade increases as taxes increase. Fortunately I don’t smoke so it does not affect me. If you do give it up it will improve your health and keep money from feeding the criminal network running the country.

Agreed — Try threatening your customers to buy your beans !!!

Why did SARS take so long? Looks like a SARS inside job, reasons being,

Why let the business continue in a highly lucrative market and also why has enough time been given to remove assets and move money?
and by enough time I mean years!

And if it was trading illegally, why was it not closed on the day?

You can liquidate the company, sell their vehicles, off ice furniture and property. You may realise a few hundred million rand if you are lucky. The money is long gone. SARS, of course, never takes cognisance of the actual problem which is the cost of producing a pack of 20 smokes is less than one US$. In a country like Zimbabwe it is about US$0.50 (about R7.50). This sells for US$3 in SA which is about R45. One would be blind not to see the huge incentive to cut SARS out the loop. At many informal markets cigarettes are available for less that the duty that SARS would normally extract. Put that in your pipe and smoke it. Verbena 2.0 will open up shortly in competition with the hundreds of smugglers plying their trade across the most porous border this side of Mexico. Sleepy Joe would be proud. One can import 200 cigarettes (10 packs) duty free so the runners can cross the border legally even if the friendly customs officials are not looking the other way that day.

It would be interesting to to see which ANC ” leaders” are involved in this business. Not if, but which .

Agree lets see the high profiles that act squeaky clean who are up to their eyeballs in this.

Limpopo???????????? Bet my bottom dollar a certain fellow fond of red cloths is involved.

That one is easy – Duduzane Zuma. Well published.

Do you think that if Dudu Z gives free smokes to the nation,
he will be the next president?

And they got away with this for 3 years? 3 YEARS is a long time. SARS need to be asking why it took so long for this to be picked up…

too little, too late – can almost guarantee it – the 2nd verbena / other name is already functioning in the back ground

still no news about sars and the sa taxi industry and the zama zama industry

This lot is probably guilty of what they are accused off.

However.

It comes across as though SARS pronounced them guilty?? They were asked to “refute these claims” So if you are accused of murder and asked to “refute the claim” and you fail to do so you are guilty??

SARS under this Kieswetter guy seems to the new law is SA!!!

This is dangerous and should be condemned. SARS support a far larger criminal network is supporting the anc.

This Kieswetter guy just cant get rid of the stigma of being an anc puppet. Is this an anc factional battle?? Who has the other illegal cigarette businesses that has not been targeted??

Smells like anc BS if you ask me.

That’s the beauty of tax laws, the onus is always on the taxpayer. Guilty until proven innocent.

Unfortunately, that is the law in SA – for tax the onus is on the taxpayer. So if you can’t or don’t show that you are innocent then you are guilty. Now I would like to see the same principle being applied to the amounts paid to ANC ministers and their families who have been fingered in the Zondo commission as having received bribes, kickbacks or facilitation payments. You don’t hear any cases involving them?

I’m not a smoker. But an employee of mine buys his ciggies from a local spaza for R15.00.(pack of 20. Some funny brand name) Is this possible? During the hard lockdown last year they shot up to R70.00.
“Go figure”

I love it. Ban legitimate cigarettes and then when illegal ones pour into the country, act all indignant. Pathetic fools.

The whinging by Mnguni is laughable because no ‘legitimate’ tobacco industry exists in South Africa. Just do the numbers. Since SARS was gutted by Moyane and other Anc cadre cockroaches, they have not bothered to audit any of the so-called legitimate tobacco producers. Why were the owners of two of them almost taken out in a daylight attempted drive-by shooting a few months ago? Then there is the tatty little relationship between tobacco and our local politicians.
SARS know through the bank what goes in and out of my bank account to the nearest cent. My bank insists on FICA-ing me and “Knowing Me” to death. How did it take so long for SARS and ABSA to figure there was something dodgy with Verbena where the taxable income of R68 million was supposedly laundered over years? Sales receipts weren’t backing the 8.1 million kgs of imported leaf from 2016 to 2019? And why only approach the courts for liquidation in 2021? There is nothing left to liquidate. SARS are wasting money, time and resources. Go after the other so-called legitimate producers who are distributing to the pavement hawkers and spazas and corner cafes. Instead you audit me, a pensioner, every year for medical claims refunds – all of which went through my doctors and chemists accounts. WTF

SARS would not track payments through your bank account unless they were doing an audit. It would be impossible for them to do that and differentiate between legitimate transactions and others. The FICA legislation puts the onus on the banks to identify and report any suspicious transactions and report them to FICA. As with most government departments it seems nothing happens after that after all the Guptas were able to spirit billions out of the country despite exchange control regulations being in place as well.

SARS will remain mute on any involvement of their border controls same as ANC not paying over PAYE, UIF etc.

There will always be illegal trade here and elsewhere in the World. The rot really set in last year when Dr Dlamini Zuma and others banned the sale of Tobacco products without any Scientific evidence re Covid. People were forced to pay more than R750.00 for a carton of Cigarettes.Perhaps people are still trying to recover the outlay of the stupid decisions that where made and endorsed by Parliament and our beloved President. Now a carton cost over R300.00 when the average price elsewhere is a R100.00.

When all the okes that caused corruption and stealing from the poor are prosecuted, money retrieved and sent to prison folk might go and pay for cigarettes legally.

WJS.

Retired Tax payer and smoker

If you think you can operate a billion Rand trade like this without the input and co-operation of customs and SAPS with perhaps SARS, you must be smoking your socks.

Even if SARS is able to collect this money….
So what…. It gets wasted anyway.

Lose – Lose situation.
Tax Payer again screwed.

Thugs. What about the employees? This is how Edward Kieswetter treats entrepreneurs! Bring back Tom Moyane.

Many varied views in the Comments thus far, but it long past the time that this tree needed to be shaken, so I say go for it, and don’t let go!

Imagine how many billions were made during the illegal banning of cigarettes during lockdown? We will never know because it was all the government officials that had an interest in keeping them banned.

End of comments.

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