Senior South African Revenue Service (Sars) employees have told the Nugent commission of inquiry how the restructuring operation model at the tax entity compromised serious investigations.
The employees testified on Wednesday and explained how crucial Sars units were disbanded and the revenue collector lost the ability to measure compliance. The new operating model was introduced by now suspended Sars commissioner Tom Moyane when he was appointed in 2014.
Pieter Engelbrecht told the commission that he had joined Sars in 1998 as a legal adviser and was involved in criminal investigations. He explained that his unit dealt with organised crime, illicit financial flows, and high net worth individuals who used offshore entities and special purpose vehicles to hide money. He said his unit was functioning properly and had a good relationship with the National Prosecuting Authority (NPA) in terms of collaboration and prosecution of cases.
"No one had authority to stop cases, nor did anyone ask me to stop a case," he told the inquiry which was set up to investigate tax administration and governance issues.
He further testified that when the restructuring started he had received a letter informing him his position had been dissolved.
"It was around October 2015. Senior management was not aware of the decision," he said.
Engelbrecht said that since 2016 investigations had become fragmented.
"Currently, there is no capability to deal with illicit financial flows or focus areas," he added.
Dion Nannoolal, who is the senior manager responsible for high-value audit debt collection, said there was a limited focus on specialised areas.
He said there had been major challenges paying attorneys, some of whom had not been paid in over two or three years. Nannool explained that the chain of command to get budget approval was not conducive. In one case for sequestration approval, it went through about eight different people and took eight months to be approved.
“Sars is operating in a rowboat, while the taxpayer has a speedboat," he explained
Nannoolal said the revenue collector had lost hundreds of millions of rands because of the inefficiencies of the new model. On Tuesday, the commission heard how Sars management had changed the measurement definitions in calculations related to tax compliance, in order to misrepresent the level of people paying their taxes.
This led to the Auditor-General making adverse findings against Sars and found that it had breached legislative requirements on how to determine compliance. Former head of tax compliance Dr Thabelo Ramovhele says definitions were changed to make compliance look better than it actually was.
“When the economically active entity was introducing it as a definition, it pushed the CIT compliance to around 14%, from around 12%. But we knew that this was misrepresentation.”
President Cyril Ramaphosa appointed retired judge Robert Nugent in June to chair the commission to probe allegations of financial misconduct at Sars, including a shortfall of R50 billion between 2014 and 2018 under Moyane. Ramaphosa suspended Moyane following a breakdown of trust in his running of the organisation.
The hearings are expected to run until next week Friday.
