SARS opens up about Malema tax affairs

Background

 

On 27 June 2013 counsel for the South African Revenue Service (SARS), addressed a letter to Mr Julius Malema and his legal representative, cautioning Mr Malema to refrain from making false public statements about the state of his tax affairs and his engagements with SARS.

 

SARS is still involved in various aspects of litigation with Mr Malema and entities associated with him. Mr Malema was afforded a period of 48 hours to rectify the following false allegations—

 

·        That there was an agreement in principle between him and SARS to repay outstanding tax liabilities and that the agreement was breach by       SARS due to political interference

 

·        That a request for a compromise was declined by SARS due to political interference

 

·        That SARS was part of a “concerted effort” to discredit Mr Malema and caused the farm Schuilkraal to be sold to remove all means for Mr Malema to generate an income.

 

In subsequent weeks, Mr Malema has not only refused to correct his lies, he has in fact repeated such allegations in various news interviews.

 

Normally SARS would prefer not to allow legal and other processes of engagement with taxpayers to be side-tracked by questionable public campaigns in the media. SARS would also prefer to rather make its case before the relevant legal platforms at appropriate times instead of getting involved in public spats with non-compliant taxpayers. SARS considers the public comments made by Mr Malema and reported on by the media as a serious threat to the integrity of SARS, that it is necessary to respond.

 

SARS has therefore invoked Section 67(5) of the Tax Administration Act which allows SARS to disclose taxpayer information that would otherwise be treated as confidential, in order to disprove false allegations made against SARS and its processes.

 

SARS is a state institution and subject to the Constitution and the Bill of Rights. SARS seeks to apply the tax and customs laws it administers with fairness, in a transparent and even-handed manner without any external influence.

 

No single person in SARS can decide who to investigate, who to audit, who to settle tax debts with and who not to. Case selection for further investigation or audit is subject to oversight from various mechanisms - committees with governance rules exist to consider and execute certain activities. All these committees exist by statute, policy or governance mechanism and have very clear rules. They comprise of persons with the requisite knowledge and expertise and are themselves subject to oversight mechanisms.

 

SARS is a semi-autonomous public institution with specific statutory obligations. SARS has consistently conducted its work independently and in a non-partisan manner that does not allow for external interference. It is an established principle that the Minister of Finance, the Deputy Minister of Finance nor their respective offices involve themselves in the affairs of any taxpayer, particularly in instances where there is a dispute between SARS and a taxpayer.

 

 

 

HISTORY OF MR MALEMA’S INTERACTION WITH SARS

 

An analysis of Mr. Malema’s interaction with SARS in public records (media statements, interviews and records before court[1]) will demonstrate the following:

 

1.      In January 2010 Mr Malema claimed to be in possession of an “intelligence dossier” which in his view, proved that SARS had a special unit that was focusing on him and other persons because of their association and support for President Jacob Zuma. It is ironic that Mr Malema is now claiming the exact opposite.. At the time he claimed that these documents originated from within the state intelligence agencies. Later this so-called “dossier” was in fact revealed to be a product of a disgruntled former SARS-employee who was dismissed because of his involvement in rhino-poaching. SARS believed it was unfortunate that such a baseless document was used to attack a state institution. SARS even went to the extent of meeting with Mr Malema to take him through the entire “dossier” and to demonstrate to him the fictitious nature of the content. At the time Mr Malema indicated that he accepted SARS’s explanations.

 

2.      In July 2011 Mr Malema publicly invited SARS to audit his tax affairs. He claimed that his tax affairs were in order. In recent media interviews he has suggested that he approached SARS at the start of the process that has led to his predicament now. This is not true. 

 

During 2010 SARS made contact, on its own accord, with Mr Malema after he had failed to submit his tax returns for a number of years.[2] In accordance with SARS’s general procedures he was afforded a reasonable opportunity to make good on his tax obligations and submit outstanding returns.

 

On the insistence of Mr Malema, SARS attempted to resolve the matter within a month. It should be noted that Mr Malema was represented by lawyers and accountants and a Chartered Accountant from the very first interaction. At a later stage his representative team was broadened to include a legal firm and a member of the Johannesburg Bar Council. Far from complying and resolving his tax affairs within that month, every single time since then, a delay occurred on his part.[3]

 

Responses in respect of outstanding returns were only received when SARS repeatedly requested such information over many months. At no stage were any responses to SARS at the initiative of Mr Malema or his representatives.[4] It took him a period of more than 18 months to file his outstanding returns.[5] Ultimately he failed to regularise his tax affairs..

 

3.       In relation to the trust under Mr Malema’s control, even after a number of requests from SARS, he still has not registered it for tax purposes. [6]

 

4.       Neither of these situations – his personal income tax affairs and that of the trust - was helpful in demonstrating his willingness to comply with his tax obligations. Such situations do not only speak to the failure of Mr Malema to comply with his statutory obligations, but also the fact that it is not fair for SARS to treat one taxpayer different from another.

 

5.       After eventually receiving the outstanding tax returns, on analysis of the information at SARS’s disposal, it became evident that Mr Malema submitted inaccurate information to SARS for the tax years 2005 to 2011.[7] In respect of the trust under his control, the same was found to be the case.[8]  All indications were that Mr Malema was attempting to restructure his asset holdings without informing SARS.[9] This situation left SARS with no alternative but to launch a financial investigation into his tax affairs.[10]

 

          a.       At no stage was the Ministry of Finance, the Commissioner or Deputy-Commissioner for SARS in any way involved in the operational aspects of the investigation, nor the decision to commence with the financial investigation. This investigation was conducted in the ordinary course of SARS’s business.

 

          b.     The matter was assigned to the Financial Investigations team, who’s Senior Manager at the time was an African male. Since then, even though line managers have changed over time, the new senior manager responsible for the unit is an African male. The project leader, a white male reported to these managers throughout. Two lawyers were designated by SARS to participate in the case, of which one is a white female and the other is an African male. The primary financial investigator in the case is a white female. The suggestion that particular racial groups are "conspiring" against Mr Malema is ludicrous.

 

6.      The outcome of the financial investigation led to the following findings[11]:

 

          a.      Mr. Malema failed to register for tax in 2005;

 

          b.      Mr. Malema under-declared and mis-declared income in the years 2005 to 2011 and was assessed for an amount of approximately R 16 million;

 

          c.      Mr Malema failed to register the Ratanang Trust for tax purposes;

 

          d.      Mr Malema failed to submit the tax returns for the Ratanang Trust;

 

          e.     Whilst Mr Malema was engaging SARS, he was transferring assets he owned to third parties in a clear attempt to shift assets outside the reach of SARS.[12]

 

7.      Once assessed, Mr Malema failed to pay his tax that was due on the required date. He remained unresponsive to several attempts from SARS to get him to pay.

[13]It left SARS with no alternative but to obtain a default judgment for debt against him. Mr Malema, despite having had the opportunity to do so, failed to challenge this judgment.[14] This judgment led to the Sherriff of the Court to attach property in his name. Only at the stage when this occurred, did Mr Malema engage SARS with an offer to settle. 

 

          a.      It is important to note that a taxpayer at this juncture has several options open to him/her. He/she can object, appeal and take his/her dispute up along the hierarchy of Courts in the legal system. Mr Malema did submit an objection. His objection was denied. He chose not to appeal this decision.[15]

 

          b.     An alternative for a taxpayer at this stage is then to consider making an offer to settle. Tax settlements are guided by law and not by the whims and decisions of individuals in SARS. There are no “special deals” for certain types of taxpayers because of their status in society, despite the suggestions made by Mr Malema. He stands misinformed if he believes this to be the case. In fact, to the contrary, SARS has committees who consider these offers that convene on a weekly basis. Neither the Minister of Finance, the Deputy Minister of Finance nor the Commissioner or Deputy-Commissioner for SARS, or any other manager for that matter, can influence decisions by these committees. The considerations applied at the committee meetings are prescribed by statute and are recorded. A taxpayer either qualifies for settlement or does not.

 

          c.      A requirement for a settlement to be considered is that the taxpayer must make a full and frank disclosure of his/her financial affairs. Another requirement is that a taxpayer must truthfully disclose all his assets and liabilities, including those held on his/her behalf by third parties.[16] Settlement offers pass through a settlement committee.

 

          d.     In Mr Malema’s case, his offer was rejected and the reasons for this were put to him.[17]

 

8.      Mr Malema never made any attempt to pay any amount or portion thereof towards his tax debt. This left SARS with no alternative but to allow the Sherriff of the Court to continue with the sale of his possessions, in order to satisfy his tax debt.[18] In addition, because of the risk of dissipation of assets, SARS obtained an order of Court, preventing Mr Malema from further dissipating assets.[19] It was at this stage that SARS learnt that the National Prosecuting Authority with the Asset Forfeiture Unit had already submitted a claim over the Schuilkraal farm. For that reason SARS relinquished its claim over the farm.

 

9.      Through several act Mr Malema demonstrated that he is either unwilling or unable to pay his tax debts. It left SARS with no alternative but to institute sequestration proceedings against him.[20] Although having indicated his intention to do so, Mr Malema has yet to oppose this application.

 

 

CONCLUSION

 

As outlined, the behaviour demonstrated by Mr Malema has shown a consistent disregard for his obligations as a taxpayer. This is not the sort of behaviour the millions of honest taxpayers in this country should condone. His non-compliance is purely a tax matter – it has nothing to do with past or current political processes in the country.

 

·        Mr Malema failed to register as a taxpayer and consistently failed to submit income tax returns honestly and on time.

 

·        He has until now failed to register his trust for tax purposes. SARS had to register it on his behalf

 

·        Ultimately when SARS reached a conclusion of how much tax Mr Malema owed SARS, and despite him having had, by his own account at least R 4 million available at the time, he opted not to pay one cent towards his tax debt.

 

·        He accepted that he owed SARS R 16 million in tax, but he did not offer to convert any of his assets towards his tax debt.

 

·        He did not request any form of payment arrangement. Instead, he attempted to dissipate assets beyond the reach of SARS.

 

Mr Malema failed the procedural requirements to qualify for a settlement for tax debt through his own design, and not because “somebody decided” so. Mr Malema must, as we all do, face the consequences of his actions. He had ample opportunity to utilise the various mechanisms provided for in law to state his case.

 

He opted in other instances not to pursue the matters through the legal process. To attempt to politicise his predicament and attack a state institution is behaviour that cannot be condoned in a free, open and democratic society.

 

 

- SARS