SAA Board Chair contract extension; SAA, National Treasury & SARS: latest Quarterly Report, with Minister & Deputy; Office of the Tax Ombud: investigation into alleged delayed payment of refunds

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Finance Standing Committee

13 September 2017
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The South African Airways (SAA) presented its first quarter expenditure and performance report for the financial year 2017/18, in the presence of the Deputy Minister. SAA was expected to lay emphasis on progress made in the implementation of its turnaround strategy and corporate plan since its last appearance before the Committee.

SAA explained that the five-year corporate plan was adopted on the basis of the following assumptions: longer-term extension (minimum three years) of the maturing debts; a capital injection of R13 billion over a period of three years; retirement of five excess wide-body aircraft; no exit/returns of narrow-body aircraft; and that SAA was a going concern. Barring one or two which were in progress, none of the assumptions had materialised. This put the effective implementation of the Plan at risk. SAA made a profit of R19 million in July when it was budgeted to make a R207 million loss. This after it posted a R1.354 billion loss in the first three months of 2017. The loss had now declined to R1.335 billion, owing to implementation of the turnaround strategy. For the company to reach going concern status, it would have to acquire working capital or have loans extended for a period of 18 months; on condition that it met certain benchmarks. SAA was engaging lenders in this regard. Engagements with the lenders on long-term extension of the maturing debt were ongoing and one of the lenders had indicated that they would like to engage SAA on a payment plan. Also, the last of the five excess wide-body aircraft would exit the fleet in October 2018. One narrow-body aircraft had left the fleet, with four more expected to leave the fleet by December 2017 after leasers expressed no intention of renewing the leases. This would result in an overall flights reduction of 23% (Domestic: -37%, Regional: -11%, and International: -4%).

Deputy Minister Sfiso Buthelezi said there were glaring issues at SAA which must be addressed as a matter of urgency. As part of the strategy mix, government identified the need for a strategic equity partner. However, Treasury would continue demanding that management be regularised within SAA. SAA had serious inventory management issues. As an example, the airline had to auction R1 billion worth of obsolete stock for a mere R100 million. What had informed the buying of the stock whilst the company was bleeding? Another issue was SAA’s countless offices around the world that did not seem to serve a purpose such as one in Miami being used as a call centre. Also, SAA spent about R3 billion on aircraft leases with little returns at the end of the financial year. These were elementary issues which did not even need aviation expertise to pinpoint. The Finance Ministry had been engaging a lot more with the SAA management and board in recent times, where it has been highlighting issues as they arose. SAA had R6.785 billion in government guaranteed debt, some of which had to be paid by the end of October. This included R1.761 billion that was due to Citibank at the end of September 30. While Citibank wanted its loan settled soon, the other nine lenders had agreed to rollover their debt. However, they were discussions on the date of the rollover.

National Treasury indicated that the SAA board chairperson, Ms Dudu Myeni's contract was extended last year for an additional year and it was supposed to end on 31 August. The Minister of Finance then extended her tenure, until the annual general meeting (AGM). Treasury was hoping that the AGM should take place on 4 November 2017. The Minister believed it was prudent to take the decision on the board chair’s status during the AGM. At the AGM, the entire skills matrix of the board would be evaluated as part of efforts towards a holistic turnaround strategy and recapitalisation of SAA

Members asked if the Minister’s decision to extend the SAA board chair’s tenure was done in consultation with Cabinet consistent to the Memorandum of Incorporation (MOI). Was there a Cabinet resolution to extend her stay? Which part of the MOI informed such an overture? Was the Companies and Intellectual Property Commission (CIPC) informed about the extension as legally required? The Committee had to be appraised about the legality of the extension of the board chair’s tenure. Also, was there still an intention to dispose of Telkom shares to bailout SAA?

On the basis of a legal opinion drafted by the Parliamentary Legal Adviser, the Committee, after deliberations on the available evidence, was concerned about the legality of the extension of the term of office of the chairperson of the board of SAA. The Committee therefore believed that the decision to extend the term of office of the chairperson must be reviewed. The Committee requested that the Minister provide it with all documentary evidence relating to the extension of her term of office or her reappointment, including compliance with the provisions of the Companies Act and specifically the notice to the Companies and Intellectual Property Commission, provided such notice was given. The Committee strongly recommended that the SAA annual general meeting be held before the end of this calendar year.

National Treasury and the South African Revenue Service (SARS) briefed the Committee on first quarter expenditure and performance in the presence of the Minister. The Office of the Tax Ombud also presented findings on its investigation in terms of section 16(1) (b) of the Tax Administration Act 28 of 2011 into alleged delayed payment of refunds as a systemic and emerging issue.

Finance Minister Malusi Gigaba gave an overview on first quarter performance for both Treasury and SARS. Treasury’s performance in the first quarter was commendable. Treasury spent 96% of its quarterly budget; well within a satisfactory range. The net under-spending of R187.4 million spending was manageable. A notable achievement in the first quarter was the speedy appointment of a capable Director-General. SARS collected R66.5 billion worth of revenue in the first quarter against a R69.6 billion target; translating to a R3.1 billion deficit against printed estimate. The annual target was R342.5 billion. Treasury was assessing the implications of the SARS revenue target shortfall in the first quarter.

National Treasury stated that it recorded a net under-spending of R187.4 million, consisting of R209.8 million under-spending and R22.4 million over-spending in the first quarter. The underspend was mainly made up of the following: R16.6 million underspending on Injury on Duty due to outstanding awards that were in the employer’s possession as well as the amount budgeted for annual increases, which had yet to be implemented; R16.3million underspending on Civil Admin Auxiliary Services relating to the amount to be claimed by Government Pensions Administration Agency for administration expenses; R40.8 million underspending on computer services relating to the IFMS project, mainly in respect of system development which had not commenced as initially planned; and R27 million relating to the first quarter transfer payment to the Municipal Finance Improvement Programme (MFIP) which was projected to have been disbursed in April 2017. Funding pressures for compensation of employees remained a challenge. Treasury’s compensation of employees’ framework remained under pressure with an anticipated shortfall of R8.9 million for the current financial year as at 30 June 2017.

SARS collected R275.42 billion revenue year-to-date, with a deficit of R13.1 billion recorded against the printed estimate. However, amid fiscal pressures, SARS continued to be prudent in carrying out its mandate.

Reducing fraud and corruption remained an important target for SARS. On internal Investigations, most of the investigations related to personal income tax profile hijacking and misconduct. Consequently, 96 cases had been referred for investigation, with: 10 completed investigations referred for internal disciplinary processes; eight external individuals convicted; and five cases finalised by the National Prosecuting Authority (NPA).

SARS had made commendable redresses to its human resource demographics consistent to the Committee concerns during previous appearances. The workforce profile was one to be proud of in terms of gender equality. Of the total workforce, 37.56% were male and 62.04 female. 50.55% males occupied top management positions and 48.65% were female.

The Office of the Tax Ombud took the Committee through a report on the investigation into alleged delayed payment of refunds as a systemic and emerging issue at SARS. Challenges such as delays in the payment of tax claims by SARS had a negative impact on the morale of taxpayers. Some of the findings did not inspire taxpayer confidence.  On the essence of complaints by numerous taxpayers, complaints were that SARS employed certain mechanisms to unduly delay, or even avoid, paying out refunds due to them. They argued that, in this respect, the tax collection system was being implemented unfairly by SARS. This resulted in financial hardships to them and, in some instances, the near collapse of their businesses; in others, loss of jobs ensued.

From the review, it was clear that the system allowed for SARS to unduly delay the payment of verified refunds to taxpayers in certain circumstances. This had become a systemic issue and the system did not sufficiently protect taxpayers. The removal of the obstacles would go a long way towards addressing the problem. It concluded by pointing out the need for ensuring that refund payments are made as speedily as possible. Illustrative cases had shown that the system as presently administered by SARS did not always achieve this.

Members asked if the Tax Ombud had ever received complaints that SARS was being used to unfairly pursue individuals due to their political influence. They also asked if spending within the Ministry of Finance had increased since the Minister’s appointment in April. How many additional staff members had the Minister appointed? They referred to allegations in the public domain. Rumours hanging over leaders of strategic institutions must be cleared. Allegations must be raised openly so that they are clarified as the public should have absolute confidence on the revenue collector. Did the SARS Commissioner meet with the Gupta family and their associates in Dubai recently? Did the SARS Commissioner lodge a complaint against former Minister Pravin Gordhan with the Hawks? What was the status of Mr Vlok Symington and Mr Jonas Makwakwa in relation to SARS?

Meeting report

SAA Board Chair contract extension

The Chairperson stated that the South African Airways (SAA) was expected to take the Committee through progress made in the implementation of the turnaround strategy and the corporate plan since its last appearance before the Committee.

Mr F Shivambu (EFF) sought clarity on the status of the SAA board chairperson, Ms Dudu Myeni. Had she left SAA after the expiry of her tenure on 31 August? If that was not the case, the Executive would have to explain why Ms Myeni’s tenure had been extended.

Mr Dondo Mogajane, Director General: National Treasury, replied that Ms Myeni's contract was extended last year for an additional year and it was supposed to end on 31 August. The Minister of Finance then extended her tenure, until the annual general meeting (AGM). Treasury was hoping that the AGM should take place on 4 November 2017.

Mr A Lees (DA) asked about Ms Myeni’s whereaboutsi. The extension of her contract was irregular because it had not been approved by Cabinet. Also, the Companies and Intellectual Property Commission (CIPC) had not been informed about the extension as legally required.

Mr Shivambu added that the Committee had to be appraised about the legality of the extension of Ms Myeni’s tenure. Members would not want to interact with an individual without the locus standi to account on behalf of SAA.

Deputy Finance Minister Sfiso Buthelezi said Ms Myeni could not be in attendance as she had booked herself off sick. The reason for the extension of her tenure was that the Minister was still looking into SAA reports comprehensively. The Minister felt it was prudent to take the decision on Ms Myeni’s status during the AGM. At the AGM, the entire skills matrix of the board would be evaluated as part of efforts towards a holistic turnaround strategy and recapitalisation of SAA.

Mr Shivambu asked if the Minister’s decision to extend the SAA board chair’s tenure was done in consultation with Cabinet consistent to the Memorandum of Incorporation (MOI). Was there a Cabinet resolution to extend her stay? Which part of the MOI informed such an overture?

Deputy Minister Buthelezi replied that the SAA Memorandum of Incorporation gave the Minister power to extend a board’s tenure, as the shareholder representative of government. Section 13(5) of the MOI, which spoke to the extension of terms of non-executive directors, informed the Minister’s decision. 

Mr Lees believed the SAA deputy board chair could have taken over from Ms Myeni. Was her continued stay a directive from the President? He believed section 13(5) of the MOI spoke to the extension of the entire board’s tenure, not just its chairperson.   

Mr D Maynier (DA) said most Members and the public shared the view that extending Ms Myeni’s term was a poor decision. Why was her term extended when there were better alternatives?

Ms P Kekana (ANC) persuaded Members to look at the extension of the SAA board’s tenure up to the AGM from a different perspective. The decision could have been informed by the need to examine the status of the board as a whole as part of addressing the challenges. The board should be allowed to round off at the AGM.

Ms T Tobias (ANC) felt the Committee deserved a different explanation as to why Ms Myeni’s term of office had been extended. The Minister would not want to be found wanting on the regularity of the decision in terms of the law.

Mr Lees suggested that the Parliamentary Legal Advisor furnish the Committee with a legal opinion on whether the extension of the board chair was done in terms of the law.

Adv Frank Jenkins, Parliamentary Legal Advisor, said section 13(5) of the MOI was very specific and created special provisions under exceptional circumstances where the terms of all non-executive directors expired at the same time. The extension of tenure for the board chair was not covered by section 13(5). It was an issue that needed clarification. However, the role of the shareholder, in this case government, in terms of company law was critical. Company law provided the shareholder with certain powers to override certain provisions, under special conditions. 

Deputy Minister Buthelezi emphasised that the Minister wanted to look at the board holistically up to the AGM. The Minister’s decision was also taken in consultation with lawyers and there could be different interpretations of section 13(5). The Minister did not get a directive to extend the chair's contract.

Mr Maynier asked the Deputy Minister to confirm that there was no requirement in law to extend Ms Myeni’s term as chair of SAA board, and the extension was in fact a political decision.

Deputy Minister Buthelezi said he had not come to defend any decisions. The reasons had been given as to why certain decisions were taken. Extending the board chair’s tenure was a business imperative not political decision as Mr Maynier was suggesting.

Mr Shivambu said in terms of the existing MOI, there was no basis for the regularisation of Ms Myeni’s reappointment. She could not continue as board chair. Her removal would ensure that SAA’s turnaround strategy would be effectively implemented.

Deputy Finance Minister Buthelezi said all the issues identified by Members had been taken into account by the Minister. There was never an intention to take decisions outside the law.

South African Airways presentation

Mr Musa Zwane, Acting CEO, SAA, briefed the Committee on the implementation of the five-year corporate plan. The corporate plan was adopted on the basis of the following assumptions: longer-term extension (minimum three years) of the maturing debts; a capital injection of R13 billion over a period of three years; retirement of five excess wide-body aircraft; no exit/returns of narrow-body aircraft; and that SAA was a going concern. Barring one or two which were in progress, none of the assumptions had materialised. This put the effective implementation of the Plan at risk.

Engagements with the lenders on long-term extension of the maturing debt were ongoing and one of the lenders had indicated that they would like to engage SAA on a payment plan. However, the capital injection was the purview of the shareholder and it was receiving attention. Also, the last of the five excess wide-body aircraft would exit the fleet in October 2018. One narrow-body aircraft had left the fleet, with four more expected to leave the fleet by December 2017 after leasers expressed no intention of renewing the leases. This would result in an overall flights reduction of 23% (Domestic: -37%, Regional: -11%, and International: -4%).

The dashboard on strategy implementation was updated and tabled with the Group Executive Committee monthly and the Board Strategy Committee on a quarterly basis. The revised Delegation of Authority was tabled with a Board Committee and had been referred back for further re-work. Also, an EXCO/Board Strategy session, initially scheduled for the 14th to 15th of September 2017 had been deferred to a later date. Key risks to the implementation of the corporate plan were: going concern and liquidity constraints; highly competitive operating environment; limited skills in aviation and airline turnarounds; ineffective governance practices; a high vacancy rate at leadership and critical positions; counterparty contracts; insufficient narrow-body and aging fleet units; limited capacity to effect change management; deterioration of the macro-economic conditions in core markets; fragmented national aviation policy; labour risks; and undue exposure to adverse movement in jet fuel, interest and currency exchange rates.

Discussions

Ms Tobias was not impressed with the presentation. SAA had indicated that the turnaround strategy was on track whereas the achievements to date fell far short of the projected targets. SAA was taking uninformed decisions clearly due to a lack of capacity within the entity to implement the corporate plan. Also, what had informed the postponement of the EXCO/board strategy session whilst SAA was grappled with serious challenges?

Mr Zwane replied that the report was high-level but SAA would provide a detailed and comprehensive report at its next appearance.

Mr Lees said the indication was that potential lenders were reticent about lending to SAA because of the continued presence of Ms Myeni. How much money was required to fully implement the turnaround strategy? Where would the funding to finance the turnaround strategy be sourced? What was the position on the loans reaching maturity at the end of September if lenders stood their ground and refused to rollover loans?

Mr Maynier asked for confirmation that Mr Vuyani Jarana had been appointed as new CEO. What terms had been agreed to as part of his condition of employment?

Mr Peter Maluleka, Board member, SAA, said Mr Maynier’s question pertaining to the incoming CEO’s conditions of service would be responded to during SAA’s next appearance as negotiations were still ongoing. Also, SAA was working towards realising its yearly projections and targets in the remaining quarters. The postponement of the EXCO/board strategy session meeting initially slated for 14 September was to ensure that the incoming CEO plays a central role during the session.

Mr Lees was not convinced by the response. The incoming CEO had already been appointed and there was no way he could have signed an appointment letter before conditions of service had been agreed upon. Also, what was SAA going to use to pay suppliers up to the Medium Term Policy Budget Statement?  If existing guarantees were used to get more money from lenders, SAA would be liquidated due to lack of working capital.

Mr Shivambu expressed distrust for the entire SAA board. The board had deliberately misled the Committee before and entertaining it was a waste of time; they must not be taken seriously.

Ms Kekana asked Treasury to accede to some of the conditions brought forth by lenders. She asked Treasury if there was a possibility of removing SAA from the purview of the Public Finance Management Act; by allowing at least 25% private equity. The proposal was not fully-fledged privatisation per se but SAA could take the Telkom route.

The Chairperson felt the presentation was thin and flimsy. It was no longer compelling to hear about the structural challenges facing SAA. It should be well understood that poor performance was largely due to poor governance. What was Treasury doing to deal with the challenges? The Committee holds Treasury accountable for the poor performance of SAA. Also, people with aviation experience should steer SAA forward. He believed SAA should be moved to the public enterprises committee and urged the Members to give it some thought.

Deputy Minister Buthelezi said there were glaring issues which must be addressed as a matter of urgency. As part of the strategy mix, government noted the need for a strategic equity partner. However, Treasury would continue demanding that management be regularised within SAA. SAA had serious inventory management issues. As an example, the airline had to auction R1 billion worth of obsolete stock for a mere R100 million. What had informed the buying of the stock whilst the company was bleeding? Another issue was SAA’s countless offices around the world that did not seem to serve a purpose such as one in Miami being used as a call centre. Also, SAA spent about R3 billion on aircraft leases with little returns at the end of the financial year. These were elementary issues which did not even need aviation expertise to pinpoint. The Finance Ministry had been engaging a lot more with the SAA management and board in recent times, where it has been highlighting issues as they arose.

Mr Mogajane acknowledged that SAA’s capital structure needed to be addressed. Treasury had initially agreed that R13 billion would be injected into SAA over a three year period. The building blocks were present and Treasury would not want to set the incoming CEO up for failure because of a shaky capital structure- Treasury was playing a much more active role in its interaction with SAA and engagements with lenders were on an ongoing basis. Also, Treasury had drafted a Special Appropriation Bill to recapitalise SAA with a R10 billion bailout, which it hoped to table in Parliament as the ripple and catastrophic effects of a loan default by one state-owned enterprise were well understood. While some of the money raised in the R10 billion Bill would be used to repay lenders, R2.4 billion of the sum would be required as working capital for SAA until next year March. Treasury hoped Parliament will accede to the proposal, failure to which it would have to look to Plan B.

Mr Shivambu asked if there was still an intention to dispose of Telkom shares to bailout SAA. Was Treasury still going to take such an unwise and irrational decision?

Deputy Minister Buthelezi replied that disposal of Telkom shares was only stated as one among many possible options. Roping in a strategic equity partner and having lenders convert debt into equity were other options available. He pleaded with the Committee to give Treasury time to allow the process to take its course and report back. Government was aware of the concerns and issues raised, and Telkom was an important asset. SAA had R6.785 billion in government guaranteed debt, some of which had to be paid by the end of October. This included R1.761 billion that was due to Citibank at the end of September 30. While Citibank wants its loan settled soon, the other nine lenders had agreed to rollover their debt. However, they were discussing the date of the rollover.

Ms Phumeza Nhantsi, CFO, SAA, pointed out that inventory management was a legacy issue; it had everything to do with decisions made in the past and SAA was making efforts to remedy the situation and controls had been put in place for the past three years. Also, SAA was doing a cost-benefit analysis and looking into closing the Miami call centre down and introduce 24 hour call centres in the country. On financial performance, SAA made a profit of R19 million in July when it was budgeted to make a R207 million loss. This after it posted a R1.354 billion loss in the first three months of 2017. The loss had now declined to R1.335 billion, owing to implementation of the turnaround strategy. For the company to reach the going concern test, it had to acquire working capital or have loans extended for a period of 18 months; on condition that it met certain benchmarks. SAA was engaging lenders in this regard.

The Chairperson asked about progress in dealing with corruption allegations and progress on the claims by the cabin crews as heard in the media. 

Mr Zwane said the Board considered the investigation reports from Edward Nathan Sonnenbergs (ENS) and Open Waters at its meeting on 29 August 2017. The Ernst & Young report was still being finalised and it had not committed on a deadline to complete this report. ENS and Open Waters were in the process of finalising their respective reports based on inputs from the board. Once all reports had been finalised, the board would implement the recommendations.

On the basis of a legal opinion drafted by Adv Jenkins, the Committee, after deliberations on the available evidence, was concerned about the legality of the extension of the term of office of the chairperson of the board of SAA. The Committee therefore believed that the decision to extend the term of office of the chairperson must be reviewed. The Committee requested that the Minister provide it with all documentary evidence relating to the extension of her term of office or her reappointment, including compliance with the provisions of the Companies Act and specifically the notice to the Companies and Intellectual Property Commission, provided such notice was given. The Committee strongly recommended that the SAA annual general meeting be held before the end of this calendar year.

Opening Remarks by Minister of Finance

Finance Minister Malusi Gigaba gave an overview on the first quarter performance for both Treasury and the South African Revenue Service (SARS). Treasury’s performance in the first quarter was commendable. This commendable performance had been achieved under significant fiscal pressures and resource constraints in all government departments. Treasury spent 96% of its quarterly budget; well within a satisfactory range. The net under-spending of R187.4 million spending was manageable. A notable achievement in the first quarter was the speedy appointment of a capable accounting officer, Director-General Mr Dondo Mogajane. Also, R2.2 billion was transferred to SAA during the quarter under review to settle a debt from Standard Chartered Bank. A more holistic approach to SAA’s challenges would be announced in due course.

SARS collected R66.5 billion worth of revenue in the first quarter against a R69.6 billion target; translating to a R3.1 billion deficit against printed estimate. The annual target was R342.5 billion. Treasury was assessing the implications of the collected revenue falling short of target in the first quarter. However, GDP growth had rebounded following two consecutive contractionary quarters. Although GDP growth remained at risk, Treasury was increasingly optimistic that positive growth would materialise in the coming quarters. Fiscal pressures being experienced could only be eased through improved growth rates. The global economy continued to record marginal growth and global players were being increasingly supportive of emerging markets. Government was taking coordinated steps to capitalise on the prevailing conditions.

National Treasury presentation

Ms Slindile Kubheka, CFO, National Treasury, stated that the net under-spending of R187.4 million that consists of R209.8 million under-spending and R22.4 million over-spending was mainly made up of the following: R16.6 million underspending on Injury on Duty due to outstanding awards that were in the employer’s possession as well as the amount budgeted for annual increases, which had yet to be implemented; R16.3million underspending on Civil Admin Auxiliary Services relating to the amount to be claimed by Government Pensions Administration Agency for administration expenses; R40.8 million underspending on computer services relating to the IFMS project, mainly in respect of system development which had not commenced as initially planned; and R27 million relating to the first quarter transfer payment to the Municipal Finance Improvement Programme (MFIP) which was projected to have been disbursed in April 2017.

Funding pressures for compensation of employees remained a challenge which has resulted in restrictions on counter offers as a retention mechanism and vacant positions not filled after staff resignations. Treasury’s compensation of employees’ framework remained under pressure with an anticipated shortfall of R8.9 million for the current financial year as at 30 June 2017. Consequently, it had embarked on a process of offering early retirement to eligible employees, age 55-59 in the current financial year, with the assumption that the Department covers the liability. The process was still on-going and was at the engagement stages with the relevant stakeholders such as Budget Office, Labour and the affected employees themselves. A business case with clear implementation plan had also been developed and will be routed for approval by the Accounting Officer and Executive Authority approval.

Discussions

The Chairperson commended Treasury’s performance since the Minister assumed duty in April 2017. 

Ms Kekana commended Treasury’s performance. However, the R22.4 million overspending had to be brought down as the identified programmes could overheat thereby leading to a wider spending margin in the coming quarters. She appealed for the judicious use of the Jobs Fund given the challenges of unemployment and dampened economic growth. She asked for a comprehensive report on IFMS programme as there had been indications that it was not being efficient.

Mr Maynier directed his question to the Minister. Had spending within the Ministry of Finance increased since April? How many additional staff members had been appointed? He asked for comment on the perception that there was a civil war between the Ministry of Finance and Treasury; and that the Minister was not taking advice from senior officials at Treasury. Also, why had Mr Schalk Human been replaced as Chief Procurement Officer?

Mr Shivambu made reference to a letter extending the tenure of SAA board chairperson, signed by the Minister. In a previous engagement, the Parliamentary Legal Advisor had illustrated that there was need for clarification on the legality of the extension of the contract. He asked for clarity. Also, was government going to sell Telkom shares to bailout SAA? What was the position of the Minister on the need for rapid transformation of the financial sector?

The Chairperson replied that during the morning engagement with SAA, the Committee, after deliberations on the available evidence, was concerned about the legality of the extension of the term of office of the chairperson of the board of SAA. The Committee therefore believed that the decision to extend the term of office of the chairperson must be reviewed. The Committee strongly recommended to the Minister that the SAA AGM meeting be held before the end of this calendar year. He urged Members to defer questions on the IFMS programme as they were under the purview of the Standing Committee on Appropriations.

Minister Gigaba explained that the appointment of ministerial staff was guided by the ministerial handbook. There was no law or hard and fast rules on how appointments should be handled. On the perception that there was a civil war between the Ministry and Treasury, there was absolutely nothing of that nature; these were baseless rumours. Also, there was nothing untoward about recent Treasury appointments. It was not just the chief procurement officer but the head of IFMS, and an acting accounting general were appointed as well. The Minister, following due process and in terms of the law, had the powers to make decisions and establish the team he desired to work with. There was absolutely no truth in rumours that there was a purge in Treasury. He stood by the responses of the Deputy Minister furnished in the morning on the extension of the SAA board chair’s tenure. The Minister acted on the basis of a legal opinion in the first instance and would revert back to check if the extension was regular. It was agreeable that transformation of the financial sector was crucial and convening a financial sector summit soon was informed by the stance.

Mr D Hanekom (ANC) asked for further clarification on the extension of the SAA board chair’s tenure. It was not just the opinion of the legal advisor but a reading of the Memorandum of Incorporation appeared to indicate that the extension might have been irregular. He urged the Minister to have a relook at the relevant provision. Also, Members took comfort in the assurance that there was no purge at Treasury. He asked for the number of people appointed in the Ministry and if the number was within ministerial handbook prescripts.

Minister Gigaba replied that a comprehensive approach was being taken to address the challenges within the SAA board and management. As it stood, a vacant position for an aviation specialist had not been filled. Not filling the position was informed by the same reasoning. Two processes were underway; a comprehensive evaluation of the current board, and a skills audit in terms of the current and required skills. Decisions would be made but the Ministry would not want to take a piecemeal approach- Treasury would report back in due course. On the number of appointees within the Ministry, a headcount would be conducted and the outcome would be provided.

Office of the Tax Ombud presentation

Judge Bernard Ngoepe, Tax Ombud, took the Committee through a report on the investigation into alleged delayed payment of refunds as a systemic and emerging issue at SARS. Challenges such as delays in the payment of tax claims by SARS had a negative impact on the morale of taxpayers. Some of the findings did not inspire taxpayer confidence.  On the essence of complaints by numerous taxpayers, complaints were that SARS employed certain mechanisms to unduly delay, or even avoid, paying out refunds due to them. They argued that, in this respect, the tax collection system was being implemented unfairly by SARS. This resulted in financial hardships to them and, in some instances, the near collapse of their businesses; in others, loss of jobs ensued.

From this review, conducted in terms of section 16(1) (b) of the Tax Administration Act, 28 of 2011, it was clear that the system allowed for SARS to unduly delay the payment of verified refunds to taxpayers in certain circumstances. This had become a systemic issue and the system did not sufficiently protect taxpayers. The removal of the obstacles would go a long way towards addressing the problem. Complaints increased during the latter part of 2016 to March 2017.  A number of complaints that the payments of refunds were unduly delayed were justified; the refunds could and should have been paid earlier. In such instances, no satisfactory explanations were given by SARS for the delays. Some of the mechanisms employed by SARS, had justifiably given taxpayers the impression that SARS’s intention was, at least in some instances, to avoid parting with the money it should pay out. The financial hardship to taxpayers caused by the delayed payment of refunds had been drastic in some instances; how much the amount was, does not matter. It was accepted that SARS is confronted with the problem of fraudulent refund claims. Some of the measures it puts in place should be understood in this context. Notwithstanding the constraints, once verification/audit of the refund was completed, there should be no undue delay; yet illustrative cases show that this had been happening.

It was commendable to pay out as many taxpayers as possible as SARS says it did, however: that would be of no comfort to a taxpayer whose refund remains unpaid, and who may be enduring financial hardships; the residual (non-paid) taxpayers may be of very high value, whose payments, once made, would reduce the amount of tax collected over that particular period. It was therefore imperative that they be paid out timeously.

The Tax Ombud concluded by pointing out the need for ensuring that refund payments are made as speedily as possible. Illustrative cases had shown that the system as presently administered by SARS did not always achieve this.

Discussion

Ms Kekana said the issues identified by the Tax Ombud were fundamental and had far-reaching implications on the taxpayers. What was the view of SARS on the Ombud’s findings? Were systems and processes linked and robust enough to ensure efficiency?

Mr Shivambu suggested substantial engagements on a later date about the broad legislative framework of the Office of the Tax Ombud. Its operational structure, autonomy and status had to be well defined. Currently, the Office’s relationship with SARS was blurred, and the checks and balances were not sound. It had to be positioned to be autonomous and impactful. It was a necessary and long overdue discussion.

Ms P Mabe (ANC) asked if the Tax Ombud had ever received a complaint that SARS was being used to unfairly pursue individuals due to their political influence.

Mr Lees stated that the report was somewhat an indictment on SARS operations and confirmed many of the assertions by the public. During the Ombud’s investigations, was there any indication that some of the identified problems were intentional or due to incompetence? 

Judge Ngoepe replied that the report had also been reviewed by the Minister before being made public. Mr Shivambu’s suggestions were correct as the current structure of the Office in relation to SARS was not satisfactory. On whether some of the identified challenges were intentional; that was difficult to draw conclusions on and would require a comprehensive and in-depth enquiry that would involve the cross-examination of individuals to infer intention. The report and investigations were restricted to the alleged delays in payment of refunds as a systemic and emerging issue.

Mr Tom Moyane, Commissioner, SARS, said SARS welcomed the report and was initially open to having the Tax Ombud conduct investigations. He underscored that that the independence of the Tax Ombud was an ongoing discussion. However, the process needed sufficient time as stakeholders needed to look into a number of issues such as funding, autonomy and legislative framework so that the Office could have sufficient grounds to carry out its work. The report gave a fair perspective and SARS was making efforts to dissect all the issues raised and ameliorate the challenges. The commitments being made would be pursued across the entire spectrum.

He emphasised that at no material time did he, or any other senior member at SARS, direct the withholding of funds in order to prop up revenue collection targets and figures. SARS was on a drive to deal with the issues identified; there was not excuse in upping the ante to ensure systems are robust and efficient. Also, SARS was an apolitical organisation and took the protection of taxpayers in terms of the Tax Administration Act seriously. In the event that incompetence was to blame for delays, SARS would institute consequence management to ensure that it was stamped out across the entire spectrum. He assured the Committee that the issues raised by the Tax Ombud would be addressed.

The Chairperson asked about speculations that some politically connected individuals were not paying tax. Had any such complaints reached the Tax Ombud? The Committee would need to explore the possibility of calling a closed meeting to dissect issues in relation to this.

Judge Ngoepe replied that there had been complaints that some individuals were not being treated fairly, witch- hunted or unfairly pursued. However, the Office was only in a position to relay the information to SARS and had already done so.

South African Revenue Service presentation

Mr Moyane took the Committee through a presentation on SARS first quarter performance. R275.42 billion revenue had been collected year-to-date, with a deficit of R13.1 billion recorded against the printed estimate. However, amid fiscal pressures, SARS continued to be prudent in carrying out its mandate.

Lower Import VAT than printed estimate by R1.6 billion (5.2%) was collected, mainly due to declining contributions in key chapters namely machinery, original equipment components and photographic instruments.

Personal Income Tax (PIT) was lower by R5.6 billion (5.1%) against printed estimate mainly due to lower than expected PAYE of R4.7 billion (4.3%) and lower PIT assessment payments of R0.5 billion (20.1%). The lower than expected PAYE was partly due to the early PAYE payments that were received in March instead of April 2017. Targets on VAT refunds fell short of printed estimate by R0.7 billion (1.5%), as real gross fixed capital formation recorded a slower growth of 1.0% quarter-on-quarter in Q1-2017, from the 1.7% quarter-on-quarter in Q4-2016 and continued to affect refund claims. Temporary shutdowns by automotive manufacturers for plant upgrades also had a direct impact on exports. However, SARS remained committed to the reduction of the processing time for VAT refunds. Also, owing to shrinking contributions in key chapters namely clothing (combined) and footwear as well as cereals, lower customs duties by R2.2 billion (6.3%) were recorded.

Reducing fraud and corruption remained an important target for SARS. On internal Investigations, most of the investigations related to personal income tax profile hijacking and misconduct. Consequently, 96 cases had been referred for investigation, with: 10 completed investigations referred for internal disciplinary processes; eight external individuals convicted; and five cases finalised by the National Prosecuting Authority (NPA).

SARS had made commendable redresses to its human resource demographics consistent to the Committee concerns during previous appearances. The workforce profile was one to be proud of in terms of gender equality. Of the total workforce, 37.56% were male and 62.04 female. 50.55% males occupied top management positions and 48.65% were female.

Discussion

Mr Maynier asked whether SARS was projecting a revenue deficit for the year. He asked for confirmation on whether the Gupta family was under investigation for tax evasion. Were the Gupta ITA34 forms which recently surfaced in the public domain authentic?

Ms Mogola Makola, Chief Officer: Enforcement, SARS, replied that the enforcement division paid attention to all reports in the media and any information brought before it. SARS investigates all cases which warrant an investigation and does not favour any taxpayers. She could not divulge any further information on the basis of secrecy provisions in terms of the Tax Administration Act.

Mr Shivambu referred to allegations in the public domain. He asked if the Commissioner met with the Gupta family and their associates in Dubai. Did the Commissioner attend a conference to purportedly plan the future of the country with the said people in Dubai? Also, did Mr Jonas Makwakwa receive a bonus payment while on suspension?

Mr Moyane replied that the reports on the Dubai trip were ‘complete hogwash and nonsense’. He was aggrieved by all the lies and relentless attacks on his integrity. He stressed he had photos of what was a family Christmas holiday in Portugal with friends known from his Mozambique exile days, followed by a holiday in Dubai. At no point did he meet with the said people. He had evidence of all the steps he took. The allegations were fake news of the lowest level. He added that his life, and the lives of his team, were under threat. One of his protectors was recently shot and it was not an attempted hijack. It was a hit- all six who entered his house wore balaclavas. He made reference to allegations previously raised in the Committee that he had been booked in a Paris hotel and decided to cancel the booking at the taxpayers’ expense. During the work assignment in Paris, he had become seriously ill while in the said hotel and the embassy had to be called. Whoever came up with the question would need to answer why he became ill as he was clearly being followed. People seemingly knew all their movements. They were being followed wherever they were and there were constant threats to their lives.

The Chairperson asked Mr Moyane to respond to allegations that he had lodged a complaint against former Minister Pravin Gordhan with the Hawks. Also, what was the status of Mr Vlok Symington in relation to SARS?

Mr Moyane replied that he had not opened any case against former Minister Gordhan. He only opened a case against two individuals who had confessed to bugging the NPA offices. It was his duty as an accounting authority to uphold the law.

Mr Hlengani Mathebula, Chief Officer: Communications and Strategy, SARS, replied that the Jonas Makwakwa matter was with the courts and SARS had filed its closing arguments. The decision or sanction was awaited in terms of the process. In terms of SARS standards and procedure, all employees on suspension were not entitled to a bonus payment. Therefore, Mr Makwakwa had not received any bonus and that was communicated to him. Also, Mr Vlok Symington was involved in a scuffle with the Commissioner’s then bodyguard around October 2016. Mr Symington then lodged a complaint against the said bodyguard. A private firm of attorneys recommended that the SARS Commissioner institute disciplinary proceedings against both the bodyguard and Mr Symington. Consequently, a hearing had been scheduled for 18 September. However, whilst awaiting the disciplinary hearing, Mr Symington decided to lodge an urgent court interdict against the SARS hearing. Hence, SARS was waiting for judgement from the courts. Also, revenue projections were largely a determinant of economic conditions and the expectation was that fiscal pressures would dampen owing to better growth prospects.

Mr Shivambu stated that rumours hanging over leaders of strategic institutions must be cleared. Allegations must be raised openly so that they are clarified. The public must have absolute confidence in the revenue collector. Also, there was need to investigate what was important; it had to be made clear what took precedence; the constitutional obligation to oversee state entities or the provisions on secrecy in the Tax Administration Act.

The Chairperson said the explanations from SARS seemed reasonable and unless there was evidence to the contrary they had to be accepted. The Commissioner had no reason not to feel strongly about attacks on his integrity if they were baseless. It was wrong that journalists post misleading stories. They must account for it.

The meeting was adjourned.

 

 

 

 

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