SARS Commissioner on SARS Annual Report and Makwakwa

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Finance Standing Committee

28 November 2017
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The agenda for this meeting was the 2016/17 SARS Annual Report; the return to work of suspended SARS Executive, Mr Jonas Makwakwa; the Vlok Symington matter, the SARS Commissioner letter on the KPMG “intelligence report”; illicit financial flows probes; and a proposed judicial commission on SARS. Due to the time spent  discussing the Annual Report and the Makwakwa matter, other items were not discussed. 

Commissioner Tom Moyane led the large SARS contingent, in excess of 10 people. He said the 2016/17 SARS annual performance balanced three critical levers to deliver its mandate: service, education and enforcement. He said SARS was a resilient organisation and that it had collected over a trillion rand for the second time in difficult circumstances. Key aspects of the report were:
• R1 144.081bn collected vs. a target of R1 144.382bn
• 6.9% revenue growth vs. 0.3% GDP growth
• R50.6bn cash collected from overdue debt to SARS (4.8% year on year improvement)
• 58% increase in year on year narcotics seizures
• R4.2bn shortage in customs revenue could be attributed to lower consumer demand.

Members' discussion on SARS annual performance was dominated by the following:
• withholding of tax refunds - there was substantial deliberations on this - as Committee members felt SARS was penalising lawful taxpayers and that delaying tax refunds to boost revenue was harming the economy. SARS replied that although there were some system constraints that may have led to some delays, it was physically impossible to withhold or delay tax refunds to SARS customers. 
• irregular expenditure for bonuses of senior executives - Committee members were concerned about the management and procedural correctness of the approval of bonus payments. SARS replied that it was within its rights to award bonuses without ministerial approval. However, the Auditor General was firmly opposed to this, hence the audit finding of the bonuses as irregular expenditure.
• standoff with the Auditor General - SARS was seeking a legal opinion and was awaiting the outcome of the matter in court. 
• tax ombudsman - The ombudsman investigated why SARS did not pay refunds when already approved for payment. At this stage there is no proof that withholding was deliberate - this would require a more in depth investigation.
• overall status at SARS and negative public perceptions - all Committee members were concerned about the general negative public perceptions of SARS, given the current challenges it was facing.

The discussion about Mr Jonas Makwakwa, SARS Chief Officer: Business & Individual Tax, who was suspended in September 2016 and returned to work in November 2017, took up substantial time and was vigorous, direct and very robust. All Committee members were very concerned about the manner in which the Commissioner had handled such a serious issue and some very harsh words were directed at the Commissioner for his inappropriate management of the matter.

SARS Commissioner Tom Moyane responded he had taken all his decisions on the matter with due consideration and had followed all the correct procedures. Mr Mawkwakwa was suspended when the matter of possible transgressions were first brought to him - however a subsequent independent external process cleared him of any misconduct in his employment at SARS, so he was allowed back at work, despite a criminal investigation against him based on potential FIC (Financial Intelligence Centre) transgressions. Mr Moyane said he did not know what the progress was on these investigations by the Hawks.

Committee members were adamant that Mr Moyane did not act in the best interest of SARS, government and the country in allowing Mr Makwakwa back at work with a serious criminal investigations against him, still unresolved - at the very least he had to be suspended until there was clarity on the Hawks investigation outcome.

Despite Mr Moyane maintaining that he had followed correct protocol on Mr Makwakwa and that SARS would abide by the unfolding legal process, the Committee Chairperson said the actions of the Commissioner were not credible and not befitting a person in such a senior government post. The Committee needed clear answers - not smoke and mirrors and fuzzy answers. The Committee were keen to meet again before Parliament rose but the SARS Commissioner was unavailable. There was a tentative agreement to meet during parliamentary recess on 5 December 2017 to continue the meeting with SARS.

Meeting report

The agenda was: Annual Report and Discussion thereof; Response to Tax Ombudsman Report; Follow-up on Mr Jonas Makwakwa matter; Follow-up on Mr Vlok Symington matter; Further response to Commissioner’s letter on KPMG Report on SARS “Intelligence Unit”; Progress on illicit financial flows since last meeting (including Panama/Paradise Papers); Other Issues: proposed judicial commission on SARS.

The SARS contingent led by Commissioner Tom Moyane was large (in excess of 10 people). Advocate Eric Mkhwane, CEO: Office of the Tax Ombudsman was also present. There was a substantial media presence - three TV stations, Business Day, Times Media, Fin24 and others. Members from OUTA (Organisation Undoing Tax Abuse) were also present.

Opening remarks by Chairperson
The Chairperson indicated that as everyone present knew one another, there was no need for introductions, in the interest of time, and asked SARS to brief the Committee on its Annual Report 2016/17. He advised that other Committee members would join in due course as they were still involved in other meetings. 

South African Revenue Service 2016/17 Annual Report: briefing by SARS
Mr Tom Moyane, SARS Commissioner, was supported by senior staff members: Mr Teboho Mokoena Chief Officer: Human Capital and Development, Dr Randall Carolissen: Group Executive: Revenue Planning, Analysis, Reporting and Research, Mr Johnston Makhubu: Acting Chief Financial Officer, Mr Hlengani Mathebula: Chief Officer Governance, International Relations, Strategy and Communications and Mr Luther Lebelo: Group Executive: Employee Relations.

Mr Moyane spoke on the Annual Report, saying SARS annual performance balanced three critical levers to deliver its mandate: service, education and enforcement. SARS was a resilient organisation and it had collected over a trillion rand for the second time in difficult circumstances. Key aspects of the report were:
• R1 144.081bn collected vs. a target of R1 144.382bn
• 6.9% revenue growth vs. 0.3% GDP growth
• R50.6bn cash collected from overdue debt to SARS (4.8% year on year improvement)
• 58% increase in year on year narcotics seizures
• R4.2bn shortage in customs revenue could be attributed to lower consumer demand.
• Systems uptime 99.38% vs. a target of 99%
• 76% of external spend was towards suppliers with BBBEE recognition
• Payment to SARS suppliers within three days. 
• SA ranked in the top 25% of counties globally in terms of tax collection
• 76% of youth trainees were absorbed into SARS and in 2017/18, trainee intake would be 226.

Mr Moyane concluded by saying that despite negative media coverage, SARS had performed well.

Discussion
Mr A Lees (DA) asked why the Commissioner had not briefed the Committee on the irregular expenditure to do with bonus payments to executive staff. He asked what the latest developments were on the matter. He said that as far as he knew, the Auditor General was opposed to this. He also asked if R930 000 was paid to Mr Makwakwa as part of the bonus scheme.

Mr Lees asked if SARS obtained approval from the Minister of Finance for the irregular expenditure (bonuses to senior executives). He asked SARS to clarify what occurred during the major IT breakdown SARS incurred in November 2017 when over a few days customers received very confusing information via SMS and other platforms relating to the breakdown. This was especially pertinent in light of SARS indicating that it had exceeded its systems uptime target of 99%.

Ms T Tobias (ANC) said that there was a perception by the public that SARS was withholding refunds and she asked SARS to clarify if this was correct. The view “out there” was that SARS was offsetting the refunds for “the future”. She asked if this practice was legal as she did not want SARS accountable for irregular or illegal activities. Had the Auditor General (AG) raised any concerns about the annual performance and what were these? 

Ms P Kekana (ANC) asked if SARS had submitted its 2017/18 Annual Report and if there was still an impasse between the AG and SARS about the bonuses. She also requested clarity on the perception by the public that SARS was withholding tax refunds.

The Chairperson welcomed and was very pleased with the many positive achievements of SARS - but as could be seen from the agenda - there were many other matters that complicated matters at SARS. There was a credibility issue within SARS that was problematic for government (for example, SARS had not delivered its 2017/18 Annual Report yet). It was not just opposition members in parliament that were concerned about SARS, but that the ruling party was also very concerned (judging by the many ANC members that had engaged him on the matter. He asked if these bonuses had been paid in the past. He was concerned, as according to an article in the Business Day, the AG was not relenting on his stance that the bonus payments were irregular.

Mr Moyane responded that it was the first time a matter such as the one with the AG (on bonus payments) had occurred at SARS. SARS had completed all procedural aspects of payment of bonuses. The correct figure for bonus paid to Mr Makwakwa was R890 000 (referring to an earlier misstatement by an MP). He spoke at length on bonuses and the SARS procedures on it, saying that bonus payments were previously clarified with the AG via an amicable agreement. However, at this stage, according to him it was best that the matter was addressed in the courts.

Mr Moyane replied that it was physically impossible for SARS to withhold tax refunds to its customers. It would be a mammoth task to engineer this within their systems. He confirmed that it had never been a policy during his tenure (and previous ones) to withhold tax refunds.

The Chairperson asked why then was there this perception - “let’s ask the question”. Also everything seemed to be racialised, in that it seems that every time SARS is challenged, they used the issue of race to defend SARS. He said that he often got complaints about SARS from Black Africans, engaging him on this.

Ms Tobias asked if SARS was using any system to stop refunds (and boost revenue income) as indicated by the Tax Ombudsman.

Mr Moyane responded that SARS was a hardworking organisation and not nonchalant as perceived by some. Race was not an issue in the new SA and this was embodied in SARS. Tax refund withholding was a perception and was not true. He reiterated that it was not SARS policy to withhold tax refunds to meet its revenue targets. Some problems did exist but not to the extent that it could boost revenue income. SARS was working very hard to meet its targets as failure in tax collection would have ripple effect throughout the economy. He asked Dr Randall Carolissen to provide more detail. 
 
Mr Lees asked if tax refunds were being withheld or delayed to boost revenue income and that delaying tax refunds were impacting tax payers negatively. He understood that SARS had to deal decisively with crooks but that honest taxpayers did not have to be treated in this manner.

Ms Tobias said that “we” had to ensure that actions were procedural at all times.

The Chairperson said that it was fruitless going around and round endlessly on issues - “we” have to draw a line and go forward from there.

Mr Carolissen provided further detail on the perception that SARS was withholding tax refunds. There were two separate issues that governed refunds and that withholding refunds was physically impossible due to oversight by various government bodies. He did concede that there were “stoppers” implemented to stop tax refunds that could have impacted negatively on some taxpayers at some stage - SARS had stopped about R15bn of refunds that were fraudulent. During tough economic times as the country was experiencing currently, non-compliance and fraud increased and SARS had to guard against this. SARS had to “step up” on service levels and listen to the public.
 
Ms Tobias suggested that the discussion on tax refund withholding be concluded before other issues were discussed. She asked how the “SARS stopper” that withheld taxes worked. The explanation given by Dr Carolissen was insufficient. She proposed that the Committee schedule a meeting with the Office of the Tax Ombud to get its views on the matter and incorporate this into the Committee report on SARS. 

Mr Lees suggested that SARS and the Tax Ombudsman had to brief the Committee during Quarter One 2018 on progress on the Tax Ombudsman report on SARS.

The Chairperson agreed and proposed that another item be added to the briefing on the perception that SARS was withholding VAT refunds to boost income. The Committee had no evidence that this is happening in SARS so it had to get further clarity. If the effect of tax refunding withholding or delays was small, why was it being debated so extensively, so the Committee had to get to the bottom of it. He asked the Office of the Tax Ombudsman to provide some input. 

Adv Eric Makhawane, CEO: Office of the Tax Ombud, advised that tax refund withholding had been bandied about for a while and there was a general question about why SARS did not pay refunds when already approved and verified. The undue delays had to be queried. Certain obstacles to pay tax refunds had been identified - one, the so called “stopper” that delayed payments even when the payments due to tax payers were already verified for payment. It is therefore difficult to blame the public view that SARS was withholding tax refunds. At this stage there was no proof that the withholding was deliberate - this would require a more in depth investigation.

Mr Moyane responded that SARS had co-operated with the Office of the Tax Ombud on the matter. He acknowledged that there were some systems issues in SARS and SARS was investigating the issues raised by Office of the Tax Ombud. SARS welcomed input as it was not perfect.

Mr Johnston Makhubu: SARS Acting Chief Financial Officer, replied on performance bonus payments. At the heart of the matter was a legal opinion that SARS felt justified paying performance bonuses while the AG disagreed. According to the AG, the bonus payments were irregular. SARS was of the opinion that it was a matter of legal opinion.

Ms Tobias said that the point was all about procedure - not about the amount of the bonus. According to the AG, the bonus had to be approved by the Minister of Finance.

Mr Lees asked if SARS did approach the Minister of Finance to get approval to pay the bonuses, and what the response was from the Minister. He asked for the costs of the declaratory order SARS was seeking from the courts.

Ms Tobias commented that the matter of bonuses was sub judice, so the costs of the declaratory order could not be discussed. 

On request from the Chairperson, Adv Frank Jenkins, Senior Parliamentary Legal Advisor, said that the matter was not sub judice.

Ms Tobias responded that if the Committee discussed the issue, they would infringe on the sub judice rule.

Mr T Rawula (EFF) wanted confirmation that the R930 000 was paid or not.

Ms P Kekana (ANC) asked for clarity on the SARS policy on payments of bonuses and suspension, specifically on the SARS policy that stipulates that employees on suspension could not receive bonuses.

Mr Moyane responded that the Minister was informed about bonus payments. He cautioned that the issue of bonuses was currently under legal review as advised earlier.

Ms Kekana again raised her concern on whether bonuses were paid to officials while under suspension.

Mr Lees asked if bonus was paid prior to the date of suspension.

Mr Teboho Mokoena Chief Officer: Human Capital and Development, said that the decision on bonuses for the Commissioner lies with who appointed him, that is, the President who can in consultation with the Minister of Finance make a decision on the bonus amount.

Ms Tobias reminded the Committee that SARS had to take note of the “stopper” issue. 

The Chairperson asked the Office of the Tax Ombudsman to give a quick overview of its report. 

Mr Moyane objected that this meeting was not the correct forum in which to raise the Tax Ombudsman’s report, as he felt the matters raised may constrain other aspects being discussed in the meeting.

The Chairperson asked for guidance, as he felt nothing new or untoward would be raised, as the issues being commented upon, were all in the SARS Annual Report.

Ms Tobias said that the independence of the Office of the Tax Ombud was very important, as they had a “check the line” function on SARS that was critical.

The Chairperson said that in future the Office of the Tax Ombudsman (OTO) would be invited to all Committee meetings attended by SARS and vice versa.

Mr Hlengani Mathebula, SARS Chief Officer: Governance, International Relations, Strategy and Communications, said that SARS would have no objection regarding the independence of the OTO and initiatives to capacitate it differently. There was already some recommendations on this from the Davis Tax Committee.

Jonas Makwakwa matter
The Chairperson raised the exchange of letters between Mr Moyane and the Chairperson about Mr Jonas Makwakwa. He asked why Mr Moyane did not respond to his letter of 24 November 2017, but rather chose to address some of the issues raised in his letter in a media release afterwards.

In response to the Chairperson, Mr Jenkins briefly commented on options on the way forward to deal with confidential matters in Committee meetings which included closed meetings and/or removing sections of the SARS report on Mr Makwakwa deemed to be confidential (in open meetings).

Mr Moyane advised that SARS would absorb all the issues raised and was prepared to share matters openly with the Committee, as this needed to be addressed urgently, following a proper process.

Mr Lees gave a methodical briefing on key events and dates on the Makwakwa matter including SARS contracting Hogan Lovells Attorneys to investigate the matter, all gleaned from information in the public domain. He wanted SARS to answer the following:
- why did they wait until the issue was in the media before reacting
- were they aware of any unusual payments to Mr Makwakwa, as failure to report would be an offence
- it was now common knowledge that the Financial Intelligence Centre (FIC), and not SARS, laid the charge with the SA Police.
- did SARS lay any charges once their attorneys Hogan Lovells indicated that it was SARS responsibility
- what was the role of PWC and did they compile a report
- Mr Makwakwa was second in command at SARS and given the serious allegations against him, how could he be allowed back at SARS. 
- was there any legal opinion sought on the possibility of the removal of Mr Makwakwa from his position of responsibility at SARS, until the issue had been resolved. 
- confidence in SARS had been further eroded and surely a way had to be found to suspend Mr Makwakwa

Mr D Hanekom (ANC) said he had similar concerns as those raised by Mr Lees and he asked what SARS did with the information provided by Hogan Lovells. This was a very serious matter, especially the depositing of vast amounts of cash into an ATM! He wanted clarity on the following:
- was a disciplinary meeting held with Mr Makwakwa and what was the outcome
- it seems Ms Elskie had not been to a disciplinary hearing as she was on maternity leave.
- what was the nature of the charges against Mr Makwakwa and were there any tax offences 
- were there any ad hoc payments made to Mr Makwakwa and, if so, did they contravene any laws.

Ms Kekana said she was concerned about the complexity of the case and perhaps it was better for the legal teams to conclude their investigations, report back to the Committee who could decide how to proceed. 

Mr Rawula said that as Mr Makwakwa had been cleared and allowed back at work. He wanted SARS to explain that there was no wrong doing in arriving at this decision to clear Mr Makwakwa and allow him back at work. What about the monies paid to his girlfriend, Ms Elskie? Did SARS follow any vetting process when employing people? 

The Chairperson then made some very strong comments about the manner in which SARS had responded to questions raised by Members. The Committee had to decide how to proceed on the matter. There was no hard evidence that offences had been committed. The Committee could not escape its oversight responsibility to deal with the issue. It did not matter which party or organisation had raised the concern, there was nothing stopping the Committee deliberating on the issue. The report compiled by Mr Lees was very good although he could obviously not comment on its correctness but it was nevertheless a well structured and measured report. Senior ANC and NEC members had also raised their concern on the Makwakwa issue with him. Perhaps it would be a good idea to call Hogan Lovells to come and brief the Committee on its side of the story.
 

Members nodded in agreement.

The Chairperson said that he could not prescribe to the Commissioner what to do on this but he felt Mr Moyane had not acted in the best interest of SARS, the Government, Parliament, the ruling party and the country in the decisions about Mr Makwakwa. He asked why it took the Commissioner so long to act on the matter (from May2017 to September 2017). The actions of the Commissioner were not credible and not befitting a person in such a senior government post. The Committee needed clear and concise answers - not smoke and mirrors and fuzzy answers.

The Committee had to consider seriously the comments made by Mr Lees and had to decide on whether to recommend that Mr Makwakwa be suspended until the matter was resolved. There were strong perceptions that Mr Makwakwa was being “protected” and that current SARS actions were fuelling these views. He reiterated that SARS needed to account credibly to the Committee who wanted clear answers, not the fuzzy “officegate” type of responses being offered.

He asked if there were any objections from Committee members or Mr Jenkins on the comments he made and if the approach he outlined was in order.

Members concurred.

Ms Kekana said that the Committee had to adhere to the legal aspects of the case.

Mr Jenkins advised that the process outlined was fair and that he had no problem with the approach.

Mr Moyane responded that SARS had done all things relating to this case with due consideration. On the issues raised by Mr Lees, Mr Moyane said that he had met with the FIC Director where the severity and importance of the matter was discussed. Subsequently he met with the (Directorate of Priority Crimes Investigations (DPCI/Hawks) who advised him that they were investigating the matter. Mr Moyane said that he did not act fuzzy, Mr Makwakwa was suspended

Mr Lees interjected that Mr Moyane was obfuscating and not getting to the heart of the matter.

Mr Moyane continued by reiterating that Mr Makwakwa was suspended and that the FIC charges were serious. He did meet with the DPCI leadership who was currently dealing with the criminal investigation. Thus far, he had received no report on charges from either DPCI or the National Prosecuting Authority (NPA). All key SARS personnel were vetted internally by SARS and externally by the State Security Agency (SSA). SARS would abide by the legal process unfolding on this issue.

Mr Hanekom asked what charges were levelled against Mr Makwakwa for which the internal SARS investigation found him not guilty.

Mr Rawula said that now that Mr Makwakwa was back at SARS, there was a serious reputational risk.

Mr Lees said it was the moral duty of the Commissioner to follow up on the criminal activities. He asked if the Commissioner received any legal advice about suspending Mr Makwakwa. He asked how many times Mr Moyane interacted with DPCI and whether the letter from Hogan Lovells could be given to the Committee. 
 
Mr Moyane asked Mr Lebelo to brief the Committee in response to these questions.

Mr Luther Lebelo, SARS Group Executive: Employee Relations, commented that he was surprised at the confusion by Committee members about Mr Makwakwa. SARS had followed a very clear process to address the matter. When FIC raised the suspicious transactions, SARS contracted Hogan Lovells to investigate whether there was any misconduct. Meanwhile the police had already opened a case based on the FIC information. SARS had satisfied itself via an independent third party that there was no evidence of misconduct by Mr Makwakwa; hence he was within his rights to be back at work.

The Chairperson said there was no confusion in the Committee - only a difference between SARS and the Committee on how to manage the process. The responses from SARS have not been clear. 

Ms Tobias commented that there had been lots of semantics but no adequate answers from SARS

Mr Hanekom reiterated that the Committee wanted clarity on issues that were of serious public concern such as the mere fact that someone was depositing large amounts of cash into an ATM and was a SARS employee surely had to raise alarm bells at SARS. Then there was the letter from FIC. If he were at SARS he would have been very worried. He asked if there were any transgressions by Mr Makwakwa in terms of the Income Tax Act due to his actions.

The Chairperson said that at this stage there was no evidence based on legalities but what was important for the Committee was to address the management of the issue.

The Chairperson advised that the meeting had to be adjourned due to time constraints. He asked when Mr Moyane and his team would be available to continue with the agenda. He asked Mr Moyane to request a response from the Hawks on the progress in its investigation and to advise the Committee within 10 days on this.

Ms Tobias said that the Makwakwa matter had to be dealt with urgently. The Committee needed more information from SARS, to interrogate this and then decide on the way forward.

Mr Lees said there were still quite a lot of outstanding issues on the Makwakwa matter and that is was perhaps better that the Committee met at another time, 29 November 2017 if possible?

Mr Moyane indicated that he was not available on 29 November 2017

The Chairperson tentatively agreed to Tuesday 5 December 2017 for the Committee to meet with SARS to continue the meeting.

The meeting was adjourned.

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