Did SARS lie to Parliament about taxpayer compliance plan?

The SA Revenue Service may have told Parliament “half-truths” when it was grilled over its new compliance plan, according to testimony at the Nugent inquiry 

The commission of inquiry, appointed by President Cyril Ramaphosa, is probing the state of corporate governance, revenue shortfalls and allegations of misconduct at the revenue collection agency. 

On Tuesday it continued with its second round public hearings.

Dr Thabelo Malovhele, until 2015 the tax agency's executive for tax, customs, risk and compliance analysis, painted a picture of how - under a new operations model - he was effectively sidelined and compliance structures within the agency dismantled and fragmented.

The inquiry earlier heard from a senior official about how the operating model - designed in partnership with a consultancy and instituted under the watch of now suspended SARS commissioner Tom Moyane - had damaged the effectiveness of the tax agency. 

It also emerged that when SARS was due to present its updated compliance programme to Parliament’s standing committee on finance it did not have one.

Malovhele stated that a decision was then taken to have SARS leadership adopt its existing compliance programme for another year with minor additions and present this to Parliament as its 'new' compliance plan for the next five years.

“But it was essentially the same document,” Malovhele said.

When pushed on whether this meant SARS had lied to Parliament, he would only concede that SARS had told “half-truths” – not lied.

Malovhele also said that at present SARS had no compliance plan or structures.

Disbanded

The ability of the revenue service to monitor and track tax payer compliance was severely compromised, his evidence showed.

Compliance is a key indicator for SARS not only to help focus its enforcement efforts on specific sectors of the economy, but also to meet its legislative requirements.

Malovhele was formerly the head of SARS’ Compliance and Strategy Research unit which was responsible for measuring the tax agency's compliance figures according to the Tax Administration Act.

This unit was disbanded under the new operating model and the subsequent decline in compliance was directly correlated with a decline in revenue collection, Malovhele told the commission.

“Revenue is a coincidence of compliance,” he said.

Malovhele was since 2005 instrumental in devising SARS’s compliance tools to assist the revenue service in pinpointing sectors of the economy the enforcement division would need to focus on.

Under the new operating model, however, he was given the title of “Domain Specialist” – a title afforded to a host of former SARS executives who were effectively sidelined.

Other such titles include “principle specialist” for former group executives and “generic specialist” for senior managers.

The commission has heard evidence from a number of these specialists.  

Evidence leader Advocate Carol Steinberg put it to Malovhele that she had heard from a number of people this was because he was “seen to be aligned to the former leadership of SARS”.

Malovhele agreed that he had heard the same rumours.

He concluded his evidence with slides detailing the percentages of compliance for the various tax types for the 2017/2018 period. According to his slides

-          86% of registered Corporate Income Tax entities did not file returns

-          31% of registered Pay as you Earn tax payers did not file tax returns

-          39% of registered VAT vendors did not file returns and

-          20% of registered Personal Income Tax persons did not file returns

He explained that repeated attempts by him and others to bring this to the attention of SARS management since 2015 had failed.

Of the 1.8 million Personal Income Tax returns filed, 1.7 million payments were made – showing a 94.7% rate of payment if the returns were actually filed, he said. 

“The money is there by the returns,” Malovhele said. “If SARS goes to fetch those returns, it can get the money.”

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