South Africa

News24.com | Judge Davis: NPA is swamped with cases, SARS must get teeth to prosecute

One of the things the Davis Tax Committee should do is work on a report that investigates the possibility of giving the South African Revenue Service the capacity to prosecute non-compliant taxpayers, said chair of the committee Judge Dennis Davis.

Davis was speaking during a webinar event as part of PSG's Think Big series, where the future of the country's taxation system was discussed. It was recently announced that Davis would join the revenue service as a consultant, focusing on clamping down on wealthy people possibly evading tax.

Davis responded to several questions about restoring the capabilities of SARS, of which evidence has been presented before the Zondo State Capture Commission of Inquiry.

"If you try to get SARS up to where it was under [Commissioner] Gordhan, how does it operate as it were an island of competence within a sea of mediocraty, incompetence and corruption?" Davis put forward. He said that probably the Davis Tax Committee's last report will work on - is about reconfiguring legislation to allow SARS to institute prosecutions against taxpayers. "We do not think the NPA (National Prosecuting Authority) in its present situation is able to do that," he said.

"I cannot tell you the staggering amount of cases at the NPA at the moment, ranging way beyond the thousands, more than that - which in a sense - just collected dust," he added. Davis however, noted that the head of the NPA Advocate Shamila Batohi, was doing her best to "get it right".

Davis noted that SARS is battling with staggering amounts of outstanding debt. If one were to recover one year's outstanding debt, the vaccines could be paid for three times over. He raised concerns that significant amounts of people and companies are exploiting the tax system - either through the evasion of customs duties, the manipulation of the VAT system, making use of transfer pricing or just evading paying tax.

He said that efforts to improve tax compliance were not about raising taxes but rather closing the gaps between people who pay the taxes they ought to and those who do not. Davis said there are about 5 000 people who have a taxable income of over R5 million per year. But if one had to count the affluent suburbs like Bishopscourt and Camps Bay in the Cape or Sandton in Gauteng, it would tell a different story. "There is a huge gap between people who are paying their fair share and those who aren't."

Davis recalled how a former SARS official browsing through a newspaper came across an individual posing alongside a Ferrari. The official just looked into whether the individual was tax compliant. Eventually, the individual ended up paying SARS R500 million in back taxes. This connecting of the dots is what Davis wants SARS to go back to.

However, these kinds of interventions require skills, but this kind of capacity has been lost to SARS over the years.

Behind bars?

Asked about whether criminal prosecutions would work in sending a message of compliance, Davis recalled how when Pravin Gordhan was commissioner, he had strongly endorsed criminal prosecutions as a means to deter tax evasion. Just getting one or two people behind bars could encourage non-compliant taxpayers to use the amnesty mechanism employed by SARS to get them to come forward and make voluntary disclosures.

However, under Commissioner Tom Moyane, the amnesty mechanism was far less successful, noted Davis.

He also pointed out that reaching settlements with taxpayers - where say only 60% of funds can be recovered - is sometimes a more reasonable route to take than being locked in a legal process spanning many years.

Asked about whether tax laws may be "soft", Davis said they are extremely complicated to enforce. "SARS frankly, over quite several years has not had the capability of enforcing its own legislation as well as it should."

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