Incapacity: Mark Kingon, acting commissioner of SARS, says service delivery will suffer if staff levels are not rectified. The revenue service’s staff complement has been reduced from 14,000 to 12,600. Picture: BLOOMBERG
Incapacity: Mark Kingon, acting commissioner of SARS, says service delivery will suffer if staff levels are not rectified. The revenue service’s staff complement has been reduced from 14,000 to 12,600. Picture: BLOOMBERG

The sharp fall in the number of staff employed by the South African Revenue Service (SARS) has limited its ability to curb illicit financial flows, which drain billions of rand from the economy every year.

The exodus of employees — particularly acute during the troubled term of suspended commissioner Tom Moyane — means the staff complement of the tax authority has declined from over 14,000 a few years ago to about 12,600 now.

"If we don’t invest in this, delivery might suffer," said acting commissioner Mark Kingon in a briefing to Parliament’s finance committee on Wednesday.

He acknowledged that SARS had not been dealing efficiently with illicit financial flows, illicit tobacco and other illicit trade. This has been a source of great concern to the committee, especially in the context of the sharp fall in tax revenue, which has necessitated an increase in the rate of value-added tax (VAT) by one percentage point. MPs have urged greater co-ordination between the different agencies involved in combating these illicit transactions.

"There is so much more that we can be doing in order to give the Financial Intelligence Centre [FIC] the necessary resources," Kingon said.

Teams to deal with the problem would be established from the skilled personnel still in the organisation.

This would enable the tax authority to move forward in a far more structured manner.

Kingon noted that some preliminary engagements had taken place with banks regarding the reconciliation of advance payments made for imports with the actual goods imported. The use of fictitious imports is one way of sending money out of the country illegally.

Kingon said he had been concerned about the levels of reconciliation. "We are not doing this properly, and the banks are going to help us."

He told MPs an interagency working group on international financial flows had been set up with various government agencies to co-ordinate their work.

Nine cases have so far been identified for multi-agency collaboration involving more than R9bn. "From the initial analysis there are serious concerns from a tax point of view with these cases," he added.

Engagements with the South African Reserve Bank indicated that people were abusing the R1m limit on the amount of money that can be taken out of the country annually. They were getting others to use their allocated amount to take out money on their behalf.

"We need to get a grip on those transactions," Kingon said.

Between April 1 2017 and April 30 2018 the FIC referred 379 cases of suspicious and unusual transactions — valued at R2bn — to SARS. In 2018 SARS raised assessments of R14bn on cases of base erosion and profit shifting, on which it had collected R2.2bn.

Kingon reported that tax compliance was under pressure, saying that in April more than 14,000 VAT vendors filed returns but did not pay their VAT for the month. The amount outstanding was R1.1bn. Steps had been put in place to ensure that this tax was paid.

"Our teams are working in an environment where people are utilising these amounts for cash flow purposes and it is a serious concern. Compliance continues to be a concern and we need to guard against it — the nonsubmission of returns, late submission of returns, filing of returns without payments continue to be an issue."

Kingon commented on the matter of former head of business and individual taxes Jonas Makwakwa, who was allegedly involved in suspicious and unusual transactions reported by the FIC.

He said SARS dealt with the matter in the wrong way. Before addressing any human resource matters of Makwakwa’s alleged wrongdoing, the tax authority should have focused primarily on the possible tax evasion and only once this had been dealt with should there have been a disciplinary inquiry.

ensorl@businesslive.co.za