Sars continues its pursuit of Chinese locomotives supplier

Chinese locomotives supplier CRRC E-Loco Supply (CRRC) has lost its bid to appeal the decision by the high court in Pretoria in 2022 that the SA Revenue Service (Sars) was within its rights to freeze money held in different bank accounts in SA as it investigates the company for possible tax evasion.

The tax agency, headed by Edward Kieswetter, said it had reasonable suspicion that CRRC “substantially” understated its tax liability in its returns for the tax years from 2013 to 2018.

CRRC, which has refused to provide Transnet with the spares for locomotives it allegedly unlawfully procured from it at the height of state capture, had argued that Sars should have first issued it with a letter of demand for the tax debt before freezing its accounts.

The North Gauteng High Court last week said CRRC had few prospects of success in trying to appeal its earlier decision and denied its leave to appeal application.

“Sars’ further argument, made out extensively in its answering affidavit by the same senior Sars official who had deposed to the founding affidavit in respect of the preservation order, was that it was dealing with a delinquent taxpayer who had sought to defraud organs of state as part of the so-called state capture relating to Transnet,” judge Norman Davis said.

“As a subsidiary company of a Chinese holding group of companies, incorporated shortly before the award of the Transnet tenders and with litigation ongoing regarding fronting allegations of its BEE component, Sars concluded that the giving of prior notice by way of a final demand would put the funds, which were up to that stage only protected by the preservation orders, at other attachment risks, let alone the repatriation risks to China should the preservation order at any stage lapse or be lifted.”

Transnet has since 2019 been struggling to get a service provider that can assist in supplying spare parts for some of the trains it bought in a controversial deal for 1,064 locomotives. It has about 200 locomotives that remain idle and cannot be returned to the railway lines as the CRRC refuses to provide it with spare parts.

Transnet said in January that it had reached an impasse with CRRC “following unwillingness on the part of CRRC to engage with the relevant authorities in SA to normalise its operations in the country”.

The main issue is the R3.6bn bill Sars imposed on CRRC after a tax audit concluded there was prima facie evidence that the company overstated the price of locomotives sold to Transnet  as part of what has since come to be known as state capture.

The CRRC locomotives were intended for use on the North, Northeast and Cape corridors, which account for about 50% of Transnet Freight Rail’s (TRF) revenue and support the primary exports of coal, chrome and manganese miners.

Transnet earlier in 2023 unsuccessfully went to market, inviting eligible original equipment manufacturers to step in to rehabilitate the locomotives.

When this did not yield results, public enterprises minister Pravin Gordhan sought an audience with the Chinese government in a desperate attempt to get CRRC to play ball. This intervention failed, despite SA’s close diplomatic relationship with China.

Business Day last week reported that SA’s coal mining houses came together under the banner of the Richards Bay Coal Terminal (RBCT) to help TFR procure some of the spare parts. The co-operation agreement between Transnet and coal miners allows for RBCT to purchase the spares on behalf of Transnet and for the costs to be recovered by RBCT’s shareholders.

It is expected that the spares will make their way to SA in the first half of 2024, according to SA’s largest thermal coal exporter, Thungela.

khumalok@businesslive.co.za