TELITA SNYCKERS: Countering illicit trade: where’s the strategy, Sars?
If the Moyane era taught us anything, it’s the importance of keeping a close eye on developments at Sars
In August 2020 SA Revenue Service (Sars) commissioner Edward Kieswetter told us that Sars’s strategy to deal with illicit cigarettes was still being refined. That doesn’t leave us a whole lot to go on, including where Sars stands on introducing traceability to the tobacco supply chain (after Kieswetter had cancelled a long-overdue tender just after having assumed office). Whatever Kieswetter’s reasons were for putting traceability on hold, they don’t play well to international perceptions, with international body STOP noting how the decision “calls SA’s ability to address illicit trade into question and demonstrates how successful the tobacco industry is in undermining tracking and tracing there”.
Under former commissioner Tom Moyane, investigations into tobacco had been abandoned. And more than a decade after Sars made some vague promises, we are still largely unable to distinguish between a legal and an illicit pack of cigarettes on the market.
If the Moyane era taught us anything, it’s the importance of keeping a close eye on developments at Sars. The problem is, we don’t know what to be keeping an eye on, because Sars is playing its cards extremely close to its chest and not taking us into its confidence.
But the same holds true for other illicit commodities
Illicit cigarettes may have caught our collective attention as a result of the lockdown ban, but in truth our country is being overrun by a multitude of other illicit commodities – everything from tyres, red-fronted macaws and fake pharmaceuticals to smuggled gold and khat.
According to a Global Financial Integrity report, SA loses an estimated $7.4bn in tax revenue every year to trade misinvoicing, with underinvoicing reducing the VAT and customs duties payable, and overinvoicing on imports reducing corporate income tax payable. Export misinvoicing sees us losing $2.6bn a year in lost corporate income tax and royalties.
Detecting more sophisticated smuggling efforts is inordinately complex – heroin could be hidden in wheelchair tyres, and cocaine in breast implants or clams; a pool table may in fact be compressed marijuana; a protected frog species may be stuffed into old-time film canisters; cigarettes may be transported in hollowed-out tree logs.
With the average customs authority – including Sars – being able to inspect only 3%-5% of all shipments, their ability to target higher-risk entities and consignments needs to be highly accurate.
We don’t just need a strategy for dealing with illicit cigarettes – we need a strategy for dealing with illicit trade in general.
A compliance programme
Back in its heyday, Sars published a revolutionary compliance programme, setting out in some detail where it saw the biggest risks, and how it intended to deal with them. Programmes like that are vastly complex to consolidate, because they rely on deep domain expertise and advanced analytics skills as a precursor, but they are an invaluable tool for a tax agency because they provide a data-driven, objective analysis of which risks to prioritise. A compliance programme ensures that it is not the squeaky wheel that gets attention, but the riskiest one.
Sars – like every other modern, advanced tax agency – needs the ability to counter more sophisticated tax evasion and smuggling schemes, making the now debunked “rogue unit” narrative all the more damaging.
All we’ve seen in recent years from Sars are some motherhood-and-apple-pie platitudes, when what we really need is transparency, and well-articulated strategies that give us some level of comfort that Sars knows where to focus, that it knows what to do, and that it is doing so properly.
We need this because we can never again blithely allow our revenue agency – once the pride of SA – to fail us like it did under Moyane.
So, let’s start with illicit cigarettes, simply because it’s perhaps the one most of us have become familiar with. How is Sars ensuring that production volumes are being accurately declared? How is it ensuring that manufacturers don’t claim cigarettes were exported when in fact they’re being sold on the local market? How many scanners does Sars have operational at border posts to detect hidden compartments in trucks or containers? What happened to those investigations that were ready for prosecution when Moyane shut them down? How do volumes of imported cigarette filters compare to volumes of cigarettes ostensibly being manufactured?
What’s the plan, Sars?
*Snyckers is an independent illicit trade expert. Her exposé on the role of Big Tobacco in fuelling illicit trade – Dirty Tobacco – was released in May 2020. You can follow her on Twitter @telitasnyckers
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