Many compliance questions remain in Phala Phala dollar saga

In an unusual step the South African Revenue Service (Sars) made a public statement about the tax affairs of a taxpayer, notably President Cyril Ramaphosa, and two companies associated with him.

This follows the revelation that Sars could not find documentation to confirm that cash received through Ramaphosa’s dealings with Sudanese businessman Hazim Mustafa was declared upon entry into South Africa.

This raised questions whether the $580 000 cash payment for the purchase of buffalo from Ramaphosa’s Phala Phala game farm was declared in the income tax returns of the company that received it (in the relevant tax year, and even if the money was subsequently stolen).

Sars Commissioner Edward Kieswetter said in his statement the taxpayers in question (Ramaphosa, Ntaba Nyoni Estate and Ntaba Nyoni Feedlot) have over the years been selected for audit by Sars “well ahead of the start of media publications concerning the companies”. The audits have continued since then.

“To date, audits have been concluded without any adverse tax findings. Sars wishes to confirm that the taxpayers are compliant with their tax obligations to date.”

Uncomfortable questions persist

However, tax and exchange control experts say uncomfortable questions pertaining to non-compliance with the Financial Intelligence Centre (FIC) Act, the Customs and Excise Act, and the Currency and Exchanges Act persist.

Why was the money not detected by customs and excise officials at the border where it entered? Why was it not confiscated if it was declared? Was the transaction reported to the FIC when the money was received? Why was the money not exchanged within 30 days as per South African Reserve Bank (Sarb) regulations?

A former Sarb employee says the money should have been confiscated at the border. Such a large amount of cash raises all the money laundering flags.

“I cannot see how the money entered the country legally in the first place. If it did there should have been proper documentation.”

According to the experts, any bank would have been quite suspicious of anyone trying to deposit or exchange large amounts of dollars.

All South African banks would have been obliged according to their internal governance rules to investigate the origin of the money. The FIC Act forces them to do so. They will generally not deal with a client that has not been onboarded by way of the Know-Your-Client process.

“Anybody who enters SA with more than R25 000 in cash has a problem. However, it remains to be seen whether any legal action will be taken.”

Criminal proceedings

In the meantime, South African taxpayers are increasingly receiving SMS messages from Sars “warning” them that Sars will initiate criminal procedures against them should they not meet their tax obligations.

Tax directors at Van Huyssteens Commercial Attorneys say compliance is a key theme for Sars. “They will act on these threats because they have seen the impact of law enforcement on the collection of additional tax revenue,” says tax director Jean Louis Nel.

Sars has been sending messages to taxpayer representatives and company directors warning that they could be criminally charged if the company remains non-compliant.

In terms of the Tax Administration Act a taxpayer can be fined or imprisoned for up to two years when they negligently fail to submit tax returns or even alert Sars to any changes in personal details. The punishment is a fine or imprisonment of up to five years if there is evidence of tax evasion.

Van Huyssteens tax director Jean du Toit says ignoring the SMS from Sars will be foolish “to say the least”. Sars has entered into a collaborative relationship with the National Prosecuting Authority (NPA) where both have set aside resources to enhance criminal prosecutions.

It is also collaborating with the revenue authorities of the US and UK to enhance the prosecution capabilities of Sars officials and to increase the exchange of financial information.

Powerful tool

Nel describes the criminal sanctions in the act as a powerful tool in Sars’s arsenal to enforce compliance. Although it has other measures, such as administrative penalties, the criminal sanctions are a reminder of the powers Sars has.

Du Toit warns tax evaders that Sars is once again becoming a “feared” tax authority.

“The fact that you have not been arrested for tax offences or that you do not know of a family member or friend who has been arrested does not mean that you will not eventually face the music.”

Sars is not limited in terms of how far it can go back when taxpayers fail to submit tax returns or fail to make full disclosures when filing returns.

The NPA committed to collaborative approaches with Sars on tax offences. Specialised NPA tax unit prosecutors and Sars criminal investigators will be working together on investigations from an early stage, adopting a strategic case management approach.

“The NPA and Sars are committed to ensuring that justice is delivered in tax-related matters, that appropriate sentences are pursued to reflect the seriousness of these crimes, and the devastating impact these criminals are having on South Africa’s growth and development prospects,” the NPA said in an earlier statement.

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