News analysis: Did Nkandla spark SARS war?

2014-12-14 15:00

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When the deputy commissioner of the SA Revenue Service (Sars), Ivan Pillay, read about the costs and reports associated with the extensions to President Jacob Zuma’s homestead at Nkandla, he commissioned legal advice on what the tax implications might be, say sources loyal to him.

The advice he received was that benefits attract tax, even if a property is built on communal trust land, as is the case with Nkandla.

When Pillay read about the sprawl of businesses and trusts linked to the first family, he went to President Zuma and said they all needed to be made tax compliant.

Asked for comment, Zuma’s spokesperson, Mac Maharaj, said: “The president cannot disclose all his meetings with individuals, ministers or officials, otherwise government cannot function. It would cause bedlam. Imagine if you had to disclose all your source meetings...”

Did Pillay’s straight-shooting style and his intervention on Nkandla contribute to his suspension and his security escort out of Sars’ Pretoria headquarters last Friday afternoon?

The Mail & Guardian reported on Friday that Pillay had declined a request from Zuma’s lawyer, Michael Hulley, to clear a consignment of T-shirts before the elections earlier this year without paying the hefty customs duty.

“This was the straw that broke the camel’s back,” said the source, laying out a landscape of increasing political interference at Sars.

Newly minted commissioner Tom Moyane said the suspension was related solely to the running of an intelligence unit – the national research group – at Sars, which Advocate Muzi Sikhakhane has found was operated illegally.

“The unit formed by Mr Pillay is still in existence and is a major threat to the stability of [Sars], particularly given that the commissioner, as an accounting officer, has no control over the unit and its members,” he said in a fiery exchange of letters between Moyane and Pillay this week.

Moyane added: “The unit [has] the real possibility of undermining the work of those security agencies tasked with the investigation of organised crime and the collection of intelligence.”

Pillay said that before being marched out of Sars House, he was neither offered the statutory right of a response to his suspension, nor the chance to provide reasons why he should not be suspended. His lawyers wrote to Moyane this week, saying: “Our client is one of the most senior officials at Sars. His suspension has caused him irreparable harm. The allegations have affected our client’s personal and professional life.”

Pillay has been suspended with Sars head of risk Peter Richer. Executive Barry Hore, who headed the modernisation of the revenue service, quit earlier this month as boardroom divisions grew uglier.

Sars reported a 94% compliance level for the tax year ended. This is a high compliance rate and growing revenues are vital for a period of low growth.

A senior civil servant said government was taking a wait-and-see approach to allow Moyane’s processes to take their course, but added: “How do you recover if you’ve robbed yourself of institutional memory?”

In a 24-page response to the Sikhakhane Commission of Inquiry, Sars executives said allegations of a spy unit had arisen since 2009.

“In 2009, the State Security Agency (SSA) was asked to investigate the national research group. Since then, every year, Sars has requested a report on the result of the investigation, but to no avail.

“Pillay was informed by a high-ranking SSA officer that it had found nothing untoward in Sars activities, but wouldn’t furnish Sars with a written report.”

The report details how, through its The Tax Gap Strategy, Sars boosted the national fiscus by adopting more rigorous enforcement mechanisms from 1999.

In 2005, it developed The Illicit Economy Strategy, which also yielded large tax hauls. The national research group was one of about 10 units at Sars with investigative abilities. The submissions to the commission detail the costs and audit details of each, including the controversial unit.

SSA sources insist that Sars acted outside its mandate by continuing with the unit even after the agency had rejected the revenue service’s plan for a joint unit.

The rejection was based on the Intelligence Services Act of 2002, which places intelligence capacity only with the SSA, the police or the military.

The Sars story

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