SARS: 100+ Commissions Inquiry Cases Handover to NPA

• SARS has referred over 100 cases from commissions of inquiry, including the Madlanga Commission, to the NPA this year for prosecution.
• Commissioner Makhubu has met with NPA head Advocate Andy Mothibi to urge faster investigations, noting a potential backlog of approximately 1,000 tax-related cases.
• The South African Revenue Service is intensifying its efforts to combat the illicit economy, which results in an unacceptably high annual tax loss estimated between R100 billion and R200 billion.
• SARS plans to issue a tender by year-end for advanced tracking technology to monitor excise-duty products like alcohol, cigarettes, and pharmaceuticals, and is developing a secure product marker with the South African Bank Note Company.
• A multi-agency National Illicit Economy Disruption Programme has been launched to tackle the complex illicit economy, with SARS currently auditing 19 licensed tobacco manufacturers.

The South African Revenue Service is intensifying its efforts to combat the illicit economy, which results in an unacceptably high annual tax loss estimated between R100 billion and R200 billion.

The South African Revenue Service (SARS) has recently transferred more than 100 cases, originating from various commissions of inquiry, to the National Prosecuting Authority (NPA) for further action. These referrals include individuals specifically identified during the Madlanga Commission, indicating a concerted effort to pursue accountability for past transgressions. Commissioner Dr. Johnstone Makhubu confirmed that SARS had been monitoring many of these implicated individuals for an extended period prior to the handover.

Commissioner Makhubu has engaged directly with NPA head Advocate Andy Mothibi on two occasions, emphasizing the need for accelerated investigations into these matters. This collaboration underscores a joint commitment between the South African Revenue Service and the NPA to ensure that cases progress efficiently through the justice system. Makhubu highlighted the frustration experienced by SARS investigators, who often face significant personal risk while pursuing instances of tax evasion and other criminal activities, when their diligent work does not culminate in prosecutions.

It is estimated that the NPA may be contending with a backlog of approximately 1,000 tax-related cases. Despite this potential bottleneck within the prosecution arm, Commissioner Makhubu asserted that SARS has diligently fulfilled its investigative mandate, ensuring that all necessary groundwork for these cases has been completed before their transfer to the NPA. This significant SARS commissions inquiry cases NPA handover marks a critical phase in addressing financial misconduct uncovered by public inquiries.

SARS is significantly enhancing its efforts to combat the illicit economy, which continues to inflict substantial financial damage on the nation. The annual tax loss attributed to illicit trade is estimated to be between R100 billion and R200 billion, a figure deemed unacceptably high by the Commissioner. To counter this, SARS plans to issue a tender by the close of the calendar year for a sophisticated technological solution aimed at tracking products subject to excise duties.

This advanced illicit economy tracking technology will target a range of products, including alcohol, cigarettes, pharmaceuticals, and items subject to the Health Promotion Levy on Sugary Beverages. The primary objective is to identify illicit trade activities, pinpoint producers who are not tax-compliant, detect instances where manufacturers under-declare their output, or divert products into the illicit market. Furthermore, SARS is in discussions with the South African Bank Note Company, a subsidiary of the South African Reserve Bank, to develop a unique marker comparable to or superior to the technology used for authenticating banknotes, to be applied to excise-paid products.

The proposed system requires controlled distribution of these markers to manufacturers, their application directly on production lines, and the immediate transmission of scanning data to the tax administration. This integrated approach aims to provide real-time oversight. Past attempts to monitor production, such as the installation of counters at tobacco manufacturers in 2021, were compromised through tampering. Additionally, some tobacco companies have previously initiated legal challenges to prevent the installation of surveillance cameras on their premises, highlighting the resistance SARS faces in its enforcement efforts. The issue of some companies maintaining two sets of financial books further complicates the landscape for tax evasion South Africa.

The broader governmental response to illicit trade is encapsulated in the National Illicit Economy Disruption Programme, a multi-agency initiative launched in April. This programme acknowledges the complex and highly organized nature of the illicit economy, which often mirrors the structures of the formal economy. Commissioner Makhubu stressed the imperative for various government agencies to collaborate seamlessly to effectively tackle this pervasive issue.

As part of ongoing enforcement, SARS is currently auditing 19 of the 31 companies licensed to manufacture tobacco products. While this does not imply that all audited entities are involved in illicit activities, it underscores the intensified scrutiny within the sector. The tobacco and alcohol industries have historically argued that elevated excise duties inadvertently fuel illicit trade by making untaxed products more appealing to consumers. Beyond enforcement, SARS is also addressing internal challenges, particularly the need to recruit younger staff to rejuvenate its workforce, as a significant portion of its current employees are approaching retirement age.

Lawyers should advise clients implicated in South African commissions of inquiry about potential criminal tax evasion charges from SARS. Compliance officers in sectors like tobacco, alcohol, and pharmaceuticals must prepare for new SARS tracking technologies and heightened enforcement against illicit trade.

Source: Information derived from recent public statements by SARS Commissioner.