Johannesburg - Tax Ombudsman Judge Bernard Ngoepe has slammed multinationals that transfer their profits offshore and at the same time criticised public officials who defend hopeless cases in court at taxpayers’ cost.
Ngoepe also lashed out at politicians who line their pockets with public funds, saying this was discouraging South Africans from paying tax since they do not see value for their contributions.
In an interview with City Press following the release of the Tax Ombud’s report for the year that ended in March, Ngoepe called on government to train tax practitioners to stop the capital flight and illicit financial flows that erode South Africa’s tax base.
While it was hard to determine the true value of money being shifted out of the country to tax havens, Ngoepe said this could possibly amount to trillions of rands that could have been better used in “addressing some of the problems we have in this country”.
The shifting of money out of the country through various schemes to avoid paying tax was not illegal, but in the end amounted to tax evasion.
“When you evade tax, that’s when you’re liable, and you find ways of running away from paying it. But you can avoid paying tax by simply staying at home and not working and say: ‘I don’t want to pay.’
“You avoid paying tax at a cost to yourself,” he said. One example of this, Ngoepe said, was when a company with foreign operations transfers or pays for a service in a country where there’s no tax requirement or the tax rate is very low.
“That company supposedly renders services to the company in South Africa and then sends them a statement of account to say: ‘You owe us for the services such as advice or the like, or administration services; you owe us R50 million.’
“Because their profit is reduced by R50 million, they say: ‘This is an expense and we’re going to pay, and we have a debt to pay outside the country.’
“Then the money is sent out of the country. That R50 million is profit to that company and because they are shareholders, they declare dividends and the money comes back to the South African company. So when dividends come from a foreign country into South Africa, they’re not taxed – that money goes there and comes back, and it’s not taxed,” said Ngoepe.
Former president Thabo Mbeki, who chaired a UN panel probing the issue, recently stated that illicit financial flows from Africa dated back to the 1960s and called for the curtailing of the practice as it could produce the largest source of funds to fight poverty and boost economic growth.
Hopeless court cases
Ngoepe said that public officials, in government and state-owned enterprises, must be made to personally pay to defend hopeless cases in court instead of using taxpayers’ money and using courts to “play for time”.
Recent cases where high-profile public officials who used taxpayers’ money to fight their cases in court include former public broadcaster SABC board chairperson Ellen Tshabalala, former Independent Electoral Commission chairperson Pansy Tlakula and the late police commissioner, Jackie Selebi.
The SABC is going to the Constitutional Court in a bid to defend embattled chief operations officer Hlaudi Motsoeneng over the finding from the Public Protector that he lied about having a matric.
Ngoepe said it was unclear whether the government recouped money spent by public officials who then lost court cases. “One of the things that is beginning to cause some concern is the way public officials sometimes use taxpayers’ money to defend or to fight hopeless cases before the courts, knowing very well that they’re not paying out of their own pockets.
“Whose money are they using? They are using taxpayers’ money,” said Ngoepe.
While he is sympathetic to public officials who work under difficult circumstances where they are sometimes given wrong advice while carrying out public duties, Ngoepe said “there are clear cases where taxpayers’ monies are being abused to fight hopeless cases”.
“Then the time may come when we may have to hold them personally responsible for costs to avoid wasting taxpayers’ money”.
Corruption, nepotism and rigging of tenders
Ngoepe said in the two years since becoming the tax watchdog, he had also found that corruption in government and politicians lining their pockets were impediments to efficient use of the public purse.
“One of the things which will encourage people to pay tax is if they trust they will get some benefits from the tax they’ve paid, like service delivery. People get encouraged to pay their tax when they know that tax is going to help them.
“But if money collected through our taxes is being stolen through corruption, nepotism and the rigging of tenders, people become reluctant to pay tax.
“We have a problem of corruption in this country and it impacts negatively on the people’s willingness and enthusiasm to pay tax. When you know that you’re paying tax which is going to end up in people’s pockets, it becomes a problem,” said Ngoepe.
Ombud calls for more independence from Sars
With just under two years in office, the independence of the Office of the Tax Ombudsman could be strengthened, says Ombud Judge Bernard Ngoepe.
In releasing the office’s annual report for the year to end March, Ngoepe said he has written to Parliament calling for the Tax Administration Act, which established his office, to be reviewed to eliminate “limitations” which he said threatened the office’s independence.
Ngoepe plans to write to Finance Minister Nhlanhla Nene to request that the office be removed from the grip of the SA Revenue Service (Sars), the same organisation he is meant to watch over.
“There are other things I’m not happy about in the act. For example, according to the act – to summarise
it – for a person to be employed by this office, that person must first be employed through Sars and both myself and the Sars commissioner must then agree for that person to be seconded to this office. We employ people via Sars.
“I would remove that and give this office the authority to employ directly and not via Sars.
“Our finances are controlled through Sars. When we speak of independence, one would like this office to have its own budget given directly by the minister. Money should just be given directly by the minister and then the money is located within this office and not within the Sars budget.
“These are the things which are not consistent with the whole issue of independence,” said Ngoepe.
In the last year, Ngoepe has ruled in favour of taxpayers in 75% of cases filed. The office received 6 003 complaints, but Ngoepe believes his office will become busier as taxpayers get to know about it.