Tax Season: Systemic IT glitch raises red flags at SARS

Conscientious South African employers and employees who rushed to submit their tax returns for the current season launched on 3 July have been requested by SARS to resubmit documents that have simply “disappeared” from SARS computers.

SARS initially alerted taxpayers to the first glitch two weeks into tax season when there was a problem capturing retirement annuity and medical aid deductions on the newly-designed tax returns. Much of the confusion could have been avoided, of course, had SARS bothered to publish a guide to the new-look returns before and not after the filing season had opened. But that is merely a telling aside at this point.

In a recent mail to corporate clients and which SARS requested be distributed to employees, SARS’ Human Capital Enablement department (essentially HR) instructed “if you have not submitted your tax return as yet, please refrain from doing so until further notice.”

The mail continues:

“If you have already submitted your tax return and received a refund which may not have been due to you, you may be required to repay the amount upon re-assessment”. SARS then assures employees that “the Group Payroll and Tax teams are working with SARS to resolve these issues as a matter of urgency and will send out communication as soon as the problems have been addressed and the halt lifted.”

SARS, once a model of formidable efficiency, has been bedeviled by problems and scandals from the moment President Jacob Zuma appointed his personal friend and comrade Tom Moyane as commissioner in 2014.

From the devastating fall out (the resignation of the entire top executive of SARS) in the aftermath of the “rogue unit” saga to the investigation of Moyane’s trusted second-in-command, Jonas Makwakwa, after the Financial Intelligence Centre flagged the deposit of suspicious amounts of cash into his private bank account to the revelation in April this year that Kgabo Hlahla, SARS new acting chief officer in charge of IT and one of the most senior managers at the revenue collection service had been dismissed from his previous job as the Limpopo department’s information technology officer on charges of misconduct, SARS has been in the news for all the wrong reasons.

It was Moyane, it has been revealed, who lodged a charge against former acting Commissioner Ivan Pillay, an investigation that later led to the hounding of Pravin Gordhan by now suspended and disgraced Hawks head Mthandazo Ntlemeza.

In March this year the DA’s Deputy Shadow Minister of Finance, Alf Lees, wrote to the Tax ombud, Judge Bernard Ngoepe, with regard to a total of R19.6 billion in outstanding VAT and diesel refunds. The amount was disclosed in a parliamentary question to the Minister of Finance. Of the 43,650 outstanding claims, 42 percent had been outstanding for more than two months.

Lees, as well as other tax experts, accused SARS of withholding or delaying the VAT audits to meet SARS income targets.

The Gupta family however, were experiencing no such delays. In June, SARS paid out a R70 million VAT refund to the country’s 'First Family'. Even more alarming is that SARS insiders claimed that Moyane personally intervened when officials refused to pay the amount into an overseas account held by the family. The money was paid instead into the trust account of a lawyer.

The most recent failure of the new tax filing system, say many, is the end result of an institution weakened and with employees rendered cowed under Moyane’s autocratic watch. There has been a loss of institutional memory through a serious attrition of experienced staff . In addition, SARS' investigative capacity has also been cauterised.

Soon after his reappointment as Finance Minister in 2015 Gordhan requested Moyane to halt his extensive restructuring of SARS. Moyane refused to report to Gordhan (who headed SARS from 1999 to 2009 and knows its workings intimately) and later wrote four letters to President Zuma pleading with him to intervene.

Moyane appointed US-owned IT research and advisory firms Garter Inc and Bain & Company to assist SARS with its IT & Modernisation Strategy as well as its Operating Model and Structure Review. The process commenced in August 2015.

In January 2016 Moyane announced: “In essence, the purpose of the review will ultimately make SARS more effective relative to its mandate, or revenue collection for the state.”

On Tuesday Lees said “SARS e-filing has moved from being a world leader to a disaster in the making.”

He added that it was untenable that tax returns, once submitted, were needing to be resubmitted.

“What are the consequences for the economy with lost time and earnings. No compensation will be received from SARS. Instead refunds will be delayed even longer than the very long delays already being experienced,” said Lees.

He added that the SARS system had also “gone down for hours on end at peak times of day over the past few weeks since tax filing season opened.

After the glitches an apologetic SARS announced that the new system had failed to capture data submitted by employers including the 2017 Employer Annual Reconciliation Declaration (EMP501) and IRP5/IT3 (a) certificates. The “glitch”, SARS explained, had been caused by incorrect or missing fields for information/income codes related to travel allowances and re-imbursive travel allowances.

On 3 July, Gigaba, looking dapper in a green suit, blew hot air up Moyane’s fundament at the launch of the tax season in Orlando East saying that government “is serious about helping SARS maintain its position as a capable, modernised tax system.”

Moyane announced that the tax revenue target for the current financial year is R1.265 trillion – an ambitious figure and a massive 10 percent increase on the previous year’s collection. In the previous financial year SARS collected R1.1444 trillion which was R30 billion below the 2016 budget speech forecast.

Gigaba said he would make an announcement during his medium-term budget speech about whether this amount would have to be revised downward.

In March this year economists pointed out that the tax revenue target could fall short by as much as R53 billion. This was due to the recession, ratings agency downgrades as well as the inability of SARS to function optimally.

In February this year, before he was shuffled out to make way for Gigaba, Gordhan announced a new tax bracket for the country’s wealthy which some experts expect will be increased next year. This is a burden that is increasing and that might lead to a “deterioration” in tax morality.

The largest item on the budget, Gigaba must know, is the servicing of government debt which stands at R2.2 trillion. Recent ratings downgrades have further increased the cost of servicing this debt so SARS needs to collect as much revenue as it can and as efficiently as it can.

It is the cog that drives the wheels of the state which is why it cannot be allowed to continuously exist surrounded by the stench of scandal and political factionalism.

So, while Gigaba has proclaimed that paying taxes is a “statement of faith by South Africans to do what they can to make the country what they want it to be” he cannot expect to swell the coffers of a dysfunctional revenue collection service, led by a man who has been implicated in state capture and who seems paralysed by inaction and denial.

Presenting SARS third quarter Expenditure and Performance Report for 2017/17 to parliament in February this year Moyane said the significant “downward revision” of estimates by R30 billion were because of the slow GDP and “not about SARS ability to collect revenue”.

He blamed “negative” reporting for the “exodus of highly skilled personnel who could not tolerate their reputations being tarnished” (he did not mention the high-profile case of Makwakwa and his girlfriend, SARS official Kelly Anne Elskie allegedly caught on camera making large cash deposits as a possible factor at all) and said that “a drop in confidence in SARS was clearly noticeable from engagements with taxpayers.”

Gigaba might find himself like Old Mother Hubbard looking for a bone in the cupboard only to find it bare. Then, begging bowl in hand, we shall have to grovel before the International Monetary Fund or whoever else can help us (Perhaps we could tap the Gupta family for a loan after they settle in Dubai). DM

Photo: Minister Malusi Gigaba, Deputy Minister Sifiso Buthelezi, South African Revenue Service Commissioner, Mr Tom Moyane, 3 April 2017 (Photos GCIS)