Nine years ago, Edward Kieswetter left the South African Revenue Service (Sars) in a relatively healthy state, having helped the tax-collection body deliver a historic budget surplus. Now, he is tasked with cleaning up the agency after the disastrous reign of former commissioner Tom Moyane, who stands accused of purging Sars’ top talent and systematically dismantling its investigative structures. Already, Kieswetter has begun raising expectations, telling tax avoiders “their holiday has ended” and vowing to steer the fiscus out of the “personal tragedy” it suffered during Moyane’s tenure. But it’s an open question whether he will be able to repair the damage left by his predecessor – above all, Sars’ oversight of the tobacco sector, which has grown dangerously lax in recent years.
To be fair, Kieswetter has already won one victory, brokering an end to the strike which involved 10,000 Sars employees. But this victory – achieved with the offer of an 8 percentage wage hike – is just the start of his battle to restore public confidence and stem the tide of negative reports, not to mention the lost money. Just last week, Sars recorded a R57.4 billion (US$4.06 billion) revenue shortfall, the fifth year in a row it’s missed its collection targets.
Even more damaging are the lurid headlines still swirling around Moyane, who was fired last November after a hugely damaging inquiry led by retired judge Robert Nugent. The inquiry reported that the former commissioner had been a “calamity” for Sars, creating an atmosphere that “reeks of intrigue, fear, distrust and suspicion.” Nugent found that Moyane had blocked the installation of new technology, forced hundreds of employees from their jobs and completely reconstituted the Sars executive committee with his own allies, only two of whom had any tax collection experience.
A key decision singled out by Nugent was the disbanding of the High-Risk Investigation Unit, which was leading various anti-smuggling investigations. The unit was dissolved over allegations that it had gone ‘rogue’ but Nugent rejected these claims, adding that Moyane’s decision had led to “vastly diminished regulation of the illicit economy”.
The results are clear. Sars has been losing billions of rand to illicit trade, and the problem is most acute in the tobacco industry, whose smugglers have poured through South Africa’s porous borders and flooded the informal ‘Spaza’ stores which are sprouting across the country. Studies released last year showed that black-market cigarettes now cost South Africa R7 billion per year, with one in four sticks coming from illegal sources.
Urgent priorities
To tackle this problem, Kieswetter should at least call on the assistance of Sars’ new illicit economy unit, which was established under the outgoing interim commissioner, Mark Kingon, with a purview similar to the old high-risk unit. But it remains a mountainous task, one which must begin immediately. Kieswetter needs to beef up border patrols to block the smugglers’ entry and get a grip on those Spaza stores, which have bitterly opposed the government’s attempts to stop them from selling ‘loose’ cigarettes.
Above all, he and his fellow regulators need to honour the World Trade Organization’s Protocol on Illicit Trade in Tobacco Products, which South Africa signed way back in 2012. The protocol obliges South Africa to build an independent track and trace system, which allows regulators to monitor every single cigarette on its journey from the production line to an ashtray. As yet, there’s precious little evidence of any progress.
Any such system, however, will surely be challenged by the giants of the tobacco industry, whose involvement in tobacco smuggling has long been a matter of fact rather than conjecture. The big manufacturers may protest their innocence (and regularly do), but a string of lawsuits have forced them to admit flooding the market with cheap smokes, to protect market share and sabotage a global push for higher taxes. In South Africa, these same manufacturers have blamed the smuggling on new market entrants, notably Gold Leaf’s hugely popular brand RG. Yet a slew of counter-allegations suggests that, in fact, it’s Big Tobacco which is guilty of dodgy practices. Chief among the accusers is Johann Van Loggerenberg, the old head of Sars’ high-risk team and key protagonist in the ‘rogue unit’ accusations.
Van Loggerenberg claims that, while investigating cigarette smuggling, he was lured into an affair by an informant paid by British American Tobacco, who allegedly browsed his phone and email messages without permission. These claims are corroborated by a huge data leak from 2016, suggesting a sustained campaign of bribery and espionage by agents working on behalf of BAT. Another former Sars agent even claims Moyane scuppered the tobacco smuggling probes after the agency was captured by the tobacco manufacturers.
Whatever the truth behind these claims and counter-claims (and it must be stressed that Moyane is still attempting to prove his innocence), the major manufacturers are already scrambling for the high ground in anticipation of a tougher new regime. Their intentions were made clear in a statement earlier this week, pledging to work alongside Kieswetter’s new team and demanding he punish their smaller competitors.
For South Africa’s sake, its officials must take a tougher line. To curb tobacco smuggling, any semblance of industry involvement must be stamped out. Kieswetter is certainly saying all the right things, and his track record suggests he may be able to deliver results. But, if he wants to make a dent in tobacco’s black market – and patch together Sars’ reputation – bold rhetoric alone won’t be enough.
