Tax administration challenges: Tax Ombudsman, SARS & NT briefing

This premium content has been made freely available

Finance Standing Committee

07 June 2022
Chairperson: Mr J Maswanganyi (ANC) + Mr Y Carrim (ANC, KZN)
Share this page:

Meeting Summary

The Standing Committee on Finance and the Select Committee on Finance were briefed in a virtual meeting by the Tax Ombudsman, the South African Revenue Service (SARS) and National Treasury (NT) on tax administration challenges.

The Tax Ombud, Judge Bernard Ngoepe, said that the Office of the Tax Ombud (OTO) faced various issues when trying to carry out its mandate. The OTO was financially dependent on SARS, even though it was supposed to be exercising oversight over the entity. Also, the Tax Administration Act did not provide a provision to ensure the OTO was legally established. Legally, the institution did not exist, even though he had raised the matter with the two previous Ministers of Finance.

He addressed systemic issues identified and referred to SARS, and commented that the OTO could investigate only when matters were referred to them, or when directed by the Minister. Also, there had been a number of complaints to Parliament about SARS's conduct, such as not paying refunds on time and matters relating to identity theft. The OTO had raised some of these issues with SARS, and believed SARS was working on resolving its systematic issues.

The Commissioner of SARS said there was nothing in the SARS/OTO relationship that compromised the independence of the Ombud. Also, SARS had managed to improve taxpayers' experience, ensuring fairness and improved response times, and had initiated automated processes to deal with its heavy workload. Regarding refunds, he said that there was a basis in law to hold refunds when multiple years were investigated by an audit. SARS could not hold a refund if they had not informed the taxpayer of the audit.

National Treasury said it understood the need for the OTO to be independent, and would respond once it had received recommendations from the Nugent Commission and the Zondo Commission to develop legislation. It was not easy to allocate a budget to various institutions, considering the nature of their work. Also, it had an interest in ensuring that revenue came in, but also that the rights of the taxpayers and citizens, in general, were protected.

The Committee had concerns about the OTO being financially and structurally dependent on SARS. They raised issues of fair treatment of people and refunds not being paid within the required timeframe. Members also had concerns about how the good working relationship was between SARS, Treasury and OTO, to ensure the taxpayers benefited.

The Ombud responded that he hopes that the issue of legally establishing the OTO was dealt with. Although the lack of independence of the OTO impacted taxpayers, this was irrelevant. SARS said that if there was any malicious or unjust cause for delaying a refund by their team, it took the matter seriously and acted according to the law when dealing with cases. Treasury responded that the Ombud was allowed to appoint its own staff, and that Chapter 4 of the 2020 Budget Review addressed the independence of the OTO.

A Member asserted that the Committee had not fully addressed the purpose of the meeting. The Chairpersons suggested that the Committee write to the Minister requesting a report on the progress made with regard to drafting a Bill to address the issues raised in the meeting. They suggested that if the Committee was not satisfied with the progress by mid-September, then they would consider what action to take and explore the possibility of a Private Member's Bill.

 

Meeting report

Chairperson Carrim said that the purpose of the meeting was to get the Ombudsman's response to the issues raised at their previous meeting. The Committee had written to the Ombudsperson to explain the focus. The focus was not on the quarterly report -- that would be done by the National Assembly (NA). The meeting was about specific issues. A report, with the recommendations and issues raised by stakeholders, had been sent to the Tax Ombud, Judge Bernard Ngoepe, the South African Revenue Service (SARS) and National Treasury (NT).

Briefing on tax administration challenges

Judge Ngoepe said that the Office of the Tax Ombud (OTO) served the public. SARS should have drastic powers to collect the maximum tax. He said that sometimes they dealt with people who were not always honest, so those drastic powers were needed. However, in the same light, Parliament deemed it appropriate to make sure that there was an office to counterbalance the powers of SARS to ensure fairness when collecting taxes. The OTO had been tasked with ensuring taxes were collected in a fair manner.

Section 16 sets out the mandate of the Tax Ombud. The Office could act only when they received complaints, but in certain circumstances, the Minister may take the initiative and the OTO may ask the Minister to conduct some investigations, particularly systemic investigations.

Challenges facing Tax Ombud in discharging his mandate

He said that it was important to note the structures, constraints and capabilities under which the office functioned. The reason why people went straight to Parliament with their complaints was because the Office operated under certain restrictions and mandates.

Judge Ngoepe emphasised that the OTO must be structurally independent, because it had to investigate some of the complaints from the public about and against SARS. Structurally it was a strange situation, because the Tax Administration Act had been drafted in a way that they were supposed to investigate SARS, but they were financially controlled by SARS. At some point, the Act required the OTO to request the permission of SARS to hire people. This was an Office that was supposed to perform some oversight over SARS, but they had to ask permission to employ people from the same body they were supposed to investigate.

Former Minister of Finance, Nhlanhla Nene, had understood the problem and amended the Act to allow the OTO to employ people without the permission of SARS, but there were still restraints. The Commissioner was the Accounting Officer with respect to the OTO, because when the Act was drafted no provision was made to say that the OTO should be established.

The Office had started with three people, but Judge Ngoepe had grown to about 45 people. However, the Act had not made the provision for the establishment of the OTO, so legally they were operating an Office that did not exist. There were serious consequences for this, and one of them was that the funds that the OTO got from SARS, which initially were referred through the SARS budget, were diverted to an “office which in law does not exist.” Judge Ngoepe had raised this issue with the two previous Ministers of Finance to regulate the unlawful position by establishing the Office of the Tax Ombud. He had got the Government Technical Advisory Centre (GTAC), a specialised agency, to investigate possible forms and shapes in which the OTO could be established. He had submitted an assessment and business case recommendations done with the GTAC to the Minister of Finance, but had not received a response.

Judge Ngoepe had pointed this anomaly out to the current Minister -- that it was unlawful to speak of the Office of the Tax Ombud because such an office did not exist. The Minister had initiated proceedings with the Ombud to deal with the issue.

Judge Ngoepe pointed out that institutions were created to protect the rights of people, but the institutions were not capacitated. He also said that they had failed to capacitate the OTO, but they also incapacitated the Office because it could not operate free of SARS. The reason the Act was drafted in that particular manner was because it had been drafted by SARS -- which was why it had so many constraints. He urged the Members to push the Minister to legally establish the Office of the Tax Ombud.

He said that the reason why he would not be able to answer some of the questions was because of the restraints, and the incapacitation of the OTO.

Systemic issues identified and referred to SARS

The OTO had tried to identify certain problems and issues with SARS. They worked and cooperated well with SARS. Although the Commissioner was the Accounting Officer, they did not put financial constraints on the Office. It had some issues with SARS, like delays in payment of refunds. The issue had been on their radar for many years, but in the process, individual cases had been resolved.

Another issue that they have been having with SARS was its non-adherence to the prescribed dispute resolution procedure. When doing certain things, SARS requires one to do them within a specific timeframe, but when SARS was required to do things within a certain time, they were not in a hurry to comply. The OTO was in the process of getting SARS to deal with systemic issues because they negatively impacted and demoralised the taxpayers. The Office hoped that SARS would deal with its systemic issues.

OTO’s response to specific issues raised

The public complained to Parliament about a number of issues regarding SARS.

The first issue related to SARS’s perceived inequitable conduct toward compliant taxpayers was creating a further risk of increased costs of collection and decreased taxpayer voluntary compliance.

The OTO's response had been to question the extent to which there was indeed inequitable conduct as alleged, because they had not conducted an investigation into the matter. They were making a guarded statement to say that they were not denying or saying there was that kind of conduct. They were saying that the OTO invited Parliament or any other party to share information on this issue, to enable the OTO to conduct an investigation to the extent that the matter fell within its mandate.

The OTO was open, but in terms of the mandate, they were constrained because they had to wait for complaints to come to them, unless it was an issue of systemic problems. They could conduct an investigation only when they had complaints.

The second issue was that taxpayer dissatisfaction with SARS’s services had increased, as evidenced by the number of operational queries received from members of professional tax bodies. The number of complaints received by the OTO had not increased, but the number of complaints received from members of the professional tax bodies had indeed increased.

Another issue was that SARS was not taking responsibility for its actions, such as the identity theft of taxpayer profiles, which could have serious implications for taxpayers. The OTO had had such complaints from taxpayers, especially regarding identity theft and theft on e-filling. The issue was also raised in a SAICA communication to its members. The OTO had been in communication with the South African Institute of Chartered Accountants (SAICA). The communication suggested constant communication between SAICA and SARS on the issue. On 8 December 2021, SARS did issue a media statement to say that they were addressing the issue. The OTO had no reason not to believe SARS. Based on the information available, the OTO did not consider it necessary to conduct a further investigation into the allegations as a systemic issue, but if it was to receive more information that it impacted taxpayers negatively, the OTO could conduct a systemic investigation.

Another issue was SARS’s conduct during VAT audits, such as withholding VAT and diesel refunds violated taxpayers’ rights. The OTO was aware of the issue and had been battling it for years with SARS. For example, the OTO had found that on previous occasions SARS conducted audits on VAT and would wrongfully withhold refunds on periods that did not fall within the audit. Simply, the OTO may find that a person was entailed to a refund for a particular period, but instead of SARS giving that person a refund, they would conduct an audit on the same period while at the same time withholding the refund that was due in a different period. That was not what the law stated.

When taxpayers complained, SARS would extend the scope of the audit to include the VAT periods that were not in the initial audit. The OTO was of the view that this would be an attempt by SARS to remedy its non-compliance with the law. In one of the cases received by the OTO, SARS took almost two years to finalise the audit while withholding refunds in excess of R70 million. SARS had revised the assessments to a value of only R1.6 million, and paid more than R6 million in interest on the delayed refunds. SARS never responded to the OTO’s request for a legal basis on which it could withhold refunds for periods not under audit, and simply extend the scope when the OTO raised the issue.

This modus operandi was criticised in the judgement issued against SARS in Rappa Resources Pty Ltd v CSARS 20/18875 ZAGPPHC. The Court noted expressly that this action by SARS could not be condoned. SARS could not hold someone’s refund irrespective of the previous period on the basis that it was conducting an audit of a different period. SARS had to pay the refund. In sum, there was an issue of SARS withholding refunds, which impacted negatively on the cash flow of some businesses that could result in serious difficulties.
 
The last issue was the inefficiency with which SARS handled disputes negatively affected the small, medium and micro enterprises (SMMEs), including those in business rescue. This issue did not only affect SMMEs, but taxpayers as well. Based on the empirical data available, it was clear that companies were affected more than other taxpayers. The OTO had conducted a systemic investigation in which they highlighted, in their report issued in 2020, that this was a recurring issue.

On the issue of objections, objections took too long. They should be finalised in a short space of time. For instance, between February and March 2022, there had been an increase, from fewer than 40 business days to more than 100 business days, in the time it took SARS to finalise VAT objections, and this was a cause for concern. Also, the finalisation of appeals took too long. The OTO was of the opinion that a typical appeal should not take SARS more than 120 business days to finalise. Only a very small portion of appeals moved beyond the alternative dispute resolution (ADR) process and was referred to the Tax Board and the Tax Court.

Judge Ngoepe said that it was possible to deal with the appeals within a shorter period of time. The OTO understood why some members of the public had an issue with this matter. The OTO worked well with SARS, but sometimes they crossed swords in the interest of taxpayers. In the memorandum Judge Ngoepe had submitted to the Minister, it was regular for people to say that “they” took the money and spent it on the OTO. Judge Ngoepe was of the belief that the Auditor-General could take some people to task if he were to raise the issue loudly to say, “money has been spent on the OTO but show me where that office is.” He challenged people to show him the law that established the OTO so that he could demonstrate that the regularisation of the Office had not been done.

Chairperson Carrim said that the Ombud had raised two important issues. The first was that the OTO did not have independence from SARS, even though they had to hold the entity accountable. The OTO was under the SARS. Members would recall that they had made a decision recommending to National Treasury and SARS that they did not agree with the current arrangement, and that the OTO should have independence. Members had previously asked SARS why the OTO did not have independence and had been provided with an answer which had not convinced them.

The second issue was that there was no legislative provision for the establishment of the OTO, so in law, it did not exist. It operated in terms of the SARS Act, provisions that allow such a structure, and regulations. The Committee needed to decide what they wanted to do at the end of the session. He highlighted the Obmud had said that his term ends in September, and he would like to see that legislation before Parliament.

SARS's response

Mr Edward Kieswetter, SARS Commissioner, said that the role of Parliament was to hold SARS to account, and SARS took the role of the OTO seriously. There was nothing in the SARS-OTO relationship that compromised the independence of the OTO. The Commissioner and the Ombud go to National Treasury with a "begging bowl" -- they did not decide on their money. There was nothing in practice that hindered the independence of the OTO.

SARS lived in a constant balance between managing services to taxpayers and the risk to the fiscus. They were in an environment that had become rife with crime and corruption, making their work even harder. They regarded a service failure as one too many, and Covid-19 had presented SARS with challenges in the way they work. They had responded to this, and used the pandemic to accelerate their reform, modernisation and fast-track their ability to learn, but this process would depend on the resources they had available.

SARS had the mandate to collect money that was due and improve compliance and facilitate legitimate trade. In terms of the issues raised by the Ombudsman, he took any aspersion on the professional behaviour and integrity of SARS as a serious matter, with far-reaching consequences for our democracy, especially in the current climate where crime and corruption proliferated. The work of SARS had become hard. He assured Members that as the Commissioner of SARS, every instance of unprofessional and unlawful conduct of any member of SARS would be dealt with, with the seriousness it deserved. It was better to respond in this way than to make generalised aspersions on the integrity of SARS.

He said SARS welcomed feedback, and it was helpful if it was specific. He acknowledged that many taxpayers waited anxiously for their refunds, and SARS worked hard to conduct their work and investigations without delays. He stressed that they had no interest in holding back refunds without cause. One of the biggest trend shifts they were experiencing was the move from manual to automated processing. As part of their mandate, every declaration submitted by a taxpayer had to be assessed. SARS received about 20 million individual tax returns, 3.5 million export declarations and 3.9 million import declarations, and each one had to be assessed and followed up and implemented. Every dispute that arose must be resolved.

He said they could not manage the growing volume of work by conducting assessments, implementing assessment outcomes and resolving disputes through manual work. It was necessary for them to build an intelligent system that fed off data, and used machine learning algorithms and artificial intelligence. Otherwise, SARS would be unable to finish the volume of work within the times permitted.

An example of the SARS shift from manual to automated work was that the SARS tax register had grown from just under six million taxpayers in 2006, to 24 million in 2022. Of the 24 million, SARS had received RP5 Certificates from 18 million each year. In 2006, four million tax returns were submitted at SARS at branch offices, and only 120 000 had been filed electronically. Currently, they processed 7.3 million returns, and only 344 000 were submitted at their branch offices and four million were submitted electronically. In addition, three million taxpayers were auto-assessed, meaning that they used data and artificial intelligence to assess those taxpayers. The work done by artificial intelligence was not linear -- it relied on quality data.

In 2006, it would have taken a taxpayer an average of 180 days to receive an assessment outcome, but currently,  93% of taxpayers would be assessed in under five seconds. Most taxpayers would have experienced no intervention and would have been assessed, processed and refunded by making use of accurate data.

25% of the cases were related to third-party data mismatches, which was a big problem SARS was struggling with every day. For instance, there were low levels of compliance from employers, and increasing levels of employers submitting incorrect information or not submitting information, which created downstream challenges for taxpayers. SARS had raised this huge issue with employers and was paying attention to it.

For the past 24 months, SARS had done extensive work to address the issue of the current pay-as-you-earn (PAYE) compliance level being below 60%. The numbers raised by the Ombud had to be seen in context. SARS had increased the value of impermissible refunds while reducing the number of cases they selected for verification. For instance, in 2017 they had detected R6.5 billion in impermissible refunds from 1.5 million cases; in 2021, almost R8 billion from 1.2 million cases; and in the past year, almost R10 billion from 1.4 million cases.

In 2006, through manual processing, a taxpayer would wait 52 days for their refund. Today, 82% of refunds were paid within 72 hours to individual taxpayers, totalling R3 billion. He would challenge anyone who said that SARS was manipulating this evidence. SARS had exceeded the revenue collection estimate set by the Minister, but had also paid out R20 billion in refunds. He said there was no evidence that indicated that SARS was withholding refunds in an attempt to influence the revenue collection outcomes.

Mr Kieswetter said that there was a basis in law to hold refunds when multiple years were investigated by an audit. SARS could not hold a refund if they had not informed the taxpayer of the audit. Regarding disputes, SARS had seen a downtrend in the number of disputes. In 2018/19, there had been 200 000 objections and 11 300 appeals. This year, it was down to 136 000 objections and 8 251 appeals. 90% had been finalised within 43 days. The allowable time to resolve a dispute was 60 days, and a further 45 days if it was a complex matter.

The experience for the taxpayer had become increasingly seamless over the years. There was a spotlight on the work SARS does. There was a higher expectation for SARS to perform better, which increased the chances of failure. However, SARS accepted that they had a lot of work to do in terms of cleaning up third party data, working with banks, working with employers for IRP data, medical insurance, etc. SARS needed third-party data to use machine-learning algorithms and automated outcomes to deal with its current workload within the permitted timeframe. However, its proportionality needed to be taken into account.

In 2022, one out of ten VAT submissions was submitted for verification and completed within an average of 27 days. 55% of those cases were late submissions by taxpayers which carried a high adjustment rate of R26 billion. There was a lower selection rate for on-time submissions, which had an adjustment rate of 14.7%. The value of doing the verification in 27 days still yielded a value of over R40 billion that would flow out of the fiscus.

The Commissioner said they were mindful that there were instances where taxpayers were frustrated, and it pained them. He appealed to the Members to see it in the context of the volume of work SARS does. Also, many taxpayers were receiving a seamless experience, and SARS was working hard to identify and respond to instances of failure, which would reduce over time. However, this was highly dependent on the third-party data SARS receives.

Mr Ismail Momoniat, Acting DG, National Treasury, said that he heard Judge Ngoepe’s frustration and understood that the OTO was important for taxpayers. He also understood their role and the need for the institution to be more autonomous. The reason they had not done the legislation yet, even though they had said they would, was because the Treasury had a proposal to respond to the Nugent recommendations, because they had also recommended an Inspector-General's Office and there had also been debates about whether SARS had a board. Hence, SARS had to wait because it needed to consider that proposal and other draft proposals they had.

Also, some of the SARS issues had appeared in the Zondo Commission, and reports released by the Commission had mentioned the capture of SARS, and the President had said that government would wait for the final report of the Commission. The report and recommendations of the Commission might be released on 15 June. Government would respond then to the report and findings of the Commission. National Treasury was waiting on the final report to see if there were further proposals from the Commission in terms of SARS and the whole tax environment.

He said Treasury had some concerns with the report in terms of the concept of sharing services, and they had taken some steps. He pointed out, and agreed with Judge Ngoepe, that there was not much money being allocated, and many entities had complained about the pressures on their budgets. It was not easy to allocate to institutions the amount they needed, given the nature of their work, but that was a separate process in terms of what Treasury had done in the budget process with regard to what goes to SARS and the Ombud, although it was still tied to the SARS process. If the OTO got its autonomy, then it would not be so dependent on SARS, because one could not have the OTO doing oversight over SARS while under its control.

There were different models of an Ombuds Office internationally. In the financial sector, there were other Ombuds, given the nature of taxation and the need for revenue for the state. Treasury had an interest in ensuring that revenue came in, but also that the rights of the taxpayers and citizens, in general, were protected. Mr Momoniat said that in the next year, they hoped to have the legislation and the framework for the Nugent and Zondo Commission proposals and findings.

Regarding other issues, SARS did not know of specific instances of taxpayers and their complaints, given the fact that tax matters were confidential. Only SARS could address matters concerning taxpayer complaints. Everyone had an interest in ensuring that SARS dealt with the issues of taxpayers as speedily as possible, and it appeared that the Commissioner was committed to that. In the current environment, it was not just about getting people’s statements about what they wanted to do in good faith. Public servants needed to be held accountable. The mechanisms that would be in place would enrich the system.

Discussion

Dr D George (DA) said he was troubled about the establishment and budget of the OTO, given that Judge Ngoepe had raised the matter with previous Ministers of Finance, and the current Minister appeared to be showing some attention to the matter. Was the work of the OTO impacted by the fact that it was not formally established and the budget was reliant on SARS? SARS had previously indicated to Parliament that its expenditure was under budget. The complexity then was for the role of the OTO to balance the relationship that was skewed toward SARS, considering the relationship between taxpayers and SARS. Had the relationship between SARS and the OTO impacted the OTO's ability to balance the relationship between taxpayers and SARS?

Mr D Ryder (DA, Gauteng) said he felt vindicated by the comments they had made initially and by the presentation from the Ombud. He said that Mr Kieswetter should note that they had been full of praise for SARS. Considering the presentation there was a need to look at the types of complaints, how they have been mitigated over the last couple of years, and where the complaints were coming from. It was concerning that the complaints were coming from tax practitioners. SARS used to take note of the issue. While they might exceed their targets and the majority of the issues were dealt with, the challenge arose when they moved into a complex space or the need for further discussion -- that was when the "wheels came off."

Another issue was that it was difficult to communicate with SARS and this was a concern that other people and organisations had experienced with the entity. The [email protected] was the most frustrating correspondence to receive, because one could not reply and get someone to focus on your issues or engage in a conversation. They had done a test and found that SARS did well in answering their telephones. On the internet, there was an 0860 number advertised and it was also on the SARS website and e-filing. When one was overseas one could not reach the 086 number, but there was a different number, 011 602, which was answered -- but often did not -- so there was a problem with that information. Another number was 012 422 4000, which was answered all the time, but it was difficult to get that information if one was not in South Africa. It was difficult to get the information because when one called it was a matter of getting the right person with the right information, and when one called again one might not get the same person that one called initially.

Another issue regarding external communication was the fair treatment of people. Although people did not like paying tax, they had accepted that they needed to pay taxes, but they would like to be treated fairly when doing so. People started getting frustrated and complained about SARS when they perceived that they had been treated unfairly. This included people who were audited every single year for income tax, and those not receiving their refunds timeously while other people were receiving them on time. There were also those who received harsh consequences and penalties for non-payment of certain taxes, and did not see the same thing happening to other people. For example, the ANC had not been paying its employees' PAYE for a while. In this case, SARS had been quiet about the consequences of this high-profile issue.

Another matter was related to the game farm robbery of President Ramaphosa. While it did not relate to the matter at hand, it was a case of people wanting communication from SARS. It was an important issue that SARS needed to address -- it had to manage the perceptions by just saying that they did not have all the facts as yet.

Mr W Aucamp (DA, Northern Cape) said he echoed the sentiments of Judge Ngoepe and the fair treatment of everybody. People were expected to pay their taxes in time, but in return, SARS needed to pay their refunds on time as well.

Chairperson Carrim suggested the Committee secretariat should find the recommendation or observation the Committee took about three years ago, which had specified that they would like legislation that defined the role of the Ombudsman, specifically for its operational independence. They had been hearing about the Nugent Commission for years and understood the constraints of National Treasury function, and the Zondo Commission report was also covering SARS. It was a signal that there had been some progress in that regard. While the Judge might want to see the legislation by September, it might not be possible, considering that it was already June, but there had been some commitment and engagement to get the ball rolling. Treasury had not replied to whether they could get this done within a year. A year could mean 6 June 2023. He suggested that Members adopt a resolution that the process should begin within the next month, and there should be full consultation with the Judge and his team from the OTO. He suggested that they take a resolution to say that by the end of August, or mid-September, they have a report back from Treasury, the Ombud and SARS to both or either of the Committees on the progress regarding the legislation. He added that the Judge should be invited to write to the Committees on the progress and the proposals he had by middle of August, so that if the proceedings were not complete by then, they would know what needed to be done.

He also suggested that if there was no progress, the Committees introduce a private Member's motion, which they had done before. There was a lot of pressure on getting the legislation done, but if need be, a private Member's motion could be done. He emphasised that he was not questioning Treasury’s attitude, but this had been dragging on since 2017.

Regarding the independence of the OTO and the legality of the Ombud, he said that it was absurd that there was no legal provision. Based on what they heard, the relations were good, but they could not rely on the personal relationship between the current Ombud and Commissioner of SARS. Also, it was tax experts who were coming to Parliament, and they had their own agenda, which sometimes the Committee did not agree with, and sometimes they did agree. But, in this case, half of what they were saying the Committees agreed with them.

Regarding the approaches to SARS, the Commissioner had provided a lot of background but had not answered specific questions. For instance, on the VAT diesel funds, Judge Ngoepe had approached SARS before, but had not got much of a response. Maybe the Commissioner would like to answer or correct him if he was wrong. On the matter of the SMMEs, the judge had said that it was not just the SMMEs, but all businesses which were suffering, which was concerning.

Chairperson Carrim added that he had observed before, and had had an exchange with the legal services unit, about people coming to Parliament with their own individual problems. They should go to the Ombud if they had a case with SARS, but instead they come to Parliament with their individual problems and present them like it was a group of people having the same problem. People could not come with their individual complaints to the Committee and Joint Committees. It was not something the Committee had legal authority over. It must be dealt with through what the legislation and processes that spell out the mandate of SARS, and the Ombud must deal with the case if need be. He and the Co-Chairperson should speak to the Committee secretariat about not letting just anyone come and raise their own personal complaints. They must first consult with the Chairpersons, and they would decide whether the complaints should be heard by the Committee. The Constitutional Court had stated that Parliament was obliged to listen to everyone and take everything into account in terms of a public hearing, but this did not mean that it qualified for oral hearings.

In the Committee’s previous budgetary meeting, they had explained why SARS was doing well overall. However, there was a need for them to respond because this was Parliament and it had to deal with various issues. SARS had made a lot of progress in the last two or three years, but at the same time, the Commissioner of SARS had been a bit defensive, although this might have been a subjective feeling. The duty of the Committee was to ensure that the legislation was made in law and in practice had operational independence.

Tax Ombud's responses

Judge Ngoepe said that there was no competition between the Tax Ombudsman and SARS. The OTO was present because of the feedback the Committee got from the members of the public on various issues. As the representatives of the public, the Committee had decided to ask the Commissioner and the OTO to respond to certain questions. That was why he had restricted himself to the specific questions asked by the Committee, otherwise he would have been more detailed in his answers. The Nugent Commission report had nothing to do with, or been an impediment, to the issue the OTO was raising. The issue was not that they were not structurally independent, but it was that the two previous Ministers of Finance had not responded to his correspondence, even though the OTO had commissioned a report with recommendations of how the OTO could be established. The establishment of the OTO was meant to deal with the issue that the institution did not legally exist. He had raised the issue on multiple occasions that it needed to be rectified.

There were things that had not been done in this country, which was why they had the issues that they have. The fact that the previous two Ministers of Finance had not even acknowledged receiving his correspondence was an example of how public power should not be exercised. He was not running or establishing the OTO for his personal benefit, but wished that before the end of his term, he would leave the institution as a legally structured entity for the benefit of all. He added that the office could not depend on its popularity or lack of popularity to survive.

He said the lack of proper independence of the OTO negatively impacted taxpayers, but this was irrelevant. The issue was that it was a situation that was legally untenable, and should be rectified. It did not negatively impact the taxpayer because of the good relationship between the current Ombud and the previous Commissioners, but one did not run a state based on the working relations between the people who occupied the offices.

He had mentioned to the Commissioner before that the Act had been drafted in a way that if the Ombud was required to appear in front of the Committee to answer questions, SARS had to approve the purchase of his flight, car rental and accommodation. The OTO did not have financial autonomy from SARS. This gave the public a perception that the OTO was not independent, even though it was headed by a judge. It raised questions as to whether the Ombud could independently and impartially protect a taxpayer against SARS when the OTO was so dependent on SARS.

He was realistic, because he did not expect the Committee to rectify the issue before his departure from the OTO. However, it would be disheartening if years later taxpayers were left in a position where they were protected by an institution heavily dependent on an institution that it was supposed to be exercising oversight over. He acknowledged that the OTO and SARS had good relations because of the working relationship between himself and Commissioner Kieswetter. They meet for tea to discuss issues and how they could work better in the interest of the taxpayers.

SARS's response

Mr Kieswetter said he wanted to address the claim that SARS did not respond to the OTO. He said that Mr Mark Kingon managed the communication between the Ombudsman and SARS. SARS welcomed any feedback and understood that it would be criticised at times, but it would respond in a substantive manner.

Regarding the international number, he said it could be a transactional question. SARS had an international number, but it could be that it was not answered because of the different time zones. SARS would look into the matter.

Regarding fair treatment by SARS, he believed in fairness and he had made it clear to SARS that he would not tolerate any kind of unfair treatment toward taxpayers. If an employee of SARS did not act within their guidelines, they would take the matter seriously. He said SARS treated every taxpayer fairly, regardless of their standing in society, and would administer the law without fear, favour or prejudice.

SARS was an organisation of 12 000 people. People were a weak link, because they were the cause of risk. They could be influenced or persuaded, or in some instances, they colluded with taxpayers. The employees acting in their own name would be dealt with decisively, and would be held to account personally.  

Mr Mark Kingon, SARS Head: Stakeholder Relations, Integrity and Anti-Corruption, said that SARS always engaged and responded to the Ombud. His office was always meticulous when engaging the Ombud when matters were raised regarding the one period being audited, and another period not being refunded. If a period was under an audit, it was refunded. That was how the system was set up. However, it was possible for a period to be joined, or combined, and the refunds could be withheld. This was done only when there was a risk identified in the process. If there was any malicious or unjust cause for delaying a refund by their team, SARS would take the matter seriously and deal with it internally. SARS acted according to the law when dealing with cases.

Ms Yanga Mputa, Chief Director: Tax Policy Unit, National Treasury, assured Members that Treasury had been engaging with the judge. In 2016, the previous Minister had made changes to the Tax Administration Act in order to understand and address some of the concerns raised by the judge. For instance, they had authorised the OTO to be financed and the budget approved by the Ministry of Finance, instead of through SARS. The budget of the OTO in terms of Section 15(4) had been advanced and become a line item in the estimates of national expenditure (ENE).

She said that the Ombud was allowed to appoint its own staff instead of SARS doing it. On 23 March 2018, the Government Technical Advisory Centre (GTAC) released a report, as the judge had said, regarding the institutional options assessment case recommendations of the OTO. SARS had engaged the OTO, hence Mr Momoniat had linked it to the new Nugent Commission of Inquiry. In the 2020 budget, in Chapter 4 of the 2020 Budget Review, there was a paragraph titled “Rebuilding Governance at SARS,” which talks about the Nugent Commission of Inquiry, noting that the OTO had proven effective in ensuring that the taxpayers were not prejudiced by SARS. It had also noted that the government would strengthen and separate the OTO financially and operationally from SARS. This was under the Nugent Report. The matter raised was going to be dealt with by all the things in the Nugent report. It was on their agenda, but in 2020 the pandemic had hit, which meant they had five Bills in 2020 and 2021, the Disaster Management Tax Relief Bills, because they had to deal with urgent matters.

On 7 April 2022, the new Minister met with Judge Ngoepe to discuss the issues. The Minister had tabled in the 2020 budget that they would be dealing with the issue, but this was before Covid-19. The five tax bills in 2020 and 2021 were dealing with Covid-19-related issues. The issues raised by the judge were of concern to SARS, and they were working toward dealing with them.

Further discussion

Ms D Mahlangu (ANC, Mpumalanga) said that considering the presentations and the discussions, she had to go back to the invitation to look at the purpose of the meeting, and was of the view that the Joint Committee had not focused on the purpose of the meeting because of side issues. The purpose of the meeting had been to listen to a briefing on matters relating to tax administration. What Ms Mputa had said did to some extent speak to the taxpayers, but the entire meeting had not focused entirely on matters affecting taxpayers.

She said that she understood the judge’s frustrations, and amongst the Committee and Parliament, there were legal minds that could make an analysis. Also, Mr Ryder had raised matters that impacted taxpayers, but the people who were expected to provide responses were speaking about issues involving the offices instead. She also noted that the Commissioner and Ombud might have a good working relationship, but they had not shown how that benefited South Africans in terms of tax.

Chairperson Carrim said that there was no need to "reinvent the wheel” every time there was a new Committee. They had discussed this matter before and understood that Covid-19 had had an impact on all of them. He was of the view that Treasury worked very hard and had a competent team. SARS had done really well, but it was Treasury that introduced legislation to Parliament and in this case, after it had consulted with SARS and the Ombudsperson.

He suggested that the Committee should agree on what guided them and write jointly to the Minister and DG. There was a need for action, and the next time they met the Ombud would be once before he left in September. The Committee could choose to vote or defer the matter to a later stage, but they should agree or disagree that the 2018 decision that OTO should be more independently and operationally independent of SARS. Also, there was specific legislation setting the role of the Tax Ombud, and there was an urgent need for it. He added that the Ombudsperson had raised the matter with two previous Ministers of Finance, but there had not been any significant progress. Also, the Nugent Commission and the Zondo Commission dealt with SARS, and National Treasury tried to implement some of the Commission's recommendations into law. However, the legislation was long overdue and the proceedings needed to begin while Treasury was converting some of the recommendations into legislation. Also, the OTO needed to be consulted on the process of drafting the legislation regarding its role.

Lastly, a report had been drafted on the progress to be presented to both Committees, but preferably to the Portfolio Committee on Finance, because they dealt more with legislation that they could affect. If the Committees were not satisfied with the progress of the Bill, then a Committee Bill should be introduced within three months. There was a precedent for such a course of action, and they had done this before. He stressed that this was something they could vote on or defer for another time.

Co-Chairperson Maswanganyi said that Chairperson Carrim’s contributions had been a summary of how they should move forward. He acknowledged that there was a good working relationship between Treasury (through the Minister), the Ombud and SARS. However, like Ms Mahlangu, he questioned how that relationship benefited the taxpayer. Their duty was to ensure that all institutions that supported democracy should be well resourced so that they could execute their duties without fear, favour or prejudice. This included the OTO and SARS. They should continue to ensure that they were properly supported.

He highlighted that at some point SARS had many vacant positions because of budgetary constraints, but Parliament had responded and passed a budget to ensure the vacancies were filled. The same should be done through Treasury and the Minister to ensure the OTO was well resourced with skilled people who could execute the mandate of the Office. They would take this matter up with the Minister.

Before the Committee decided to initiate a Bill, they must first engage the current Minister on the observations made by the two Committees, and request that he initiate a Bill. In the case that he did not, then the Committees could return and discuss the possibility of initiating a Bill. The Committee would take it upon themselves to ensure that in their next meeting with the Minister, the issue was addressed. The next time the Minister was asked to appear before the Committee, they could ask what he was doing to ensure the OTO was well resourced.

Regarding the issue of the Nugent Commission, he said the last time they had discussed this was with [former] Minister Mboweni, when he had informed the Committee that he or the President would appoint Judge Mokgoro to look at the recommendations and how they were going to implement the recommendations of the Commission. At Treasury’s and Minister’s next appearance before the Committee, they would have to walk through what had been done so far in implementing the recommendations of the Nugent Commission. They should not create a perception that the government created commissions and never implemented their recommendations. It was like wasting the taxpayers' money. They would take the matter up with Minister Godongwana.

Chairperson Carrim said it would be best if they took a decision in order to know if the Committee Members agree with the points he and Co-Chairperson Maswanganyi had raised, otherwise they did not have a mandate. He suggested that they write and engage with the Minister, as suggested by Co-Chairperson Maswanganyi, but they needed to have some resolution or recommendation to agree on. He suggested that in the case the Committee was not satisfied with the progress on the Bill, only then would the Committee Bill be introduced. He was not suggesting introducing the Bill now, unless they had that kind of leverage with Treasury and the Minister. The matter had been dragging on since 2018. He added that his last point should be phrased as, “the Committee would consider what further action should be taken should there not be adequate progress, including the possibility of…”.

A decision needed to be made and there should be a mover and a seconder. It was up to the Committee on what should be the way forward, or write to the Minister. Members needed to agree on something.

Ms Mahlangu said that Chairperson Carrim’s summary had been inclusive of what Co-Chairperson Maswanganyi had said. It was a process, so they could not do a Bill without first consulting and engaging with the Ministry and the relevant offices. She wanted to be the mover for the suggestion made by Chairperson Carrim.

Chairperson Carrim said there seemed to be consensus across party lines. However, they could add a part that stated that the Committee Chairs would raise the matter with the Minister directly as soon as possible. Also, if the Committee, or Committees, were not satisfied with the progress of the Bill in mid-September, it would consider what action to take and explore the possibility of a Private Member's Bill.

The meeting was adjourned.






Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: