Sars loses its appeal to install cameras in tobacco factories

The South African Revenue Service (Sars) has lost its appeal against an earlier ruling that prohibited it from installing CCTV cameras in tobacco factories to monitor production and curb tax leakage, which is estimated at R20 billion a year.

Earlier this year, Bozza Tobacco and the Fair-Trade Independent Tobacco Association (Fita), representing several smaller tobacco producers, won an interim interdict preventing Sars from attempting to install cameras in tobacco facilities. Fita argued that this constituted an “unjustified violation of the right to privacy and property”.

The main case against Sars is still to be decided by the Pretoria High Court and may ultimately go to the Constitutional Court for a decision, given the constitutional issues raised by Fita regarding the rights to privacy, dignity and property.

There is also a fear that if Sars is given the right to permanently surveil tobacco producers, it might then impose the same rule on other sectors of the economy known to be tax sieves, such as clothing, gold and fuel.

ALSO READ: Tobacco industry challenges Sars over new surveillance rule

Arguments for and against

In its appeal, Sars argued that it needed 24-hour surveillance to counter the illicit trade in tobacco products that has resulted in rampant tax evasion.

Fita responded that the Customs and Excise Act makes no provision for this kind of constant and intrusive surveillance, nor does it empower the Sars commissioner to create new categories of crime as Sars proposed to do in terms of the new surveillance rules under the act.

The Pretoria High Court ruled that Sars had failed to address whether its appeal was in the interests of justice. It had previously been found that Sars had not followed the exact prescripts of the Customs and Excise Act when formulating the rule that would allow it to install surveillance cameras.

The order by Judge LA Retief is in parts scathing of Sars’s approach to the case, in particular its attempt to raise the novel argument that its right to implement the rule should be deemed lawful until the legislation that gives it this right is set aside.

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Fita members include Best Tobacco Company, Carnilinx, Folha Manufacturers, Home of Cut Rag, and Protobac. A total of 11 tobacco producers and Fita are applicants in the case.

Fita argued in its court papers that it is as concerned as anyone about the illicit trade in cigarettes but that there are other, less intrusive ways for Sars to monitor the tobacco industry and collect taxes due to it.

There is also concern over the possible leak of confidential information and intellectual property from Sars to either competitors or the public.

Sars argues that the act empowers it to set conditions and other requirements, by way of rules, for activities where a customs and excise licence is required, such as the production of tobacco products.

In terms of the proposed surveillance rules, Sars would be given the right to install CCTV equipment that gave it a clear and unobstructed view of all manufacturing, packaging, dispatch, and loading areas. This would give it full coverage of loading areas, including full details of transport vehicles used at dispatch and loading. Anyone damaging, interfering or tampering with the CCTV equipment would be liable to a fine or imprisonment of up to one year.

ALSO READ: Sars loses R119 billion in tax revenue due to illicit cigarette sales since 2002

Where it all started

Fita and Bozza launched their court challenge after Sars implemented the new surveillance rule in August 2022. In February 2023, it commenced with camera installation at two of the largest tobacco producers in SA, British American Tobacco (BAT) South Africa and Gold Leaf Tobacco.

The new rule gave tobacco producers five days to respond to an email from Sars notifying them of the intended date and time of CCTV installations.

Tobacco producers were further required to safeguard against anyone damaging or tampering with the equipment and to allow Sars-authorised officials onto the premises to inspect and repair the equipment and to copy the footage obtained.

Failure to do so could result in the cancellation of the producer’s customs and excise licence.

Sars claimed the new rule was part of a broader package of measures aimed at curbing rampant tax evasion in the tobacco industry. It also claimed in its court filings that it had difficulty verifying the integrity of the values provided by licensees of custom excise warehouses.

The cameras would be monitored from a central control room and provide backup for audit inspections, allowing customs officers to review videos and request documentation for a specific dispatch.

This created potential for overreach on the part of Sars, argued the tobacco producers. This was already evident in the email received by Bozza notifying it of an intended pre-site visit to determine the number of CCTV systems required in the manufacturing, packaging, storage and loading/dispatch areas.

The rule itself makes no mention of monitoring storage areas. Tobacco producers argue that this already demonstrates a disconnect between the new rule’s limits and how Sars intends to implement it.

NOW READ: South Africans smoked 37 billion cigarettes in 2023, but only 13 billion were taxed

This article was republished from Moneyweb. Read the original here.