New South African Revenue Service (Sars) commissioner Edward Kieswetter started his job last week and if the contents of two recent reports on the tobacco industry are anything to go by, he’s going to have a busy time.
He faces a quagmire of corruption allegations in the industry and must negotiate a fair deal between Sars and tobacco companies, while ensuring compliance from an industry which appears to have run wild while Sars was being gutted.
The report, Ashes to Ashes; How British American Tobacco Avoids Taxes in Low and Middle-Income Countries (funded by The Campaign for Tobacco-Free Kids) released this week by the Tax Justice Network (TJN), asked if tobacco companies were making a “fair tax contribution to the societies where their profit-making activities cause the greatest human and economic costs”.
“British American Tobacco is one of the biggest collectors and payers of tax in the world. In the period covered by this report, we paid almost R5 trillion (five thousand billion) in excise, duty and corporation tax. We collect and pay R25 million in excise tax every single day in South Africa alone,” said British American Tobacco South Africa’s head of external affairs, Johnny Moloto.
“The global business is headquartered in the UK where the corporation tax rate is 19%. Yet, our effective corporate tax rate globally in 2018 was 26.4%. This means we pay corporate tax at a rate 39% higher than the one that exists in the UK.”
The report also pointed out that BAT’s tax picture in South Africa was a far cry from what has been making headlines and its 2018 annual report made it clear, noting it had been reassessed from 2006 to 2010.
“In 2016, Sars filed a statement of grounds of assessment and BAT SA filed its statement of grounds of appeal in early 2017. During 2018 both parties have filed their notices of discovery. Across the period from 2006 to 2010 the reassessments are for R2.1 billion covering both tax and interest,” BAT’s report stated.
BAT SA has said it was expecting a R30 million rebate on the more than R9.1 billion taxes it overpaid in 2018. It denied it owed R143 million as reported in the media.
Senior analyst at the Global Initiative against Transnational Crime Simone Haysom claimed in a report, The Illicit Tobacco Trade in Zimbabwe and South Africa: Impacts and Solutions (funded by the Atlantic Council), BAT may have been complicit in illegal practices, partly through its funding of Forensic Security Services (FSS) in an alleged corporate espionage campaign against independent manufacturers.
“These claims have been detailed in a signed affidavit by Francois van der Westhuizen, who had worked for FSS, which alleged BAT had bribed police and tax officials to turn a blind eye to ‘BAT’s tax evasion and money laundering’,” read the report FSS at the time denied the allegations.
Haysom also raised the spectre of Belinda Walter, who has yet to face any consequences for her alleged actions in collapsing Sars’ investigative capabilities under its High-Risk Investigation Unit (HRIU).
“… Walter was a triple agent who spied for BAT while also in the employ of the State Security Agency, before turning on BAT to spy on behalf of Carnilinx [the company she was hired to spy on]. BAT paid Walter £30 500 to spy for them, disbursed from their London office through Travelex cards, which may have broken antimoney laundering laws.
“It was Walter who set in motion the series of events that gave Tom Moyane the pretext to fire [Sars’ High Risk Investigation Unit] lead investigator and later disband the unit,” Haysom alleged.
Without denying the allegations, Moloto said there was no relationship with Walter, who has ignored multiple requests for comment. Moloto further claimed BAT SA was “totally opposed to illicit trade in all its forms”.
“It is a serious, highly organised crime that deprives governments of revenue, harms our business and devalues our brands. “We work with governments, law enforcement agencies, the industry and international organisations.
“BAT SA engaged the services of a security company, FSS, in connection with BAT SA’s fight against illicit trade by others and that contract concluded in 2016.”
Haysom further claimed recent analysis suggested that “in the gap created by the destruction of Sars capacity, the big multinationals have also become involved in smuggling practices, either underdeclaring or leveraging their relationship with subsidiaries in neighbouring countries to smuggle”.
“Under this view, the illicit cigarette market has grown to a size that the ‘independent’ companies do not have the production capacity to meet and their role is being exaggerated by the multinationals,” Haysom said.
Haysom argued when Sars’ HRIU “was destroyed, it was investigating the industry and was set to take away 15 licences [more than the number of ‘independent’ companies, so it is likely that one or more of the multinational tobacco companies also would have been threatened with a licence revocation]”.
“Since then, none of these companies have had their licences threatened and no progress has been made in the cases of tax evasion launched by Sars against BAT and the ‘independent’ companies.”
Moloto countered BAT SA was unaware anyone had accused it of of tax evasion. “Any such suggestion would be grossly wrong and defamatory,” Moloto said.