By Nono Mxothwa
I remember early last year, one of my mentors and I were looking at Kumba Iron Ore Limited (Kumba) eventually agreeing to pay the tax claim of R2.5 billion of the South African Revenue Service (SARS) and I thought to myself – it’s all very well exercising the doctrine of legitimate expectation (which we will look at further down), but does Tom Moyane know who he is going up against?
Kumba had sold iron ore to four (4) manufacturing companies located in two overseas tax free zones, namely Thailand and Hong Kong. SARS however found that in Kumba’s invoices for these transactions, the amount of ore recorded was more than the value Kumba had claimed to have sold it for. It further found that these 4 companies were registered as divisions/subsidiaries of Kumba. So essentially, Kumba had sold itself ore at less than the market value so as to pay less export tax to SARS and pay no tax in overseas tax havens – because that’s how profit shifting, resulting in tax base erosion, occurs which in turn is termed “illicit capital flight”.
The original claim exceeded the settlement amount, but we all lose some and win some.
The European Union Chamber of Commerce in Africa itself concedes that 85% of illicit flight in the Republic of South Africa (RSA) occurs in the formal sector of which 80% occurs in the mining sector. Minerals account for 60% of RSA’s exports. In this context, consider the fact that the United Nations Commission on Trade and Development (UNCTAD) found that all the mining sector transactions in the RSA between the years 2012 and 2016 were wrongly invoiced. This means that not a single export of RSA’s minerals was accurately taxed. Further contemplate the fact that Kumba’s sister company, De Beers, didn’t pay a single cent of tax in respect of diamond exports for an entire decade. Pravin Gordhan was SARS Commissioner, but his successor Tom Moyane was having none of that.
The doctrine of legitimate expectation simply operates on the “pay now, argue later” principle that SARS has at it’s disposal. This means that once SARS slaps you with a tax bill, you’re obligated to pay and the courts may only help you with ordering SARS to give you a refund if you are successful with your case. Moyane used this to the hilt. Hence SARS achieved R1 trillion in revenue collection amid low economic growth averages of 2%, that it failed to collect during Gordahn’s stint at an healthy 5% growth rate.
The fact that Kumba’s founders, the Oppenheimer family, paid for Cyril Ramaphosa’s varsity studies; funded his formation of the National Union of Mineworkers (NUM); subsequently gave NUM bargaining rights at their mines before the apartheid government recognized ethnic unionism as well as the fact that it’s Ramaphosa who fired Tom Moyane – all maybe amount to just a coincidence.
Exactly why Tom Moyane was fired, I don’t know. What I do know is that if the Oppenheimer family supplied helicopters to block the presidential motorcade of the Zambian president recently, then Moyane created himself some very powerful enemies.
How the Oppenheimer family got the Zambian government to sell them it’s nationalized ownership of Ashanti Goldfields to create AngloGold Ashanti Limited is another matter altogether, best left for the ages….
Illicit flight costs the RSA 7% of the total Gross Domestic Product (GDP), compared to the loss relating to government corruption which amounts to less than 1% of the GDP. Will the new SARS Commissioner pursue tax base erosion? Time will tell…