EFF Submission to the Davis Tax Committee that could lead to the resolution of the eTolls Crisis

16 July 2015

The Economic Freedom Fighters as part of a substantial written submission to be made in due course, made an oral presentation to the Davis Tax Committee on illicit financial flows and aggressive tax avoidance. There is overwhelming evidence to show that South Africa is losing potential revenue in billions every year. The current legislation and tax authority’s capacity is not adequate to tackle illicit financial flow in all its manifestation.

According to the Global Financial Integrity (GFI), South Africa lost more than R237 billion in 2011. GFI further reported that, between 2003 and 2012 South Africa lost more than R2 trillion. According to the AU High Level Panel on Illicit Financial Flows, led by former President Thabo Mbeki, Africa loses more than R650 billion annually.

As a matter of fact, it was SARS who told the Panel that one multinational company was found to have avoided an estimate of R25 billion in taxes by claiming that a large part of its business was conducted in the United Kingdom and Switzerland.

When the South African authorities investigated the case, they found that the UK and Swiss subsidiaries/branches had only a handful of low-paid personnel with relatively junior responsibilities and that these offices did not handle any of the commodities in which the company dealt (nor were they legally able to take title to those commodities).

The company’s customers were often in South Africa, but for each transaction, a paper trail was created that would route the transaction through the Swiss or UK offices to give the impression that these offices were critical to the business. As the EFF, we consider these estimates conservative mainly due to nature of criminality by multinational corporations.

More than 77 percent of illicit financial are facilitated through transfer pricing. The EFF made the following concrete recommendations to the Committee, amongst others:

To deal decisively with transfer pricing and illicit financial flows, the EFF is calling for nationalization of mines, banks, and monopoly industries.

A separate anti-tax avoidance legislation, which prohibit tax avoidance in its entirety, with stronger penalty regime including jail sentences for directors and executives found guilty of tax avoidance.

Intra-company trades, especially with a subsidiary company based in tax haven jurisdiction, must be prohibited on the basis that such act is not a bona-fide transaction therefore give criminals a legal tool to loot freely.

All companies operating in South Africa, especially mines, must transact through South African banks including sales of minerals resources.

There must be a judicial Commission of Inquiry, according to Section 84(2)(f) of the constitution, which must look into illicit financial flows in the country since 1996.

Mining companies operating in South Africa must, as part of the mining rights license, declare to SARS overall tax expenditure, and what they pay in South Africa.

There is an urgent need to build capacity at SARS, in particular capacity to gather information, investigate suspicious transactions and build a stronger case for prosecution.

South African Reserve Bank must put in place mechanisms to monitor transactions with companies located in tax haven jurisdiction.

The Committee must explore solutions beyond the Organisation of Economic Co-operation and Development methods which have been proven to fail dismally, and consider other methods such as the Sixth Method that is being implemented in Argentina, Brazil, Peru Bolivia and other developing economies.

With the necessary political will and skills base that already exist, SARS and the NPA could recover billions of Rands necessary to amongst other things resolve the etolls crisis. We call on the government to take these recommendations seriously and stop corporate crime that is draining the country of its resources, subjecting workers to low wages and the government having to raise taxes on individuals and continuing to borrow more because of eroding tax revenue.

Statement issued by the Economic Freedom Fighters, July 16 2015