Last week, the South African Revenue Service (Sars) obtained a court order provisionally sequestrating Roy Muleya, one of the main role players in a scheme involving the importation of tobacco by entities with no obvious links to registered cigarette manufacturers.
Muleya was issued with a notice in terms of the Customs and Excise Act in respect of a company with a liability amounting to about R155m. He is the sole director of the company.
The application was heard by the Pretoria high court in May last year, and judgment was issued on October 29, granting the provisional sequestration of Muleya.
This is not the first time Sars has attempted to sequestrate Muleya. In 2021, the tax agency approached the same court on an urgent basis for an order for his provisional sequestration.
Sars had commenced investigations into the importation of tobacco, concluded that tobacco had been imported illegally, and sought to recover duties from several companies. Sars also raised income tax assessments against Muleya amounting to R32m, which it claimed arose from tax assessments issued for the 2015 to 2019 tax years.
Sars contended that Muleya’s total debt exceeded R188m and argued the matter was urgent, as Muleya was allegedly dissipating assets, including immovable property he owned in 2021. Muleya disputed the tax debt on several grounds. Judge Selemeng Mokose struck the Sars application off the roll for lack of urgency in November 2021.
From a policy perspective, questions will arise on whether the finance minister’s sin tax increases have had the perverse incentive of carving out a market for illicit traders like Muleya while making taxed products expensive.
This judgment is a shot in the arm for Sars’s efforts to combat the illicit tobacco trade, which costs the fiscus billions in lost taxes every year. While Sars’s focus has often been on small traders smuggling cigarettes into South Africa from neighbouring countries to evade customs duties, the latest provisional sequestration of one of the bigger players could go a long way in reinforcing tax compliance.
The issue of illicit cigarettes remains a costly headache for Sars. Illicit producers avoid paying excise taxes, allowing them to sell their products at lower prices than tax-compliant companies.
Business Day recently reported that an Ipsos survey commissioned by British American Tobacco (BAT) found that more than three-quarters of South African shops selling cigarettes were offering products that cost less than the minimum tax threshold — indicating that they were illicit. BAT estimated that the illicit trade costs Sars about R28bn a year.
Given this alarming figure, all measures Sars takes to ensure compliance should be welcomed.
From a policy perspective, questions will arise on whether the finance minister’s sin tax increases have had the perverse incentive of carving out a market for illicit traders like Muleya while making taxed products expensive. The policy objectives may have had good intentions that include discouraging excessive drinking and smoking while raising necessary revenues for the fiscus. But to what end, especially if the local market is being suffused with illicit products?
Tax Justice South Africa has previously said high excise duties on alcohol and cigarettes contribute to the thriving black market.
Those like Muleya against whom authorities can prove their cases must face the full wrath of the law.
Sars said its latest success reflects its deliberate strategy to deal decisively with those who choose to operate outside the law. The agency stated that where taxpayers wilfully disregard their obligations, it will make non-compliance hard and costly.
One can take comfort in Sars commissioner Edward Kieswetter’s assurance that the tax authority will relentlessly and lawfully pursue those who disregard the law. He noted that the country has seen a proliferation of illicit tobacco and cigarettes, and that such actions have only worsened the challenge.
Kieswetter said bringing cigarettes illegally into the country undermines the national fiscus by depriving it of excise duties.
“The message we want to communicate is that no matter how long it takes, Sars will not abdicate its responsibility to enforce the law. We will do so responsibly and without prejudice, fear, or favour. For all are equal before the law,” Kieswetter said.
It is hoped that the provisional sequestration will be made final and that the much-needed funds due to the state will be recovered. Importantly, though, Sars and the criminal justice system must leave no room to operate for any person or company that do not contribute to the country’s taxes.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.