Sars nails Zuma’s son over fraud
President Jacob Zuma’s son Edward is involved in a massive fight with Sars, which claims he is hocking contraband cigarettes and under-declaring turnovers to hide millions in profits.
Zuma’s legal battle with the SA Revenue Service dates back to 2011, but it is expected to flare up again this week because his Amalgamated Tobacco Manufacturing (ATM) company appears to have missed a January 25 deadline to reply to Sars’s damning allegations.
At the centre of the dispute is a raid on ATM’s cigarette manufacturing business in Pietermaritzburg in 2011.
The expensive plant was imported from China. ATM was incorporated in 2009.
The company is registered as manufacturing and distributing of tobacco related products.
A squad of Sars officials swooped on the premises, seized goods and machinery, shutting the plant down.
ATM was later allowed to operate, but the legal wrangle has continued and Zuma and his partners are now immersed in a bitter exchange with Sars officials.
In legal papers which our sister paper The Sunday Independent has seen, Zuma accuses the taxman of corruption, racism and running a smear campaign against him.
In an affidavit penned by Zuma, he accuses Sars officials of being underhanded.
In March 2012, Zuma, in his capacity as a shareholder of ATM, wrote to then Sars commissioner, Oupa Magashula, asking him to investigate and resolve the dispute between Sars and ATM.
Zuma’s partners in the enterprise include businessmen Paul de Robillard and Yusuf Kajee, who are also listed as directors of Fastjet Holdings together with Zuma. Zuma resigned as director of ATM in 2011.
Investigations into the company began in 2010 when Sars suspected that the company was involved in importing tobacco from Zimbabwe and distributing some of the cigarettes manufactured without paying the required tax and excise duties.
The taxes paid by manufacturers to government are huge. For every box sold the taxman takes R10.92.
The Sars investigations into undeclared profits in the tobacco industry were highlighted in Finance Minister Pravin Gordhan’s 2011 budget speech.
Three years ago one of ATM’s directors, Kajee, was investigated by Sars for tobacco smuggling. The probe led to the liquidation of Delta Tobacco.
Last year, close to 8.5 billion illicit cigarettes were smoked in South Africa and the government lost over R5 billion in taxes not paid.
Over the past three years, this figure nearly tripled to R12bn.
As a result of this non-compliance, Sars last year served dozens of tobacco traders with notices warning them of formal investigations and ordering them to ready their tax affairs for inspection.
The letters gave the companies, including Zuma’s, until January 25 to respond.
Sars could neither confirm nor deny whether ATM had responded, but The Sunday Independent has learned that a top investigator in Sars “Operation Honey Badger” took a keen interest in ATM.
Zuma claims that on February 16, 2011, eight Sars officials arrived at ATM offices on 21 Portland Road, Mkondeni, Pietermaritzburg.
He alleged that the officials, without identifying themselves, assaulted a security guard, forced their way into the premises, and demanded to know where the illegal cigarette were being manufactured.
“Where are all the cigarettes you have been manufacturing… Where are the illegal cigarettes” asked one Sars official while another took photographs, according to Zuma.
One staffer was also questioned about machines. Zuma alleges the officials did not find undeclared cigarettes, but served the company with a detention of goods notice.
“This notice in my view was to legitimise the unlawful search in the first place… There was no reasonable cause as provided for by the act… to inspect the premises. It is clearly exposed Sars to an action for unlawful search and seizure,” his affidavit says.
“My view is that this was an abuse of Sars powers which they do not have as this matter was to be dealt with either by SAPS or Home Affairs.”
The Sars officials returned to the premises on February 18 where they spoke to one of the staff members, a Chinese man.
Zuma alleges: “The Sars official said he would not speak to one of the monkeys (the Chinese technical staffer).
“The actions amounted to an abuse which is calculated to harass, embarrass and prejudice ATM,” Zuma’s affidavit says.
When contacted, Zuma said, “I don’t know what you are talking about. Where did you get that document?” He abruptly ended the call.
Kajee failed to return calls and SMSes. Included in the leaked document is a letter from Sars, dated December 6. It was authored by Sars group executive, tax and customs enforcement investigations, Johan Van Loggenberg.
Van Loggenberg states that Sars has evidence at its disposal that ATM at the very least manipulated processes and procedures and was at worst fraudulent and corrupt.
“Sars has evidence that details Kajee’s involvement in a number of instances of non-compliance with the Customs and Excise Act. Some of this forms part of criminal proceedings.”
Van Loggenberg also questions the manner in which the company was funded - “by means of concealed transactions, aimed at preventing Sars from having insight into such transactions as well as amounts provided by ATM’s financier”.
Sars found that in some instances, incorrect taxes were paid to Sars. Documents seen by The Sunday Independent show that last year alone, ATM declared the manufacture of 972 000 cigarettes, or about 15 800 boxes. But Sars found evidence of the manufacture of at least 3 8 million cigarettes, or 190 000 boxes.
Sars spokesman Adrian Lackay denied that ATM was being targeted. He said during December 2013 regular inspections were conducted on a number of warehouses, manufacturing plants, on importers and exporters.
“As part of these interventions, Sars can confirm that two major detentions of tobacco products were conducted during December 2013 where the potential loss in revenues to the fiscus would have amounted to several hundred millions of rands.”
- Sunday Independent