It’s been a long time coming, but the ghosts of tax liabilities past seem to be catching up with British American Tobacco (BAT). This week, it emerged that the SA Revenue Service (Sars) sent a letter to BAT’s SA arm in October 2018 in which Mark Kingon — who was acting commissioner at that stage — levied a demand for R143m.
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Rather more important than the money, though, is this line in the letter: the commissioner "is of the prima facie view that BAT SA did not disclose all material facts when requested by the auditors during the audit". Sars goes on to use all sorts of nasty words, such as "nondisclosure" and "misrepresentation", and even accuses BAT of making "a false declaration" — all of which led to a loss to the fiscus.
Admittedly BAT is a tobacco company, but is this the behaviour you’d expect from an entity that holds media conferences to bemoan how illicit tobacco manufacturers aren’t paying the fiscus its due? It puts a new slant on BAT’s recent slogan, #takebackthetax.
Last year, in fact, the Tobacco Institute of SA, which is sponsored by BAT, raged at the sheer "outrage" of the R7bn lost to illicit tobacco, saying "there are known manufacturers, licensed by Sars, refusing to pay their taxes".
Just imagine.
Alarmingly, this new front in BAT’s tax battle is quite apart from a R2.1bn dispute the company has with Sars over its "debt structuring". (Unlike the case of the R143m claim, BAT did disclose that R2.1bn potential liability to shareholders.)
The tobacco company’s latest annual report notes that Sars "challenged the debt financing of BAT SA" retrospectively for every year between 2006 and 2010, to calculate the R2.1bn in arrears. At last count, BAT was locked in a legal dispute with the tax authority over that R2.1bn claim, even speaking about challenging the "constitutionality of the assessment".
This new front in BAT’s tax battle is quite apart from a R2.1bn dispute the company has with Sars
But these new revelations suggest BAT’s tax problems are far wider than anyone thought.
The letter sent to BAT, reported in Business Times, detailed how the company had applied for a rebate for "reprocessing" millions of cigarettes — yet BAT’s own internal notes had "different explanations" for what happened to those cigarettes.
It seems from the Sars letter that a chunk of those cigarettes were never sold at all, but simply destroyed after the rebate was paid; in other cases it seems BAT got those cigarettes for free — and then claimed a rebate from Sars.
The revenue service says BAT "misused the rebate item to compensate for production inefficiencies and losses at the expense of Sars".
In response, BAT SA spokesperson Mandlakazi Sigcawu said the company "is currently owed about R30m by Sars, which it is erroneously withholding on the basis of wrong conclusions drawn by the audit team".
Now, it’s important to remember that letter was sent six months ago, and BAT wouldn’t say what has happened in the meantime. It is possible the matter has since been settled. But either way, it illustrates that while many focus on illicit, tax-dodging tobacco companies, the biggest tobacco company of all seems to have got the biggest reprieve during the years Tom Moyane headed Sars.
It was Johann van Loggerenberg, the former head of investigations at Sars, who piloted the early case against BAT as part of a larger effort to haul the tobacco industry into line — an effort known as "Project Honey Badger". The Sars Large Business Centre, central to this project, was later dismantled by Moyane.
The departure of Van Loggerenberg, who was ousted by Moyane on trumped-up charges, pretty much led to the case against BAT grinding to a halt.
The tobacco industry must have been thrilled. After all, in 2016, Van Loggerenberg spoke of how the "initial attacks on Sars, me and the investigative units that I managed were driven by persons associated with the tobacco industry".
One person on BAT’s payroll was lawyer Belinda Walter, who, besides heading the industry association for the small tobacco companies, was also a former state security agent. BAT paid her £30,500, ostensibly to spy on rivals in 2013. And it was Walter who lodged a complaint with Sars that led to Moyane’s purges at the agency, including Van Loggerenberg’s departure.
Kingon, it seems, evidently thought it was time to revive the case. Edward Kieswetter, who takes the reins as Sars commissioner next month, is unlikely to let it slide either.
*The writer has one share in BAT
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