23 July 2015 SARS issues stern warning to merchants in the fast moving cash goods (FMG) industries

Pretoria, 23 July 2015 – The South African Revenue Service (SARS) has identified extensive non-compliance within the formal and informal cash merchants environment, which includes merchants in the FMCG wholesale and retail industry. Following various investigations SARS has identified 295 Cash and Carry entities that displayed the following non-compliant behaviour:

  • Customs fraud,
  • Tax evasion,
  • Claiming of undue VAT refunds,
  • The illegal/illicit expatriation of funds off-shore, including to Financial Centres,
  • 1792 outstanding tax returns,
  • 130 entities have outstanding debt of approximately R1.5bn.

Information in possession of SARS indicates there is involvement of organised syndicates with sophisticated organisational structures.

SARS has identified various schemes designed to avoid the detection of significant amounts of cash transactions. One such a mechanism is the so-called ‘Ooplang’ transactions. The terminology ‘Ooplang’ also means: “The practice of keeping a portion of VAT, collected on behalf of the Tax Man, instead of declaring the full amount then hiding it from the government.”

SARS has further noted, with concern, the prevalence of various schemes whereby the Value-Added Tax (VAT) system is manipulated by creating apparent legitimacy, but actually facilitating the syphoning of VAT money from the system.

Some of these identified schemes include the –

  • So called ‘Ghost Exports’ which involves zero-rating supplies for VAT purposes on the strength of exports, whereas these supplies are not actually exported,
  • Non-recording of the sale of cell phone airtime,
  • Manipulation of loan accounts, claiming fraudulent invoices for VAT and Income Tax purposes,
  • Utilisation of intermediary companies to create invoices, and
  • Use of programmes to suppress sales, but retaining a seemingly legitimate business profit ratio. In many instances money laundering is an element of these schemes.

SARS has made concerted efforts over the past number of years to afford all honest taxpayers the opportunity to regularise their tax affairs. This included the Small Business Amnesty process (2006) and the Voluntary Disclosure process introduced in 2011.

SARS, the South African Reserve Bank and law enforcement agencies will be proceeding with robust operations nationally that will identify major role-players. The process will also be honing in on the full supply chain which will include colluding suppliers, connected companies, large clients, hawkers of ‘banking facilities’, local and international facilitators etc.

The purpose is to bring the full spectrum of previously unrecorded cash sales into the tax net. Those who have benefitted from such customs fraud, tax evasion and syphoning of funds may expect very little sympathy from the relevant authorities.  SARS invites taxpayers to take up the Voluntary Disclosure Programme before audits of such entities commence.

Any person who wishes to provide any additional information, documents and records are welcome to approach SARS by phoning the SARS anti-corruption and fraud hotline on 0800 00 2870 or filling out a suspicious–activity report form on the SARS website (www.sars.gov.za) or contacting the SARS Contact Centre on 0800 00 7277.