South African tax agency probing VAT and customs fraud

By Wendell Roelf and Mfuneko Toyana

CAPE TOWN, Oct 31 (Reuters) - South Africa is investigating criminal syndicates operating in the scrap metal, fuel and gold industries and responsible for value-added tax (VAT) and customs fraud estimated at "tens of billions of rand" a year, the tax commissioner said on Thursday.

Slowly rebuilding from years of turmoil that gutted its capacity, the South African Revenue Service (SARS) is keen to recoup lost taxes as it struggles to collect revenues that the treasury expects to fall short of estimates.

Weak economic growth and household consumption, coupled with high unemployment, have had a knock-on effect on revenue collection, crimping VAT and company income tax receipts which together account for almost half of all tax revenue collected.

"In terms of the total fraud our estimate is it runs into tens of billions of rands, if you take the scrap metal, if you take the oil majors, if you take the cigarette industries," SARS commissioner Edward Kieswetter told Reuters.

Kieswetter did not mention any companies or intermediaries involved, but said it affected the entire value chain.

In the oil industry, for example, Kieswetter said criminals would put fuel in tankers and disclose a higher quality fuel to authorities in order to claim a higher VAT refund. Another trick entails the diversion of fuel, where fuel is declared as exports but it never makes South Africa's borders.

"We are currently investigating 22 cases where fuel trucks and tankers have been detained," he said.

In the scrap metal sector, a Port Elizabeth company recently pleaded guilty after misrepresenting the contents in 36 shipping containers, claiming it was sheet piling instead of scrap metal.

SHELF COMPANY OPERATORS

Besides fraudulent declarations of imports and exports, another concern for SARS relates to so-called shelf company operators who register companies, then claim VAT rebates before closing down the firm after a several months.

"We are putting a big spotlight on those who operate as shelf company suppliers and the people they sell to," said Kieswetter.

These shelf company operators have fleeced the system in excess of 8 billion rand over the last three years, he said.

"They create up to 400 companies a week and sell it, so they're actually complicit in crime ... their business is VAT fraud," Kieswetter said.

Kieswetter also said the revenue authority had recently seized scores of containers at ports of entry for customs tax contraventions, in areas such as textiles, footwear and sugar.

The tax commissioner said the agency was targeting 159 prominent individuals for possible prosecution stemming from ongoing judicial inquiries into state and business corruption.

"We need to ensure that revenue that is due to the state is collected," Kieswetter said. (Reporting by Wendell Roelf and Mfuneko Toyana; Editing by Mark Potter)