A recent South African Revenue Service (Sars) lawsuit against Verbena Freight and Logistics Management offers a fascinating window into the world of contraband tobacco and its staggering impact on the tax authorities.
The High Court in Pretoria has ordered the final liquidation of Verbena after Sars claimed nearly R19 billion in unpaid taxes.
In an affidavit in court, Pule Mantso, director of operations in the debt management department that is part of Sars’ illicit economy unit, claimed that Verbena owed R18.99 billion. taxes – most (R18.88 billion) in the form of unpaid tariffs. You also have to pay 31.38 million rand in value added tax (VAT) and 73.65 million rand in income tax.
Verbena is described as a company specializing in cross-border transport and customs clearance and shipping across southern Africa. The company has its own fleet of vehicles and a sister company based in Zimbabwe.
Sars launched an audit of the company in 2019 and found that the company had imported 8.1 million kilograms of tobacco between March 2016 and February 2019, all supposedly “taking care” of eight other entities listed at customs.
Mantso says the Customs Act does not provide for the importation of goods “in the care” of a third party. Verbena also acted as a customs clearance agent for imported tobacco, which entered through the Beitbridge border post. Under the Customs Act, excise duty is payable on locally manufactured cigarettes.
Several requests were made to Verbena to provide details of imports “chargeable” to third parties, but no meaningful response was received.
In December 2020, lawyers representing Sars informed Verbena that it had been concluded that the imported goods had been moved to premises controlled by the company and had been used to make illegal cigarettes.
Verbena was asked to refute these claims, which she did not.
In March 2021, Sars issued letters of demand for R18.88 billion in unpaid tariffs, which Verbena has not paid.
Sars then obtained a judgment against Verbena and the sheriff seized eight trucks and other assets with a total value of 2.2 million rand.
“This is woefully insufficient to make the payment of the 18 billion rand owed to Sars in relation to the customs debt,” Mantso says.
Sars also placed liens on several other assets owned by the company, but discovered that several of them had been unlawfully removed from the premises, constituting a criminal offense.
Sars officials then attempted to locate other assets in Musina in Limpopo, but three of the listed addresses could not be found and a fourth was a residential address, with the occupants knowing nothing of Verbena.
Verbena’s lawyer responded to Sars on July 12, claiming that most of the company’s vehicles were either in poor condition or had been exported out of SA, and as such it was not plus the owner of the exported vehicles. No proof of transfer of ownership or export was provided, Sars says, although eNatis documents showed Verbena was still listed as the owner of the vehicles.
Sars says he assumes Roy Muleya and Ruth Dhliwayo are responsible for running the business.
Intensification of investigations into illicit contraband tobacco
Sars says he has stepped up his investigations into the illicit cigarette trade which is expected to cost the tax authorities billions of rand a year in lost revenue. Its investigations show that large volumes of tobacco are imported into South Africa under the pretext of being re-exported, but in reality the tobacco is used to make cigarettes which disappear into the local economy and avoid paying excise duties.
“Import officials, such as [Verbena], just refuse to provide details, documents or information regarding the whereabouts of the tobacco, ”according to Mantso’s affidavit.
“When Sars finally demands the rights, he is unable to recover the substantial amounts owed because the transgressors have concealed or dissipated their assets. This makes the collection of unpaid debt extremely difficult and, in most cases, impossible. ”
Verbena was repeatedly asked to explain to Sars what had happened to the imported tobacco, but refused to do so.
What is known is that the tobacco is gone and millions of rand have gone into the company’s hidden bank account, Sars says.
According to court documents, Verbena has been exporting trucks and other SA assets since 2014, and Sars is asking the court for an urgent liquidation order to prevent any further dissipation of assets.
By acting as it did with imported tobacco, and by removing containers held in detention in flagrant violation of customs law, Verbena has shown that it has little respect for the law, Mantso says.
“In this context, there is a real risk that the respondent has [of] these vehicles to his Zimbabwean brother, a move that would make it virtually impossible for Sars to liquidate these assets in order to satisfy the judgment against the respondent.
Sars is of the view “that there is a serious and emerging risk that the vehicles and possibly additional assets will be concealed or moved across the border so that the respondent can evade payment of his substantial tax debt.” That is why it was of the utmost importance to grant an urgent final winding-up order.
During his audit of the company, Sars said Verbena disclosed two bank accounts but withheld information on a third, an Absa bank account, on which taxable income of R68.4 million was calculated.
Sars should be “recommended”
Fair Trade Independent Tobacco Association (Fita) chairman Sinenhlanhla Mnguni said Sars, together with other law enforcement agencies, should be commended for making significant strides in the fight against illicit trade in cigarettes and other tobacco products.
“In recent times, we have highlighted the increase in the number of illicit cigarettes smuggled into the country via our neighboring countries, especially following the ill-advised five-month ban on the sale of tobacco. ”
Mnguni continues: “We are continuing our advocacy that the relevant authorities continue to monitor the situation at our various border posts, particularly in Beitbridge, as there appears to be collaboration between the criminals involved in the smuggling of these cigarettes and some officials from stationed service. at these border posts.
“We strongly believe that better checks and balances must be put in place by the government to ensure that the system is foolproof and incapable of being easily manipulated.”
Failure to nip this in the bud will in all likelihood lead to the eventual demise of the legitimate local tobacco industry and reduce government taxes on the tobacco business, Mnguni says. “We are, however, very encouraged by the latest efforts by various law enforcement agencies to combat this scourge, and we hope that by working together we can successfully eradicate this threat to our society.” ”
“Get this dishonest importer to name his payers”
According to the founder of Tax Justice SA, Yusuf Abramjee: “These actions demonstrate that a determined new Sars team finally appears to be tackling one of the largest illegal cigarette markets in the world and this is good news for all. South Africans.
“The breathtaking tax demand of R19 billion is double the revenue Sars will actually receive in the form of excise duty on cigarettes this year,” Abramjee said.
“It is imperative that the authorities ask this dishonest importer to name his payers and that a national investigation be carried out into our tobacco trade. ”
Questions were emailed to Verbena and its lawyers, but no response had been received at the time of publication. Moneyweb also contacted Verbena and its lawyers by phone, to no avail.