The South African Revenue Service (Sars) is cracking down on individuals using nonprofit organisations (NPOs) as vehicles to launder money disguised as donations. It has rejected R1bn in claims presented as donations in the 2023/24 financial year.
Commissioner Edward Kieswetter said Sars was concerned about the level of tax abuse and low compliance in tax-exempt institutions, some of which were being used as vehicles for money laundering and tax crime.
“The disallowed donations primarily stem from purported donors claiming fictitious donation deductions,” Sars told Business Times.
About 65,000 nonprofit or public benefit organisations enjoy tax-exempt status and in the year under review generated R16.5bn in revenue.
Sars told Business Times that NPOs and NGOs were not directly implicated, but rather it was targeting claimants — individuals, trusts and companies — who made impermissible donation claims.
However, when a tax-exempt institution violates the conditions of its approval its exemption status is reviewed and withdrawn where necessary.
South Africa’s Tax Administration Act also enables Sars to share information with other law enforcement agencies for investigative purposes.
The FATF has highlighted that one of the objectives we [South Africa] need to resolve if we want to come off the greylist is the use of NPOs for money laundering.
— Sars commissioner, Edward Kieswetter
Kieswetter said NPOs were sometimes created for money-laundering purposes or to commit tax crimes. He highlighted the importance of stopping tax abuse for South Africa to be removed from the Financial Action Task Force’s (FATF) greylist.
“The FATF has highlighted that one of the objectives we [South Africa] need to resolve if we want to come off the greylist is the use of NPOs for money laundering,” he said during an announcement on tax revenue collection over the period.
The FATF — an intergovernmental organisation focused on ensuring compliance against money laundering and terrorist financing — placed South Africa on its greylist in February 2023.
South Africa has a January 2025 deadline to address the items. The government has said it was on track to address the outstanding remedial action, but acknowledged that it was challenging to address all of the 17 remaining items by the deadline.
“The Financial Action Task Force was very clear. If South Africa cannot demonstrate successful convictions in matters such as complex tax evasion, money laundering and terror financing, we will not come off the greylist,” Kieswetter said.
“Our work is cut out for us. In this regard, we’ve not delivered enough.”
Sars announced it had managed to collect a gross tax revenue of R2.155-trillion for the 2023/24 financial year.
Kieswetter said this amount was in line with the revised estimate, representing a year-on-year growth of 4.2% against a nominal gross domestic product (GDP) of 4.9%.
Net revenue, which is the revenue after refunds have been paid to taxpayers, amounted to R1.741-trillion, exceeding the revised estimate set by the minister of finance by some R10bn, representing year-on-year growth of 3.2% (or R54.2bn).
The revenue service has also identified 53 tax practitioners who remain non-compliant when it comes to their own tax affairs, and Kieswetter said this, in part, explained why their clients were mostly tax delinquent.
Sars has started the process to have these practitioners’ licences revoked, with eight revoked to date while some have been identified for criminal investigations.
Net revenue collected by Sars in 2023/24, up R10bn on the revised estimate.
— IN NUMBERS: R1.741 trillion
At one Sandton law firm, 14 partners underestimated their provisional tax, leading Sars to request top-up payments. These are “people we should be holding to a higher standard”, he said.
Given the increase in illicit financial flows, Sars has stepped up its vigilance when receiving approval requests for international transfers via practitioners, many of which have resulted in full-scope audits.
Sars and law enforcement agencies have increasingly shared data to support criminal investigations. The National Prosecuting Authority (NPA) Investigating Directorate (ID) is located in the same office block as Sars, allowing for the teams to work together when needed.
Together with the Hawks elite crime-fighting unit, they have launched an initiative to align standard operating procedures to support more effective investigations and prosecutions; and South Africa’s Financial Intelligence Centre’s reports have also become “more usable”, the commissioner said.
He noted a case currently under way involving money laundering and tax evasion which points fingers at public officials and professional enablers.
Sars is dependent on the Hawks and the NPA to bring the matter to court and ensure the prosecution of those involved, he said, and wants to see more successful prosecutions with custodial sentences.
“People must wear orange overalls,” Kieswetter said.
He was also concerned about fraud in the refund system, with the revenue services having prevented R101bn in fraudulent or impermissible refunds in the period under review, and secured several successful fraud prosecutions.
Kieswetter said synergy across government agencies was needed to get South Africa off the greylist.
“Unless we achieve a whole of government approach among law enforcement agencies and the rest of government … we will not succeed in lifting greylisting and avoiding future greylisting,” he said.
“More importantly, we will not deal crime and corruption the death blow it requires.”
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