A recent court case brought by the South African Revenue Service (Sars) against Verbena Freight and Logistics Management offers a fascinating window into the world of tobacco smuggling and its staggering impact on the fiscus.
The Pretoria High Court ordered the final liquidation of Verbena after Sars claimed an amount of nearly R19 billion in unpaid taxes.
In an affidavit in court, Pule Mantso, operations manager within the debt management department that is part of the Illicit Economy Unit in Sars, claimed that Verbena owes a staggering R18.99 billion in taxes, most of this (R18.88 billion) in the form of unpaid customs duties. There are also R31.38 million pending in value added tax (VAT) and R73.65 million in income tax.
Verbena describes itself as a company specializing in cross-border transportation and customs clearance and clearance in 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 this allegedly “carried out” by eight other entities listed in customs.
Mantso says that the Customs Law does not provide for the importation of goods “at the expense” of a third party. Verbena also acted as clearing agent for imported tobacco, which entered through the Beitbridge border post. Under the Customs Law, excise duties are paid on locally made cigarettes.
Several requests were made to Verbena to provide details of imports “at the expense of” third party entities, 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 transferred to premises controlled by the company and had been used to manufacture illegal cigarettes.
Verbena was asked to refute these claims, which it did not do.
In March 2021, Sars issued demand letters for R18.88 billion in unpaid customs duties, which Verbena did not pay.
Later, Sars obtained a judgment against Verbena, and the bailiff seized eight trucks and other assets with a total value of R2.2 million.
“This is regrettably insufficient to make the payment of the 18 billion rand owed to Sars in connection with the customs debt,” says Mantso.
Sars also placed liens on several other assets belonging to the company, but found that several of them had been illegally removed from the premises, which constitutes a crime.
Sars officials then tried to trace other assets at Musina in Limpopo, but three of the addresses given could not be found and a fourth was a residential address, and the occupants knew nothing about Verbena.
Verbena’s lawyer responded to Sars on July 12, saying that most of the company’s vehicles were in poor condition or had been exported out of South Africa and that as such he was no longer the owner of the exported vehicles. No proof of transfer of ownership or export was provided, says Sars, although eNatis documents showed that Verbena was still listed as the owner of the vehicles.
Sars says he assumes that Roy Muleya and Ruth Dhliwayo are responsible for the management of the company.
Intensified investigations into illicit tobacco smuggling
Sars says it has stepped up its investigations into the illicit cigarette trade, which is estimated to cost the treasury billions of rand a year in lost revenue. Their research shows that large volumes of tobacco are imported into SA under the pretext of being re-exported, but in reality the tobacco is used to make cigarettes that disappear into the local economy and avoid having to pay excise duties.
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“Those responsible for the import, such as [Verbena]they simply refuse to provide details, documents or information on the whereabouts of the tobacco, ”according to Mantso’s affidavit.
“When Sars finally demands the duties, it cannot recover the substantial amounts owed as the violators have concealed or dissipated its assets. This makes recovering unpaid debt extremely challenging and, in most cases, impossible. ”
Verbena was asked in numerous numbers to explain to Sars what happened to the imported tobacco, but she refused to do so.
What is known is that the tobacco disappeared and millions of rand entered the company’s hidden bank account, says Sars.
According to court documents, Verbena has been exporting trucks and other SA assets since 2014, and Sars is petitioning the court for an urgent liquidation order to prevent further dissipation of assets.
By acting as it did with respect to imported tobacco and by removing containers subject to detention in flagrant violation of the Customs Law, Verbena has shown that it has little respect for the law, says Mantso.
“In this context, there is a real risk that the respondent will eliminate [of] these vehicles to his Zimbabwean brother, a step that would make it virtually impossible for Sars to liquidate those assets to satisfy the judgment against the defendant. ”
Sars holds the view that “there is a serious and emerging risk that vehicles and possibly additional assets will be hidden or moved across the border so that the defendant can evade payment of his substantial tax debt.” This explains why it was of the utmost importance to grant a final liquidation order as a matter of urgency.
In conducting his audit at the company, Sars says that Verbena disclosed two bank accounts, but withheld information on a third, an Absa bank account, in which a taxable income of R68.4 million was calculated.
Sars must be ‘praised’
Sinenhlanhla Mnguni, president of the Independent Fair Trade Tobacco Association (Fita), says that Sars, in collaboration with other law enforcement agencies, should be commended for making significant progress in fighting the illicit trade in cigarettes and other tobacco products.
“In recent times we have highlighted the increase in illicit cigarettes smuggled into the country through our neighboring countries, particularly after the reckless five-month ban on the sale of tobacco.”
Mnguni continues: “We continue with our request that the relevant authorities continue to monitor the situation at our various border posts, in particular Beitbridge, as there appears to be collaboration between the criminals involved in the smuggling of these cigarettes and some guard officers stationed at these border posts.
“We strongly believe that the government must establish better checks and balances to ensure that the system is foolproof and incapable of being easily tampered with.”
If this is not nipped in the bud, it will in all likelihood lead to the eventual demise of the legitimate local tobacco industry and reduce government taxes on the tobacco trade, Mnguni says. “However, we are very encouraged by the latest efforts by various law enforcement agencies to address this scourge, and we are hopeful that by working together we can be successful in eradicating this threat to our society.”
‘Get this rogue importer to name his payers’
Yusuf Abramjee, Founder of Tax Justice SA, says: “These actions demonstrate that a determined new team from Sars appears to be finally managing to tackle one of the largest illegal cigarette markets in the world and this is good news for all South Africans. .
“The impressive fiscal demand of 19 billion rand is twice the revenue that Sars will collect from the cigarette excise tax this year,” says Abramjee.
“It is imperative that the authorities get this rogue importer to name his payers and that a national investigation is carried out into our tobacco trade.”
Questions were emailed to Verbena and her lawyers, but no response had been received at the time of publication. Moneyweb also contacted Verbena and her lawyers by phone, but to no avail.
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