Edition: July 2016/ September 2016
Editorials

ZUMA 1

Open letter to Pravin Gordhan

Two stars in the SA financial firmament are SARS and the FSB.
There are issues at both that need your attention.

Dear Finance Minister Gordhan
Sorry to bother you, since you already have so much on your plate, what with keeping your boss off your back and trying to sweet-talk the ratings agencies and everything. But there are two other matters, not entirely small, to which I’d like to draw our attention for if or when you have a moment.

Kindly try to find the time because both matters, although entirely unrelated, can splash egg from your plate to where you wouldn’t want it. This wouldn’t be good for any of us.

First is the integrity of the tax system. It even has a coincidental affect on retirement funds, seeing that the nice guys at National Treasury have been pushing so hard on reforms to stimulate savings with tax incentives. The more tax you can swish in, the more there is to swish back for noble projects.

Profuse apologies for raising that nightmarish word “Nkandla”, how everone chooses to pronounce it, but the issue here is whether President Zuma is liable for fringe-benefits tax on the R200m-odd that government has lavished on his private residence.

Some folk who’ve looked at the law, and claim to know it, are adamant that he is liable. In fact, I haven’t come across anybody who suggests that he isn’t. However, I didn’t ask your friend Tom Moyane at SA Revenue Services. Since it’s been said that he, as commissioner, reports to you, as minister, it’s probably more important to hear what you think and what you propose to do; whether Moyane likes it or not.

Please let’s have here no ducking and diving behind taxpayer confidentiality. All that’s required is an assurance – or in your case, a reassurance – of the principle that all taxpayers are treated equally before the law. That’s just to clear the way in case President Zuma doesn’t quite grasp the concept.

The thing is that SARS, from the days when you ran it, was a star in the firmament of our financial system. This continues to be recognised, as a factor in maintaining the status of our sovereign credit, despite contentious departures of senior staff who’d enjoyed your trust. Now the problem is with those who seem not to enjoy your trust.

In particular, it arises from the way this fringe-benefits issue over Nkandla is to be handled. In its judgment, the Concourt ruled that National Treasury had to determine only the “reasonable costs” of the non-security improvements – the cattle kraal etc – and then only the “reasonable percentage” of these costs that Zuma must pay personally.



Gordhan . . . more pressures

At most, then, the amount that he does pay would be relatively small against the total cost of all the security and non-security for which his employer (government) has paid. At best for him, then, the amount he pays reduces his tax liability.

But the costs determination by National Treasury, as per the Concourt ruling, cannot release him from his fringe-benefits obligation, as per SARS requirements. They’re separate matters. Unless Zuma is above the law, it would seem that he remains liable for tax inclusive of penalty interest.

Alternatively, perhaps SARS has a discretion. If so, it would need to explain – through you, unfortunately for you – the authority from which such discretion is derived and the basis on which it is applied. This has nothing to do with taxpayer confidentiality. It has everything to do with public policy.

Should you find fault with my reasoning, do tell. It’ll deserve headlines for the elucidation of all taxpayers. The many fans of President Zuma will hope that the tax liability won’t force him into insolvency and thus disqualify him automatically from continuing in his high office.

The other star in our firmament is the Financial Services Board, soon to be absorbed under the new ‘twin peaks’ regime into the Financial Sector Conduct Authority. Unfortunately, again for you in the sense of further complicating your life, the transition is due to take place against the backdrop of litigation instituted by FSB deputy executive officer Rosemary Hunter. For formalistic reasons, as I understand it, you had to be cited as fifth respondent.

But maybe, after all, this isn’t really so unfortunate. As a journalist, much as I prefer that dirty laundry is aired in public, perhaps the opportunity has been created to settle the litigation before it reaches court. This is not only to reduce costs, given the teams of lawyers being engaged, but also to obviate the crossexamination of relevant FSB officials.

Whatever the merits, even the most upright citizens cannot anticipate that they’ll emerge wholly unscathed from witness-box rigours. Whatever the outcome of an open-court process, quite possibly followed by appeals, there must be a real risk of the FSCA being born under perceptions less than pristine. This is a danger to be avoided unless you’re prepared to take the chance that the FSB officials will be thoroughly vindicated prior to their transfer (under s285 of the FSCA legislation) to the market-conduct authority.

Now, all sorts of ugly things are being said about Hunter. FSB executive officer Dube Tshidi wants “scurrilous and scandalous” accusations against him to be struck from her founding affidavit. He describes her as an “angry, distrustful and even vengeful woman”.

Now, all sorts of ugly things are being said about Hunter. FSB executive officer Dube Tshidi wants “scurrilous and scandalous” accusations against him to be struck from her founding affidavit. He describes her as an “angry, distrustful and even vengeful woman”.

Where respective parties are implicitly calling one another liars, under oath, it appears not to leave much room for negotiation towards a settlement. But it does nonetheless support my argument that a settlement is preferable to a full-scale dust-up. Still to enter the ring are other respondents such as Abel Sithole who chairs the FSB board and who happens also to be principal executive officer of the Government Employees Pension Fund.

Can cooler heads yet prevail? Is there anybody with status and credibility, and no vested interest apart from seeking a fair resolution, who might possibly intervene?

My suggestion, modestly submitted for your consideration, is Mcebisi Jonas. His no-nonsense approach and independence of mind, following the Gupta imbroglio, are testimony to his reputation. As your deputy minister, he also chairs the Public Investment Corporation whose major client is the GEPF. So he’d have experience in pension-fund matters, especially on governance, that lie at the heart of the current FSB dispute.

If I may take the suggestion a little further, it is that he starts some dipstick research amongst those who pay the FSB levies; in particular, retirement funds and their members. Questions might be asked about their happiness or otherwise with FSB service, where it’s seen to succeed and fail, how expeditiously it responds to complaints, and how effectively target audiences act upon its communications.

The outcome of such an exercise might also help you with the key personnel appointments you’ll need to oversee in the change from the FSB board structure to the FSCA commission structure. We could have a repetition of the same old bureaucratic regimen in dolled-up clothing, or an infusion of talent that inspires greater confidence than swathes of costly injunctions lending themselves to tick-box compliance.

At bottom, what counts is trust in the regulator; whether it stands to be enhanced or diminished. The choices are yours, Mr Minister.

Sincerely,
Allan

CENTRE STAGE

The value of saving through retirement funds has become far less a function of the structural reforms being incrementally introduced by National Treasury than by the socio-economic and political environment in which SA finds itself. Treasury’s best efforts to promote savings - by tax incentives, default options, governance improvements, preservation encouragement and the like -- are eclipsed by extreme sensitivities not only in the investment markets but in SA itself.

When uncertainty pervades to the extent that it now does, and squandering of taxpayer-funded state resources reach the levels they have, retirement-fund reform is relatively a tinkering attempt to improve SA households’ woeful savings record.

Pension funds, and provision for retirement, stand to be buffeted. By what, for instance?

Some of the bigger issues, uppermost in mind, are discussed by TT editorial director Allan Greenblo. For reasons of immediacy the articles were originally written for Biznews after which they were republished on a number of other websites, including Fin24 and the Financial Mail, apparently also enjoying wide coverage on social media:

  • ‘Open letter to Pravin Gordhan’ (Biznews, May 12);
  • ‘Pay SARS the money’ (Biznews, April 21);
  • ‘Taxpayers in the dark’ (Biznews, April 20).

In addition, the main ‘First Word’ editorial in this edition (‘Zuma’s Rubicon’) was first published by Biznews on May 18. These articles all reflect a self-proclaimed TT mission to stimulate the activism of retirement funds as significant stakeholders in SA corporates and civil society.