SARS busts diplomats for allegedly selling illicit alcohol, cheating taxman out of R100m per month

Source: news24, 06/04/2021

Foreign diplomats are allegedly selling illicit liquor, cheating SARS of taxes totalling more than R100 million every month.
Investigations by tax authorities have singled out diplomats from Ghana, Rwanda, Guinea, Burundi and Lesotho for being involved in tax crimes involving the sale of duty free liquor.
SARS and **Department of International Relations and Cooperation are working on the introduction of liquor and cigarette quotas to stem the abuse of duty free shopping by diplomats.
The SA Revenue Service (SARS) has uncovered a tax-dodging racket in which foreign diplomats buy large volumes of alcohol at duty free retailers and sell it locally, cheating the tax collector of an estimated R100 million in taxes every month.
News24 can reveal two investigations by SARS, one in 2019 and the otherlast year, singled out diplomats from Rwanda, Lesotho, Ghana, Guinea,Malawi and Burundi for being involved in the scam.
At least three senior officials from the Department of International Relations and Cooperation, who spoke on condition of anonymity, told News24 last year SARS agents caught a German diplomat, inside a duty free retailer, using his credentials to buy alcohol for three friends.
The sources said the diplomats bought the alcohol from Flemingo, Assortim, Ambassador and Nu Africa, all duty free retailers based around Hatfield, Brooklyn and Arcadia in Pretoria.South Africans are not allowed to buy from local duty free retailers.Value-added tax (VAT) and other duties are not levied on goods sold at duty free retailers on the understanding that such goods are being sold to travellers who are taking them out of the country.
The department`s regulations permit diplomats to buy goods from duty free retailers. But the condition is that the goods can only be consumed or used inside the diplomats` embassies. Tax laws also forbid thereselling of duty free goods in local markets.
SARS and department did not respond to detailed questions, but in a joint statement to News24, they said they were `extremely concerned`.In the statement, department spokesman Clayson Monyela said: `The South African Revenue Service and the Department of International Relations and Co-operation are extremely concerned about the purchase of duty free products such as alcohol and cigarettes, which are then distributed locally.`
How did diplomats cheat SARS .
Monyela confirmed the 2019 investigation. `In light of the above, and in an effort to establish the facts, SARS obtained information from licenced duty free shops regarding the sales values, product quantities and the details of the foreign diplomat to whom such goods have been sold.
`The stores were requested to supply a complete list of all transactions from 1 March 2019 to 30 August 2019. The list had to include the type of sale, embassy involved, diplomat involved and method of payment.`Over six months, the stores had sales to the amount of R423 million.
The 2 200 diplomats spend on average R70.5 million per month at these stores.He said:
The most commonly purchased commodities are rum, whiskey, brandy, liqueurs, cigarettes and cigars. The duty free shops were established with the sole function to service the diplomatic community.In an effort to stem the abuse of diplomatic privileges, SARS and the department have developed new sets of regulations which will introduce quotas and limits to the amount of alcohol and cigarettes which diplomats will be allowed to buy at duty free retailers per month.
`The new regulations will kick in sometime towards the middle of the year. The abuse of the rebates extended to foreign diplomats when purchasing duty free products shows the lack of respect for SouthAfrican laws, diplomatic protocols, immunities and privileges extended to them by Pretoria. They are aware that what they are doing is illegal,` a senior department official said.
A second official said SARS` investigations showed a number of diplomats were spending up to R5 million per month on duty free liquor, bought to be resold locally.`There are two cases in which two diplomats spent more than R10 million on duty free liquor, each. The executive said at least two diplomats had admitted to buying duty free alcohol with the intention to resell it to local liquor traders.
`It is not even the entire diplomatic community that was investigated, it is just a few diplomats. This means that the problem out there could be far worse than we think.` The diplomats, he added, bought from the four duty free retailers and then on-sold the alcohol to local liquor traders. `It all amounts to excise and VAT fraud. How it works is that, for example, a bottle of KWV, which costs about R155 at the local retailer, would cost about R70 at a duty free retailer. `The diplomats buy at this price and are able to add a mark-up of R20.The local liquor trader buys from the diplomat for R90 and he can still add a R30 mark-up and sell to the public for R120. `He still outcompetes the legitimate retailer, but in all these, SARS is robbed because the goods are not taxed. It is a lucrative business and they become millionaires overnight.`
The third official said while Flemingo, Nu Africa, Ambassador and Assortim did not do anything illegal in that nothing in the regulations stopped them from selling the large volumes they were allegedly selling to diplomats, they had moral questions to answer to. `There is criminality from the diplomats. What they are doing amounts to tax fraud and they are cheating SARS of at least R100 million every month. And this has been going on since 2014. Pretoria should consider charging them or expelling them.` As for the retailers, he added SARS should investigate if they were not accessories to tax crimes.
`Yes, an argument could be made that they didn`t break any laws, but they must have known that the volumes being purchased by diplomats were definitely not for personal consumption inside embassies.`
A former SARS investigator said the investigation into the selling of alcohol bought at duty free retailers to local markets had started around 2014.
The investigation, together with 86 others, stalled and crashed at the height of the SARS Rogue Unit saga which saw more than 200 experienced officials leave SARS. `These were big investigations looking into illicit tobacco, duty free alcohol, drugs and the importation of and exportation of illicit goods.`
*The responses*
The embassies of Ghana, Burundi, Guinea, Rwanda and Malawi did not respond to questions. A spokesman of the German Embassy said authorities were not aware of any complaint laid by the department about the conduct of any of the country`s diplomats. The Kingdom of Lesotho`s High Commissioner in Pretoria, Bereng Sekhonyana, said he viewed the allegations `in a very dim light` and was concerned by their gravity. `Should any of our diplomats be implicated in the alleged scam, the sternest of measures will be taken against this gross abuse of privilege. `Access to duty free liquor and other merchandise at duty free shops is a privilege diplomats enjoy at the pleasure of our host country, the Republic of South Africa. It is not an opportunity for unethical and corrupt self-enrichment by officials who have been honoured to serve in their country`s diplomatic service abroad.` In 2019, Sekhonyana said, his office had received a complaint from the department about an employee working at the Kingdom of Lesotho`s Consulate General in Johannesburg. `She had been detained at the Sunnyside police station and a case was opened against her for unlawful dealing with liquor in a public place; bribery of a police official and possession of suspected stolen property. `The alcohol [quantity unspecified] had been seized by the Sunnyside SAPS as exhibit as well as an amount of R3 500 she had allegedly paid as `bribery`. The police did not follow up on the case,` he said.
Nu Africa did not respond to a detailed list of questions. `Nu Africa denies that it has acted in an unlawful fashion, as alleged,` the company said through its lawyer, Marius van Staden.
Rudy Swanepoel, the store manager at Ambassador, said he had been made aware by both SARS and the police about an investigation into the sale of duty free liquor by diplomats. `Ambassador Duty Free has been made aware by both SARS and by the SAPS that they are investigating the selling of duty free liquor by diplomats, but Ambassador Duty Free has not yet been interviewed by SAPS in this regard.` SARS, he added, had conducted a number of audits at the company`s premises and found it to be in the clear.`SARS has instituted several audits into the compliance by Ambassador Duty Free with its tax and customs and excise obligations, and in each case has been found to be in compliance with its obligations and has been given a clean audit. `Ambassador Duty Free has not been fined by SARS or any other authority relating to its sale of duty free alcohol, nor has any of its stocks been seized by SARS during the course of any investigation.` The claim that diplomats have been buying alcohol of more than R1 million in any given month was speculation, Swanepoel said, adding the retailer denied it was complicit in tax-dodging crimes.
Assortim`s Karen Bezuidenhout said: `Please note that Assortim Duty Free operates its diplomatic duty free shop within the legal landscape applicable to such shops. Assortim Duty Free is not under police investigation and SARS monitors the diplomatic duty free shops.` The retailer was operating within the limits of the law, including the Diplomatic Immunities and Privileges Act, Vienna Convention on Diplomatic Relations and the Constitution of South Africa, she added