Confidence in Reserve Bank gets lost in translation

I STILL have so many questions about the South African Reserve Bank’s (SARB’s) year-long investigation and report into the controversial Phala Phala scandal - where it recently cleared President Cyril Ramaphosa of any wrongdoing by not declaring the millions in foreign exchange his game farm received from Sudanese businessman Hazim Mustafa to obtain a few heads of buffalo.

Why Mustafa, however, never arranged to have his haul fetched is question number one. He did acknowledge a sale to Annika Larsen in an eNCA interview shortly after the scandal broke and also said he still wanted his livestock.

My next question is whether that makes for a transaction or not? It can’t be both. And despite some of our country’s two most prominent public institutions - the SARB and the South African Revenue Service agreeing that in its specific areas of focus, there was no evidence of malfeasance, the reasons behind it are of polar opposite views.

On the one hand, the central bank said in a media statement: “On the facts available to it, the SARB finds that there was no perfected transaction, and thus the SARB cannot conclude there was any contravention of the Exchange Control Regulations.”

It also found that Ramaphosa was not entitled to the funds as “conditions precedent” to the transaction had not been met.

On the other hand, the South African Revenue Service (Sars) said in a public statement that the “transaction” was reported in accordance to applicable tax laws when it concluded its inquiry.

What the SARB found seems to differ,, and confusingly so from what Sars found, in that it said that they were happy that the “transaction” was correctly reported and disclosed for tax purposes, while the Reserve Bank said that there was no transaction in the first place. Now, which one is it? Perhaps the Hawks investigation, which is yet to completed, will be the tie-breaker. In the interim, whatever occurred here in the eyes of the law seems, to me, to be wide open to interpretation.

And it is not just me that thinks so. Dr Albertus Marais, director of disputes and international tax at AJM, a specialist tax consulting and litigation firm, said he doesn’t understand it either. “To be honest, the fact is there can either be a transaction or there cannot be one. So, either this transaction was in legalese perfected, or it wasn't perfected,” he told Personal Finance.

The Tax Administration Act, which is pretty heavy reading, defines a taxable event as “an occurrence which affects or may affect the liability of a person to tax, and is important to determine the tax period for purposes of transaction based taxes, such as value-added tax; and determines the meaning of administration of a tax act in the context of obtaining full information in relation to a taxable event.

But if you take a closer look at the Currencies and Exchange Control Act, which is just a quick 10 pages long, it only provides that ‘’the Governor-General (the President) may make regulations in regard to any matter directly or indirectly relating to or affecting or having any bearing upon currency, banking or exchanges.’’

Now, one of of these regulations, six point something, states that all South Africans must declare forex to the Treasury within 30 days of receiving it. And that is the rule that applies here, and Marais said there is good reason for this rule because once you declare it, the Governor has the legislative power to force you to sell your foreign currency back to the Bank in exchange for Rands - and in the hoarding of currency lies the power to strengthen the Rand, if need be.

But he also said that the Reserve Bank had taken a very narrow approach in this investigation, which is hardly followed in practice. In fact, Marais said in their view, Ramaphosa received a deposit of sorts, and therefore, by virtue of not being entitled to the amount yet, he was under no obligation to report that receipt to the Reserve Bank and are forced to offer the dollars for purchase by the Reserve Bank.

But what about the money? It is not pocket change. It was in hard currency. And it was stolen. Surely, that should have raised suspicion from our monetary authority, which manages money supply. But because the Bank has refused further access to the data acquired in coming to their decision, all I’m left with is the impression that something is off, which leads to my fourth question: what is up with that?

If the the Constitutional Court ruling, which paved the way for the previously confidential tax records of former president Jacob Zuma (and others) to be accessed by third parties – in limited circumstances and if their release was in the public interest, taught us anything, the SARB closed-door policy will surely be taken under review, especially for a sitting president of an open democracy. And in an election year, surely the ruling party would want to show off their cards to ensure its constituency that its ruler has nothing to hide.

And again, Marais agreed with me. He said there is legislation, of course, that protects taxpayer and people’s financial information, but what the Reserve Bank's acknowledged in very sparse media statement of this was purely stating the outcome of an investigation. “But I think that's not enough. I think for everyone's sake, we should be taken into the confidence of the Regulator and be made to understand exactly how these conclusions are all reached and how they add up.

* The views expressed are not necessarily the views of the DFA.

– PERSONAL FINANCE