Tshwane mayor threatens forensic investigation as tax man claims R4.7bn in VAT

Tshwane mayor is planning to carry out a forensic investigation into mismanagement by officials surrounding the smart meter contract with Peu Capital Partners subsidiary, Total Utilities Management (TUMS).

The planned investigation is a bid to negotiate for the South African Revenue Service (SARS) to waive penalties and fees on a R4.7-billion VAT claim the tax man issued in 2021.

It will also nab the officials that have contributed to the City’s current financial crisis.

Mayor Cilliers Brink revealed “grave financial misconduct and misrepresentation” on the side of the metro’s administration after discovering in 2022 that officials in 2017 were aware of a R4.7-billion VAT liability – but did not disclose it.

“During my first Mayco meeting on March 31, we were presented with a fait accompli that we owe this money. We are paying R91-million a month.”

Brink said the mismanagement would be subjected to a comprehensive forensic investigation as it led the metro to blow a R2.9-billion hole in the fiscus.

“The city manager has advised that if the metro does not go to SARS with a clear indication that we are getting our own house in order, it will be difficult to arrange some sort of arrangement to waive penalties and fees.”

Brink said heads needed to roll for those responsible for the fruitless, irregular and wasteful practices.

“They will face the consequences. The forensic investigation will assist us with those who are no longer in employment to recoup the damages, although it will be difficult to fill the hole completely.”

“We thought we had R2.9-billion extra; however, we didn’t. In fact, it was money owed to SARS.”

He said the investigation could be grounds to negotiate a settlement with SARS, while also holding those implicated to account because they placed Tshwane in serious financial constraints.

“It was a contract that was unlawful.

“Part of this contract included a master services agreement with an irrevocable payment instruction used to make payments daily.

“This effectively ensured that there was a continuous stream of payments going out of the city, outside the standard procedures for payments.”

He said payments of up to R5-million a day were processed while no value-added tax (VAT) was applied.

In ordinary practice, a purchase order would get processed and VAT calculated and paid.

“This contract required Tshwane to make payments before a purchase order was issued. This means the system of dealing with VAT was undercut, and no VAT payments were made.”

In 2017, Tshwane officials were aware of the VAT liability. However, this was not formally disclosed until after the 2021/22 financial year ended, and questions were raised.

He said Tshwane was only later informed of the liability in June 2021 when SARS issued a demand for a VAT claim to the tune of R2.9-billion.

He said the claim added R1.8-billion in penalties.

“SARS effectively hit us with a R4.7-billion liability on VAT.”

He said since then, the former CFO negotiated a R91-million monthly payment plan with SARS, which has seen the metro pay R2.2-billion to date.

The scheme was cancelled for R950-million after Tshwane initially entered into for its clients to utilise smart prepaid meters.

“This clearly illustrates that Tshwane’s internal processes are abridged, and the manner we account for VAT is undercut.”

Tshwane initially entered into the provisional agreement with PUE TUMS in June 2013, and the matter has since been riddled with legal controversies.

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