Reshebile Aviation and Protection Services vs City Press


Thu, Sep 3, 2020

Finding

Complaint 4367

Date of article: 14 April 2019

Headline: Fat tender for firm with tax question mark (print) / Umgeni Water awards R220m contract to ANC-linked firm with tax question mark (online)

Author:  Sipho Masondo

Page:  2

Online:  Yes

Particulars

This finding is based on a written complaint from Reshebile director, Khanyisani Mazibuko, as well as its spokesperson, Mr Khulekani Mbutho, a response from City Press executive editor, Mr Dumisane Lubisi, several tax documents that were submitted by both sides, consultations with a SARS official, and an adjudication hearing held on August 26 2020, chaired by the Ombudsman and comprising as the panel Professor Karthy Govender (public representative) and Ms Heather Robertson (media representative) and attended by Mr Johann van Loggerenberg, a former SARS employee and tax expert, in an advisory capacity.

Complaint

Reshebile, an aviation and protection services company headquartered in Gauteng, complains of a story in City Press headlined (in the online edition): “Umgeni Water awards R220m contract to ANC-linked firm with tax question mark”. It complains the story is “false and misleading” in that it accuses the firm of not being tax compliant when it provided the newspaper a Tax Compliance Certificate to show that its taxes were in order. It also reported that the company owed R2.6 million in payroll taxes and R900 000 in VAT, which information was “false and malicious”. It failed to approach SARS to verify the company’s tax affairs. The article also questioned how Reshebile could have obtained a Tax Clearance Certificate (TCC), implying it was not legitimate. As a result “severe reputational harm” was caused to Reshebile.

Specifically it accuses City Press of transgressing the following clauses of the Press Code:

The media shall:

  1. take care to report news truthfully, accurately and fairly;

1.2 present news in context and in a balanced manner, without any intentional or negligent departure from the facts whether by distortion, exaggeration or misrepresentation, material omissions, or summarization;

1.3 present only what may reasonably be true as fact; opinions, allegations, rumours or suppositions shall be presented clearly as such;

1.7 verify the accuracy of doubtful information, if practicable; if not, this shall be stated;

10.1 Headlines, captions to pictures and posters shall not mislead the public and shall give a reasonable reflection of the contents of the report or picture in question;

  1. Text

1.1.The article is headlined: “Umgeni Water awards R220m contract to ANC-linked firm with tax question mark” (online edition). The same story in the print edition ran under the headline: “Fat tender for firm with tax question marks”.

1.2 The intro  reads: “Umgeni Water broke National Treasury’s rules and awarded a R220 million security tender to an ANC-linked company whose taxes were not in order at the time.

  1.  The story says the three-year tender was awarded to the company to guard the water’s utility assets despite it owing both payroll tax and VAT.
  1.  It cites “Sars statements for 2017/18 obtained by City Press” showing that the company owned R2.6 million in payroll taxes and R900 000 in VAT.

1.5 The  Central Supplier Database report on the company showed that the last time the company was tax-compliant was in April 2016.

1.6 It cites Treasury regulations that “require that all government procurement officials must check the tax status of all potential suppliers.”

1.7 The company’s directors include ANC veteran Gertrude Shope and former presidential bodyguard Khanyisani Mazibuko

1.8 It also quotes two “senior executives in the water sector and a businessman” saying that the company was advanced R10 million by Umgeni Water.

1.9 It quotes Reshebile spokesman, Khulekani Mbutho denying the R10 million advance.

1.10 It also notes that Umgeni Water spokesperson Shami Harichunder declined to comment citing an upcoming court case with Excellerate Services (which used to have the contract with Umgeni Water). However, she notes that at the time it was awarded the contract, Reshebile submitted a tax clearance certificate.

1.11 Mr Mbutho is quoted as saying that the company’s tax affairs were confidential but “we did not owe SARS the amount you are mentioning.”

  1. Arguments

Reshebile

2.1 Reshebile complains that the reporting was “biased, malicious and defamatory.”

2.2 The headline in the print edition was “Fat tender for firm with tax question mark.” Reshebile says this was misleading as the newspaper was provided with a “detailed response.”

2.3 Secondly, it complains that the information that Reshebile owes R2.6 million in payroll taxes and R900 000 in VAT is false. Reshebile has been tax-compliant. The company even provided City Press with a Tax Clearance Certificate.

The company also says the reporter failed to approach SARS to verify its tax affairs.

2.4 It says the statement that the Central Supplier Database report, which showed “the last time the company was tax compliant was in April 2016” is false. The company says the reporter “ignored evidence provided to him that Reshebile was tax compliant and instead sought to discredit the veracity of our tax clearance certificate”. Again, the reporter failed to approach SARS or to verify its TCC. The company requested a copy of the Central Supplier Database report referred to but the reporter “chose not to provide us with this document”.

2.5 The reporter “sought to create suspicions of how the tax clearance certificate was obtained” and “chose to ignore the validity” of the document.

2.6 The company even engaged a tax expert “and put together a detailed explanation of SARS processes” but this was ignored by the newspaper. It failed, on any of the points, to engage SARS for an explanation.

2.7 This had caused “severe reputational harm to Reshebile’s reputation and brand.”

City Press

2.8 City Press says that it first intended to publish the story on April 7. However because Reshebile had sent it the Tax Clearance Certificate, the paper decided to do more work on it. “After consultation with our sources and senior officials at National Treasury, it became apparent that the verification of tax compliance is no longer done through a tax clearance certificate.

2.9 “Previously government departments and companies used tax clearance certificates issued by the SA Revenue Services (SARS), to verify the tax status of companies which had been awarded tenders or who were bidding for them.” The TCC was issued once a year and was valid for a year. However on June 1, 2017, “Treasury changed the way tax compliance is verified.”

2.10 In its submission, City Press provided the Treasury Instruction – the Supply Chain Management Instruction Note 7 of 2017/18. Under the new rule, “Treasury requires that before awarding a tender, government departments and companies should use the Central Supplier Database (CSD), which is linked to Sars’ tax systems, to check if a supplier complies with tax regulations or not.”

2.11 Thus Reshebile’s denial that it was not tax compliant and the “detailed statement” it provided is immaterial. “The question is whether such a denial was factual, truthful, and carried sufficient weight to render City Press’ story redundant.”

2.12 The difference between the old and new rules is that the old system depended on a TCC issued once a year and that was valid for a year: “The effects of this was that a company could get a tender on the strength of the TCC that is, for example, 11 months old.” But in the meantime the tax status could have changed from being complaint to non-compliant.

In other words, the CSD recognizes that a TCC is “of no value because the tax status of a company changes on a daily basis.”

2.13 In terms of the second complaint that the claim that Reshebile owes R2,6m in payroll taxes and R900 000 in VAT is “false and malicious”, the paper says it has records that “clearly show that Reshebile owes SARS” these amounts. The payroll tax is for the period March 2018 to February 2019 while the VAT statement is for the period March 2018 to January 2019. “Both these statements cover the period in which Reshebile received the tender”, which was in December 2018. “Reshebile’s taxes were not in order…and the company should not have been awarded a tender” in terms of Treasury’s policies.

2.14 The complaint that the paper’s statement that the company’s “Central Supplier Database Report…shows that the last time the company was tax compliant was in 2016” was intended to “discredit the legitimacy” of the company’s TCC: City Press replies that the company’s CSD report shows the last time Reshebile was compliant with VAT was in April, 2016.

2.15 On the last complaint that City Press harmed Reshebile’s reputation by querying how it could obtain a TCC, the paper replies: “With a Central Supplier Database report showing that the company last complied with VAT in 2016 and that income tax is also owed, it was only logical and fair to ask how the company might have obtained” a TCC.

It was not clear how SARS “could have been satisfied” that the company’s taxes were in good order when it still owed payroll taxes and VAT. SARS may have issued the company with a TCC but on condition that it had made arrangements to settle its outstanding taxes.

2.16 City Press says the information it relied on was “credible”. The article’s focus was on a government entity, Umgeni Water, “which broke National Treasury rules when it awarded the contract to Reshebile”.

Thus City Press concludes that Reshebile’s complaint is without merit and asks for it to be dismissed.

Reshebile’s response

2.17 Reshebile reiterates it believes the clauses of the Press Code, enumerated above, have been transgressed.

The headline, “Fat tender for firm with tax question marks” is misleading because “it creates the impression that Reshebile does not have a tax clearance certificate and/or it is in possession of a fraudulent Tax Clearance Certificate.”

2.18 The journalist refused to share his information from the CSD document with the company, and also did not take steps to verify the authenticity of the company’s TCC.

The Treasury’s CSD report “is given much more prominence notwithstanding that SARS is the custodian of all tax matters.”

2.19 In response to City Press’ argument about the new Treasury rules governing tax compliance, Reshebile says in its reply to the newspaper’s queries, it “enlisted tax experts and also consulted with former and current SARS employees regarding the tax compliance processes.” The company was “assured” that its TCC was valid. The newspaper’s response “is technical in nature” and “renders our Tax Clearance Certificate redundant.” The story was based on Reshebile’s tax affairs at the time the contract was awarded but the paper “chose to ignore our valid TCC and instead relied on the so-called CSD report, which is not issued by SARS, custodian of tax affairs.” This indicates that the paper “failed to take adequate steps to verify their information with SARS which could have rendered their story redundant.”

2.20 The company also disputes City Press’ assertion that the TCC is “no longer relevant”. It says the TCC is a “prerequisite when tendering for any government business.”

It also quotes opinion from “a tax expert”.

This says, among other things: “A Tax Clearance Certificate is a declaration from SARS to a third party that the specific individual or entity is 100% compliant with regard to all its tax affairs.”

The advisor lists the entities that will request a TCC, including “most tender applications.”

It also says: “If you have any employees, you would need PAYE, UIF or Skills Development Levies registration numbers.

“If your turnover is above R1 million per anum or you opted into a voluntary VAT registration, you would need to state your VAT registration number.”

In 2016, the system changed to “tax compliance status.” “Even though the requirements are still the same, the process is much quicker and the status can also now be verified continuously throughout the year.”

2.21 On City Press’ statement that “there is an argument to be made that Reshebile should not have been awarded the tender because Umgeni used illegitimate means to verify the company’s tax status”: Reshebile responds that it believes the paper “is... trying to justify the defamatory article and continue(s) to cast doubt on our valid TCC without submitting any evidence that our certificate is an illegitimate document issued by SARS.”

2.22 In response to City Press’ statement that the paper had documents that show the company owes R2.6m in payroll taxes and R900 000 in VAT, and that these tax documents cover the period in which the company was awarded the tender, Reshebile says the information “is false and malicious in nature.

“Not only did we refute this allegation but we also went as far as detailing the SARS process of obtaining the TCC. We explained to the journalist that our tax affairs were in good standing. We also advised him that there would have been no TCC issued if the company was not compliant.” Despite this detailed explanation, the journalist “went ahead and published the misleading and defamatory story.”

2.23 On City Press’ argument that Reshebile was last compliant with VAT in April 2016, the company responds that it is large “with projects around the country and there is no way we could secure government contracts without going through rigorous tax scrutiny.” The journalist ignored Reshebile’s TCC and also failed to verify its tax affairs with SARS. The company had asked the journalist for a copy of the Central Supplier Database report but he did not provide it with one.

2.24 On CP’s argument that the company “appears not to understand the process used by procurement officials to verify if potential suppliers are tax compliant”, Reshebile replies that the paper has “once again” chosen to ignore the validity of the company’s TCC and “instead sought to create suspicions about how the TCC was obtained.” The journalist failed to approach SARS for comment. The company engaged a tax expert to provide a detailed explanation of SARS processes but the paper has ignored this.

2.25 Lastly, the company responds to the CP argument that Umgeni Water broke National Treasury rules by awarding Reshebile the contract. It says: “Reshebile and its directors were mentioned extensively in the report and this makes the story also to be about Reshebile.” This is the reason Reshebile lodged the complaint.

The article has affected the company’s brand and reputation. “Since this negative and false reporting, our business has experienced some backlash from several government departments and private companies” that do busines with it. It should be a “simple and straightforward matter” to establish whether the company had a valid TCC at the time the contract with Umgeni Water was signed. The paper “failed to dispute the validity” of the TCC but instead decided to “cast doubt” on it.

3. Analysis

3.1 This case seems to revolve around one central dispute of fact: whether the company was tax compliant or not.

3.2 Reshebile said it had a Tax Clearance Certificate, which it sent me.

3.3 City Press said it had other tax documents which showed that the company’s taxes were not in order. These documents were:

  • A statement of account showing payroll taxes dated 10 March 2019 for the tax year ending 28 February 2019. This showed an amount of about R2,635 Million owed on payroll taxes.
  • A statement of account of Value-Added Tax dated 3 March 2019 for the tax year 2018/2019 showing about R991 000 owed in VAT.
  • A Central Supplier Database registration report dated 8 April 2019, for Reshebile which indicates under the columns “Income Tax” and VAT”: “non-compliant tax status”; in the line on “VAT tax status” under a heading “Created date” – the date indicated is 22 April 2016.

3.4 The newspaper also referred me to the Treasury Instruction which I obtained from the National Treasury website dated 24/5/17 with the new rules the article refers to for checking tax compliance status.

3.5 Thus the two set of tax documents – the TCC from Reshebile and the documents obtained by City Press – appeared to be contradictory.

With the permission of both parties I sent first the TCC to a senior official in SARS, and then, after some delay, I obtained permission from the newspaper’s reporter (who had since left the newspaper) to send his confidential documents to SARS.

3.6 SARS confirmed that the TCC was genuine. However, it was reluctant to comment further on the statements of account and the CSD document from City Press. This, as became clear in a subsequent meeting between the Commissioner of SARS, Edward Kieswetter, a senior official, Mark Kingon, and a communications official, and myself, the executive director of the Press Council, Ms Latiefa Mobara and the acting Public Advocate, Fanie Groenewald, was because SARS could not comment on taxpayers’ affairs even if the taxpayer had given permission for it to do so.

3.7 In fact, a precedent had been set in this regard when SARS refused to hand over former president Jacob Zuma’s tax documents to the Public Protector even though Mr Zuma himself had given permission for this. This decision was upheld by the Pretoria High Court.[1]

3.8 However, in this case, although it could not comment in detail, SARS confirmed to the Ombudsman the authenticity of the TCC.  

3.9 Thus it became impossible to resolve this complaint based on the facts of the dispute and we convened a hearing.

The adjudication panel consisted of Professor Karthy Govender (public representative) and Ms Heather Robertson (press representative) and the Ombud. We also asked Mr Johann van Loggerenberg, a tax expert and former SARS official, to act as an advisor to the panel on issues pertaining to tax compliance and the architecture of the tax system.

Hearing

3.10 The panel convened for a hearing with both Mr Khulekani Mbutho from Reshebile, and Mr Dumisane Lubisi from City Press attending on 26 August 2020.

In the hearing Mr Mbutho repeated the essence of Reshebile’s complaint that the company had provided a TCC to City Press that showed that it was tax compliant.

He re-iterated the formal complaint made by Reshebile director Khanyisani Mazibuko:

  • It had provided a TCC to City Press;
  • It had provided details (from a tax expert) on the process involved in obtaining a TCC;
  • City Press had failed to approach SARS to verify its tax affairs;
  • it had not given the company a copy of the Central Supplier Database report which formed one of the bases of its story; and it ignored the validity of Reshebile’s TCC and created suspicions about how it was obtained.

3.11 He also raised the allegation reported in the article that Reshebile had received a R10 million “advance” from Umgeni Water and denied it in emphatic terms.

However, as this did not form part of the original complaint, we did not pursue it in detail, save to note that the article recorded the denial from both Reshebile and Umgeni Water.

3.12 Mr Lubisi said City Press’ story did not centre around whether Reshebile had a valid TCC or not. Rather, it focused on the Treasury note that set out new rules for government departments and SOEs to follow when awarding tenders or contracts, and new rules for determining tax compliance.

3.13 This instruction did away with the TCC, which used to be issued annually and “which is what Reshebile relies on.” This is why it could say, “We’ve got this document which says we’re tax compliant for the next 12 months” and this led to it getting a contract in December 2018 (which was shortly before the TCC expired).

3.14 The Treasury note required that government departments and SOEs “must go to Central Supplier Database at the time a contract is awarded; whether you’ve got a valid tax certificate.”

This was to ascertain “real time” tax compliance – not compliance when a TCC was issued at the beginning of the tax year.

3.15 He said the paper had held the story back for a week after the company had supplied its TCC and in that time gathered other evidence. An important piece of this was the Treasury instruction that determined that companies should be checked on the Central Supplier Database: “at the time of the award of the tender, you need to check whether the company is tax compliant at the time.”

3.16 The documents showing the amounts owed on payroll tax and VAT, which the newspaper sourced confidentially,  (and shared with the Ombud), backed up this contention. “We didn’t just thumb suck. And ….we did not dispute whether they had a TCC.”

3.17 He said the newspaper had asked specific questions about whether it was true – as indicated in its documents –  that the last time it had been tax compliant with respect to VAT was in 2016, and that it was non-complaint with respect to payroll tax. The only way it could have been compliant would have been if it had entered an agreement with SARS to pay off its debt.  

3.18 The “essence” of the story was that Umgeni Water “broke Treasury rules and awarded a R220m security tender to an ANC-linked company whose taxes were not in order at the time. That qualifies the story, because it doesn’t say whether they had a TCC at the time. It says taxes were not in order at the time. It was very specific. It was not the case that we unfairly attacked them.”

3.19 Mr Lubisi said he believed the complaint was “without merit” because the document at the time reflects a particular situation.

3.20 City Press put specific questions to Reshebile asking how it got awarded the tender “if it didn’t comply with payroll tax and VAT”; it also asked it to explain “in detail: how it obtained its TCC; it asked if it was issued after it had “negotiated with SARS”; and it asked directly if it was compliant with VAT and income tax at the “current moment” and at the time it was awarded a contract. However, it did not provide Reshebile with the documents it used to write its story.

3.21 In all the answers, the company referred the newspaper to the TCC it had provided and to the comments it had obtained from a tax expert explaining how tax compliance is determined.

3.22 During the hearing both Ms Robertson and Professor Govender asked Mr Mbutho whether their VAT and payroll taxes were up to date because there was no direct response from Reshebile to that question. If not, had some arrangement been made to pay them? The only response from the company was that it had a TCC.

Ms Robertson also asked Mr Van Loggerenberg to advise what the difference was between having a TCC and having payroll and VAT tax outstanding. Did the TCC cover this?

3.23 Mr Mbutho responded that the TCC indicated the company was “in good standing.”

3.24 Mr Van Loggerenberg explained that at the time when the tender was awarded, two different regimes were overlapping. This was after the introduction of the CSD requirement.

“In Dec 2018 there were two types of … legally accepted documents that would express tax compliance or lack thereof of a taxpayer in SA. That would have been a Tax Clearance Certificate, which hails from the old regime as stipulated in the Treasury instruction, up to a certain point in time which lapsed only after Dec 2018, or alternatively a tax clearance status check which would have been associated with unique pin number.”

Reshebile had provided both of these documents. “For all purposes and intents it’s like a driver’s license, as it has a lifespan.”

3.25 Mr Van Loggerenberg also explained a detail in the National Treasury note that indicated that for a period the two tax compliance regimes were overlapping. This is in 3.9 and reads as follows:

3.26 Mr Lubisi replied that the reporter had put specific questions to Umgeni Water on whether it has used the new system and followed the Treasury instruction that came into effect on June 1, 2017. The entity had declined to comment on specific questions.

3.27 He also said in response to questions from the panel that it was not only the CSD document the paper had relied on but the other documents it had obtained as well.

High Court judgment

3.28 This hearing took place shortly after judgment in a High Court application involving Reshebile was delivered. [2]

3.29 Umgeni Water’s contract with Excellerate Services, which had been providing security services to Umgeni Water for several years, had come to an end in November 2018. The water utility then appointed Reshebile. Excellerate brought an urgent application to the High Court at the end of 2018, when the contract was awarded, but the urgency of the case was dismissed.

3.30 It was finally heard only in January 2020, and judgment was handed down in July 2020.

3.31 Excellerate charged, among other things, that Reshebile was not tax compliant with SARS at the time Umgeni Water contracted it.

3.32 Although the judge declared the contract invalid, it was not for this reason. The judge found that Umgeni Water had contravened Section 217 of the Constitution (which deals with procurement) by effectively “piggy-backing” on an extant contract that Reshebile had with ACSA, and that this was “unconstitutional and unlawful.”

3.33 The contract was set aside but with a proviso that Reshebile continue to provide security services for 10 months until Umgeni Water procured another service provider.

3.34 But the court did not pronounce on the tax issue at all, or make any comment on Excellerate’s charge that Reshebile was not tax compliant (in fact, it notes that Reshebile provided its TCC).

Mr Van Loggerenberg

3.35 In the hearing, Prof Govender asked Mr Van Loggerenberg what the duty of the accounting officer at Umgeni Water would have been had he/she found that payroll tax and VAT was outstanding.

3.36 Mr Van Loggerenberg replied that in terms of clause 3.9 of the Treasury rule, a Tax Clearance Certificate was still accepted as valid verification of tax compliance status. “It then requires of the accounting officer to determine if this is the real thing or if it is a fraud, no more no less.” This would have been done by verifying it with SARS.

3.37 He also explained that with VAT a taxpayer submits six statements a year, and with payroll tax, 12. At the end of the tax year, a reconciliation is done: to determine whether the taxpayer owes or is owed money to SARS. The fact that tax may be owing, does not in itself render the taxpayer non-compliant.

3.38 He also said he was unable to determine, solely on the basis of City Press’ confidential documents that show amounts owed on payroll tax and VAT alone, whether Reshebile was tax compliant. “They are mere statements of account; they are completely insufficient in terms of the data that’s required to determine whether someone is tax compliant or not.”

3.39 After the complainant and City Press had left the hearing, Mr Van Loggerenberg explained several core principles of the tax system in South Africa. In summary these included:

  • Taxpayers are either compliant or non-compliant; there is no “in-between”.
  • The onus of proof in the Tax Court is the same onus as in a civil court: the balance of probabilities.
  • The tax regime is premised on “self-assessment”; although it has coercive and prohibitive measures, it assumes the taxpayer is honest, and presumes compliance.
  • There are various forms of non-compliance. One is not registering as a taxpayer. “That doesn’t apply in this case because we know that Reshebile was registered for PAYE and Vat.” This could be determined by Reshebile’s TCC (which has a unique number) and is confirmed by City Press’ documents. It also relates to regular filing of tax returns: based on the fact that the TCC was still valid in December 2018. Also none of the documents, including the Central Supplier Database document, indicate non-filing.
  • Statements of account (on PAYE and VAT) have a column that indicates a monthly amount owed (a debit) and payment. There are standard penalties of 10% that occur when a taxpayer is late with payment – a “kind of statutory interest because… government is losing the benefit of cash flow.”  The rule in the revenue service is that whatever payment is made against a debit, the first part goes to pay off these penalties. So although many taxpayers may be behind in the payment cycle, it does not mean the taxpayer is non-compliant.

3.40 Clause 3.9 of the Treasury Instruction that CP referred to actually provides for a transition period. Effectively it allowed existing TCCs “to run their course.” In other words, in December 2018, a TCC was still valid.

3.41 In fact it was only in August 2019, “substantially beyond the fiscal year of 18/19” that SARS announced it was doing away with the TCC system, and only in November 2019 that it sent a letter to practitioners confirming this. [3]

3.42 He said a CSD document “is of no evidentiary value”: in other words SARS cannot use the document in the Tax Court to prove that Reshebile is not compliant.

3.43 Only the Commissioner of SARS can determine whether a taxpayer is compliant or not. This jurisprudence dates back to the early 2000s in the case of the State vs Shabir Shaik and others. In that case the NPA wanted to prove tax evasion and tried to subpoena SARS. But SARS won an interlocutory application opposing this. This judgment has not been appealed.

3.44 Mr Van Loggerenberg also noted that Reshebile’s answers were not comprehensive in explaining whether it was tax compliant. However, he queried whether it was fair for them not to have sight of the documents or the CSD printout (which it had asked for), even if this meant that CP would have had to extract the information onto another document to protect the source’s confidentiality.

3.45 While the TCC may have been legitimate, this does not account for the “regime” in SARS at the time (under former commissioner Moyane). It is known for instance that refunds that appeared erroneous were “paid out to infamous families.”

It is possible that non-compliant taxpayers were issued with TCCs in the same way that people who can’t drive get drivers’ licenses through illegitimate means “but the document itself is legitimate.”

3.46 This is one reason the Treasury issued the instruction in 2017, making tax compliance rules more stringent. But the point is in December 2018, the TCC was still a valid document.

3.47 Shortly after this, Mr Van Loggerenberg left the hearing.

  1. Adjudication

4.1 The adjudication panel considered Reshebile’s four complaints:

  1. The headline was misleading
  2. The statement that Reshebile owed R2,6 million in payroll taxes and R900 000 in VAT was “false and malicious”. It provided its Tax Clearance Certificate to prove it was compliant
  3. The newspaper had refused to provide Reshebile with the Central Supplier Database report, which reportedly showed Reshebile was last tax compliant in April 2016: the reporter had ignored the evidence that the company was tax compliant and “instead sought to discredit our tax clearance certificate”. He failed to approach SARS to verify the company’s tax affairs.  
  4. The reporter ignored the validity of the TCC and “instead sought to create suspicions” about how it was obtained. He also failed to approach SARS for comments “which could have assisted him in understanding how SARS processes function.” The company had even provided the opinions of a tax expert in its response.

4.2 The panel also considered a point raised by Mr Van Loggerenberg about whether it was fair not to have provided Reshebile with the documents City Press based its story on, or at least the information contained in them.

4.3 The main question the panel considered was this: was it reasonable for City Press to have run the story as it did? Could it have made other inquiries that would have made its report more complete?

4.4 On the face of the documents City Press had, it seems reasonable for it to have run a story on Reshebile’s tax affairs.

It had after all received a massive contract from a public utility and that contract was already the subject of a legal dispute by the previous incumbent. (although this was not mentioned in the article).

The documents showing that Reshebile owed a certain amount in payroll and VAT taxes have not been contested and are not contested by the panel.

It should be pointed out though that these documents are dated March and April 2019 – in other words after the tender was awarded. However the panel did not canvass this question at the hearing.

4.5 However, did the newspaper interpret both the Treasury instruction and the SARS systems of tax compliance correctly?

This seems to be at issue. The Treasury instruction, point 3.9, as Mr Van Loggerenberg pointed out, clearly provides some overlap of tax certification regimes for a period. This period coincided with the date on which Reshebile got the tender.

4.6 The other shortcoming in its reporting is that it did not check with SARS  (or a tax expert) about whether it was possible to have outstanding tax owing and be tax compliant at the same time. Our inquiries with SARS and Mr Van Loggerenberg’s explanations indicate that this can be the case. A statement of account showing tax owing is not in and of itself an indicator of compliance. 

4.7 And was it fair not to have shared with Reshebile its documents on payroll tax and VAT, as well as the CSD report?

City Press did put specific questions to Reshebile, viz: Asking it about its CSD report; asking how it got awarded the tender when “it clearly didn’t comply with income and value added taxes”; how it obtained its TCC when it owed taxes. It also referred to the CSD report showing it had been “non-compliant” since 2016 in questions put to the company and asked whether at the time it got the contract it did owe taxes.

4.8 The questions covered what was in the report. But there were two shortcomings. One was that City Press could have consulted with a tax expert (or SARS, as it was invited to do) to check why the VAT and payroll statements of account appeared to contradict the TCC. The explanation, that SARS gave the Ombud and that Mr Van Loggerenberg gave the panel, is that this is not necessarily the contradiction it appears to be.

4.9 On the CSD report, Mr Van Loggerenberg told the panel it was not a document on which evidence could be based. However, this does not clear up the question of why it appears to contradict the TCC. As the document is accessible to departments or entities awarding tenders, it should have been reasonable for City Press to have shared its version with Reshebile and allowed it an opportunity to explain it.

4.10 That there was controversy about this tender is now undisputed, as evidenced by the recent High Court ruling cited above. But the controversy did not relate to its tax compliance status – the judge in the case did not pronounce on this. The controversy related to Umgeni Water “piggy-backing” on another contract Reshebile held with a public entity, which the court found to be in violation of Section 217 of the Constitution.

Finding

The panel considered whether it was reasonable for City Press to have run the story as it did, based on the information it had.

It was certainly reasonable to question the company’s tax status: as noted above, this contract was contested and controversial.

On the details of the complaint:

The headline in both the print and the online editions raise the issue of tax compliance as a question: “Umgeni Water awards R220m contract to ANC-linked firm with tax question mark” and “Fat tender for firm with tax question mark”. This was legitimate in terms of the Press Code even if the “question mark” applied to the newspaper’s understanding of tax processes as well as the firm’s alleged dereliction.

However, the intro of the story: “Umgeni Water broke National Treasury’s rules and awarded a R220 million security tender to an ANC-linked company whose taxes were not in order at the time” is more problematic.

In light of the evidence the panel heard on the “transition period” of the Treasury instruction in question, and in light of the explanation of how a statement of account can show outstanding taxes of a taxpayer who can nonetheless still be tax compliant, this intro states as fact what should have been put as an allegation. In fact Excellerate, in its application to the High Court, put exactly this allegation, but the Court did not pronounce on it.

There is a difference between an allegation and the truth, and also a difference between appearances and the truth. Although the newspaper went to the trouble of gathering relevant documents, it was a shortcoming in its reporting that it did not check the TCC with SARS, nor query with the latter or a tax expert the apparent contradiction between its own documents and the TCC provided by Reshebile. Had it done so, the introductory paragraph would, in all probability have been worded differently, as it should have been.

For the most part, the story is properly sourced and responses were sought to the above and other allegations.

But the introduction, the panel found, transgresses clause 1.3 of the Press Code:

1.3 present only what may reasonably be true as fact; opinions, allegations, rumours or suppositions shall be presented clearly as such;

City Press presented an allegation as uncontested fact, and it did this because it did not check with SARS how tax compliance systems worked at the time; moreover it appears to have misread clause 3.9 of the Treasury instruction which allowed for two systems of tax compliance verification to co-exist at least well into 2019.

This is a Tier 2 offence.

The rest of the complaint is dismissed.

Sanction

City Press should apologize to Reshebile for presenting an allegation – that its taxes were not in order – as fact.

The apology should:

  • be published at the earliest opportunity on all the newspaper’s platforms, after the time for an application for leave to appeal has lapsed or, in the event of such an application, after that ruling;
  • refer to the complaint that was lodged with this office;
  • end with the sentence, “Visit www.presscouncil.org.za for the full finding”;
  • be published with the logo of the Press Council (attached); and
  • be prepared by the publication and be approved by me.

Appeal

The Complaints Procedures lay down that within seven working days of receipt of this decision, either party may apply for leave to appeal to the Chairperson of the SA Press Appeals Panel, Judge Bernard Ngoepe, fully setting out the grounds of appeal. He can be contacted at Khanyim@ombudsman.org.za.

Adjudication Panel:

Pippa Green (Ombudsman), Prof Karthy Govender (public representative); Ms Heather Robertson (media representative), with Mr Johann van Loggerenberg (advising).

3 September, 2020


[2] Excellerate Services vs Umgeni Water and 2 others;  CASE NO’s: 13661/18P

1738/19P; YN Moodley AJ;  KZN High Court Pietermaritzburg; 17/7/20