The taxman is going after a company that allegedly withheld millions of rand in “plastic-bag tax’’ paid over by consumers at shopping tills around the country, and there are fears that the scam may be widespread.
The SA Revenue Service (Sars) is in talks with the company, a major supplier of bags to Pick n Pay and other retailers, after receiving a whistle-blower’s allegation that it had rigged the system to cream off almost R10m a month which should have been paid to Sars.
Consumers have been paying what the government calls a levy, 25c a bag, since 2003, with the money intended to sponsor a national recycling effort.
But millions of rand may be landing in the pockets of unscrupulous plastics manufacturers, which Sars is now investigating.
The National Treasury expects to generate R250m from the levy this financial year, which would mean the sale of just short of 1-billion plastic bags.
Sars statistics show that R581m was collected in the past five years from the levy, which amounts to more than 2.3-billion bags bought.
However, studies have estimated that as many as 8-billion bags are bought in SA each year, potentially indicating a vast tax undercollection.
Documents the Sunday Times has seen show that several firms owned by the Arbee and Hassim families in Durban have been under scrutiny by Sars for allegedly evading hundreds of millions of rand in environmental tax by failing — possibly for years — to pay over to the taxman the full levy on the bags they make.
After receiving a whistle-blower report, Sars commissioner Edward Kieswetter sent investigators to a number of manufacturing companies that supply large retailers such as Pick n Pay and Spar with plastic shopping bags.
Industry role players told the Sunday Times this week that the Sars investigation has confirmed the whistle-blower information.
In confidential correspondence with Kieswetter, whistle-blowers claimed that a manufacturing company called Pak Plastics, owned by Ridwaan Arbee, has been supplying Pick n Pay alone with 38.5-million plastic bags each month, and then allegedly failing to pay the levies due on the bags.
Insiders with knowledge of the investigation confirmed that the taxman is now in talks with the implicated companies to settle the large tax debts uncovered so far. It is unclear whether Sars intends to lay criminal charges.
Pak Plastics will be issued with a humongous fine by Sars and excise very soon. It’s an intricate fraud scheme and has been extremely profitable
— Whistleblower letter
“These plastic-bag scams are a new category of environmental tax fraud that has begun to manifest worldwide where plastic bags are taxed. It is the first of its kind seen at this scale in SA and probably the world,” said one insider.
Documents the Sunday Times has seen indicate that Arbee works closely with the Hassim family, which one of his relatives is believed to have married into.
Some of the companies that the two families are directors or members of share the same addresses in Durban, and they live close to each other in the same suburb.
The documents show that both families own an intertwined network of companies in the plastics industry, with Imraam Hassim at the helm of Hassims Packaging while Sikander Hassim owns FlexPak Holdings together with Hafeeza Arbee-Hassim.
Ridwaan Arbee and Imraam Hassim are both members of Al-Akbar Investments, and together the two are trustees in two different trusts, the Pak Property Trust and the Ridwaan Arbee Share Trust.
The two have links to a company called Hasmart, which also trades as HasPak. It is unknown whether Sars has included the trusts in its investigation.
In one letter to Kieswetter, a whistle-blower claims Pak Plastics was failing to pay its levy obligation “of R9,625,000 per month, or R28,875,000 per quarter” on the bags it manufactured for “Pick n Pay alone ... not taking into account any other customers, of which there are numerous”.
"Pick 'n Pay buys over R500m plastic bags a year. That is above R40m bags a month, " wrote the whistle-blower who detailed how the tax fraud allegedly works.
He said Pak Plastics would manufacture millions of plastic bags that “should attract the levy” but would then generate an invoice to HasPak for a fraction of those and reflect the levy payable on the vastly reduced amount.
The remainder of the plastic bags would then be invoiced as plastic bags that did not attract the levy, such as black refuse bags, he said. These would then allegedly be sold to the retailer at the full price “inclusive of the 25c levy”.
Pak Plastics, the whistle-blower said, would complete its quarterly levy return to Sars and declare only that it had sold the reduced number and pay the levy owed on that.
The Sunday Times has seen correspondence between the whistle-blowers saying that Sars has closed in on the companies.
“Hassims packaging/Flexpak has been delisted as a supplier to Spar. Another company has been listed, named Manz Industries, which is owned by Ridwaan Arbee. The changeover of supplier was deliberately done by Pak Plastics and Hassims/Flexpak because both companies have been under investigation by Sars and the excise division for the past three years,” the letter says.
“Pak Plastics will be issued with a humongous fine by Sars and excise very soon. It’s an intricate fraud scheme and has been extremely profitable.”
Plastic grocery bags the Sunday Times bought at Pick n Pay this week showed that they had been manufactured by Manz Industries and FlexPak Holdings.
Arbee did not respond to all of the Sunday Times’s questions, including some about the relationships between the companies, the families and the allegations of tax evasion.
He confirmed an existing dispute with Sars, however, saying: “Pak Plastics was the subject of an audit by the SA Revenue Service. We are presently engaging the SA Revenue Service with regard to the matter and we remain hopeful that the matter will be resolved to the satisfaction of both Sars and Pak Plastics.”
Hassim did not respond to emails, WhatsApp messages or telephone calls. Instead, a younger relative, Usamah Hassim, responded angrily, claiming that he was being harassed by the Sunday Times. He sent threatening WhatsApp messages, which he later deleted.
Pick n Pay said in a statement: “We use one main supplier for our bags. The levy is payable to Sars by the manufacturer as the product leaves the facility concerned. We expect all our suppliers to follow the law and if we became aware of any wrongdoing, we would report it to the relevant regulatory body.
"Should it be proven that any supplier has committed fraud, full co-operation would be provided to the necessary authorities or regulatory body.”
Should it be proven that any supplier has committed fraud, full co-operation would be provided to the necessary authorities or regulatory body
— Pick n Pay
Sars spokesperson Anton Fisher said the revenue service is not allowed to disclose confidential taxpayer information or details about investigations.
Spar Group risk and sustainability executive Kevin O’Brien said: “We confirm that three of the entities you mentioned are known to our KwaZulu-Natal distribution centre.”
He said Spar uses the services of many other plastic-bag suppliers as well.
“These suppliers undergo a rigorous vetting process before being onboarded as suppliers, and continuous audits to ensure that they retain their status. It is our expectation that all plastic-bag suppliers pass through all invoiced taxes (including environmental levy tax) to [Sars].
“Our supplier policy allows Spar to terminate any supplier relations where gross misrepresentation is discovered. At this stage, we have not been made aware of any such misrepresentations.”
The government introduced the plastic-bag levy in 2004 as part of an effort to curb plastic waste. The money collected was intended to establish a national recycling programme to clean up the environment and create thousands of jobs.
In 2005, the government set up a company called Buyisa-e-Bag, which received about R100m from the tax levies. However, that company was wound up in 2011 with assets of about R330,000 amid allegations of fraud and maladministration.
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