Davis’s advice in taxing times
Last week, Finance Minister Malusi Gigaba announced he had asked the president to urgently set up an inquiry into tax administration and governance at the South African Revenue Service (SARS), and the president had agreed.
On Monday, the Davis tax committee presented its 110-page report on tax administration and the governance of SARS to Gigaba. That makes the timing of the finance minister’s announcement last week seem rather odd, putting question marks over his motivation in requesting an inquiry.
It would be even more odd if the new inquiry, whenever it is established, does not work very closely with Judge Dennis Davis and his committee, who have already done a good deal of work on the tax administration issue.
Clearly, SA has a problem with its tax authority, one that Gigaba appears to have recognised. Revenue is expected to fall short by R50.8bn in the current fiscal year and over the mediumterm framework of three, years the cumulative shortfall is expected to total R209bn.
SA’s extremely weak economic growth rate is one factor. But it can explain only part of the revenue shortfall; SARS’s own failings and a decline in tax morality also loom large
That SARS itself is falling short is hardly a surprise, given the extent to which it has lost senior staff in the three years since Tom Moyane was appointed commissioner and the series of scandals in which it has been embroiled.
The whiff of scandal has only grown with the recent publication of Jacques Pauw’s explosive book, which makes it clear how carefully the erosion of SARS as an institution has been crafted to ensure that President Jacob Zuma and his friends do not face the wrath of the tax authority.
Against this background, the Davis committee’s technical and carefully researched report on tax administration seems rather tame. But its recommendations, particularly on the governance of SARS, are far-reaching.
The committee limited its scope to examining the governance and the tax administration issues in two particularly challenging but key areas for revenue collection: base erosion and profit shifting and high net worth individuals.
The committee did not take a deep look at the goings-on in SARS, nor could it have done so. As an advisory committee, it does not have the power to subpoena witnesses as a commission of inquiry would have. It was no doubt constrained by Moyane’s less than willing co-operation in sharing details on SARS.
Crucially, however, the Davis committee has recommended changes to SARS’s governance that would make the commissioner more accountable and put much stronger safeguards in place to ensure his or her integrity and that of the institution.
Former finance minister Pravin Gordhan would have wanted to fire Moyane but could not do so because only the president can now hire and fire the commissioner. However, the law was changed to put that power in the president’s hands only in 2002 — the original 1997 SARS legislation empowered the finance minister to do that and also required an independent supervisory board to exercise oversight over the institution.
One of the Davis committee’s more important proposals is that oversight by an independent board be restored. Another is that the commissioner should be appointed by a process similar to that used to appoint the public protector, where there is a public process in which Parliament interviews candidates and makes recommendations to the president.
The committee has made various alternative proposals for how to improve SARS’s governance, but any of them could go a long way to ensuring that commissioners such as Moyane cannot act with impunity, if they get appointed at all.
That, along with the taxpayer bill of rights the committee recommends, could go some way to repairing the damaged institution and putting revenue collection back on track.
ONE OF THE MORE IMPORTANT PROPOSALS IS THAT OVERSIGHT BY A BOARD BE RESTORED