Commission to spend next four months picking apart Moyane’s mess at SARS

President Cyril Ramaphosa has at last appointed the commission of inquiry into the South African Revenue Service (SARS), picking highly regarded retired Supreme Court judge Robert Nugent to chair it, and publishing the inquiry’s terms of reference.

Nugent and his team, who have to deliver an interim report within four months and a final report by the end of November, might want to challenge Judge Raymond Zondo and his team over at the commission of inquiry into state capture to deliver speedily too.

Essentially, the Nugent commission will have to probe what went wrong at SARS during the three-and-half-year tenure of now suspended commissioner Tom Moyane. It will also have to recommend how to fix it, so the tax authority can again start collecting tax revenue effectively, efficiently, fairly and on a scale that enables government to get the fiscal deficit under control without endlessly hiking tax rates and cutting spending.

The state-capture and corruption part of the commission’s probe will no doubt be the most closely watched, more so because the law allows SARS officials to breach taxpayer confidentiality in areas covered by the terms of reference. Take this one, which mandates the commission to probe “the adherence to tax-administrative processes and whether deviations from the established processes unfairly benefited politically connected persons and persons connected to top managers of SARS”.

We can look forward to details of VAT (value-added tax) refunds to the Guptas and perhaps other friends of Moyane, who seemed to have had the knack of getting the tax agency to pay refunds when nobody else could.

Then there’s “the adherence to internal personnel policies … in the light of the exit of senior personnel and alleged coercion of SARS officials to resign”, an item that could reveal the full story of how Moyane drove out much of the tax authority’s top leadership soon after he arrived.

Other items, such as unauthorised bonuses and the illicit tobacco trade, will also come under the spotlight. Along with the disciplinary procedure against Moyane himself, which will run in parallel, the commission will hopefully enable the rooting out of the rot at SARS.

It is, however, the commission’s mandate to look into the administration and governance of SARS itself that will be crucial to the tax authority’s ability to rebuild its capacity to collect taxes. In 2017, the Davis tax committee had a go at investigating what went wrong with tax administration, but it was hamstrung by Moyane’s refusal to co-operate, and it did not have the power the commission will have to subpoena witnesses and pierce the veil of confidentiality.

Interestingly, Nugent will have three assistants, including Prof Michael Katz, who chaired the Katz commission of inquiry into tax in the 1990s, which recommended the creation of SARS as an independent public entity, with a mandate to improve compliance levels and close the large “tax gap” that existed at the time.

Now, the challenge is the same again, not only because of corruption or mismanagement, but also because of the extensive operational restructuringMoyane imposed on SARS, with advice from consultancies Bain and Gartner.

Some of the restructuring was a necessary update, but mostly it did more harm than good. The Nugent commission has been given the task of looking at the effect of changes in the operating model on SARS’s effectiveness in collecting tax.

Acting commissioner Mark Kingon has flagged the total tax take from large businesses as a particular concern, with returns from these taxpayers showing no growth in recent years.

As a proportion of corporate income-tax collection, the contribution by large businesses dropped from 69% to just less than 66% from 2014-15 to 201718. That was when Moyane disbanded the integrated service SARS offered SA’s largest companies through its Large Business Centre, eroding the tax agency’s relationship with businesses.

Kingon and his team are concerned, too, about SARS’s effectiveness in dealing with high net worth taxpayers and areas such as customs and excise.

He says he is “tweaking” the operating model to make it more effective. But clearly it will take more than tweaking to turn SARS around. In 2017-18, it grew revenue just 5%, way short of budget targets; for 2018-19 it has been set a growth target of 10.5%. The Nugent commission comes not a moment too soon.