South African Revenue Service
The South African Revenue Service is the revenue service of the South African government. It administers the country's tax system and customs service, and enforces compliance with related legislation. It is governed by the SARS Act 34 of 1997, which established it as "an organ of state within the public administration, but as an institution outside the public service." It thus has a significant degree of administrative autonomy, although it is under the policy control of the Minister of Finance. SARS manages, administers, and implements the tax regime as designed by the Minister and National Treasury.
SARS was established in 1997 by a merger of the customs and inland revenue departments, at the recommendation of the Katz Commission, which had been instituted to review the South African tax system for the post-apartheid era. In subsequent years, under the leadership of Pravin Gordhan, SARS gained a reputation for effectiveness. However, between 2015 and 2019, the agency's tax collection and investigative capacities were severely undermined, or even "decimated," as a result of a restructuring," allegedly calculated to enable the capture of SARS. This was investigated by the Nugent Commission.
Functions
In terms of the SARS Act, the main functions of SARS are to:- collect all tax and customs revenue due to the state;
- enforce compliance with tax and customs legislation; and
- facilitate legitimate trade through the customs service.
History
Predecessors
The Union of South Africa came into existence on 31 May 1910, uniting the Cape Colony, Transvaal Colony, Colony of Natal, and Orange River Colony. Three months later, on 9 August, the Governor-General, Herbert Gladstone, retroactively appointed Joseph Clerc Sheridan, Esq., as the acting Commissioner for Inland Revenue with effect from 1 July 1910. Two days later, on 11 August, the Department of Inland Revenue was established under the control and direction the Minister of Finance. The Department of Inland Revenue was charged with "the duty of properly collecting and duly accounting for all revenues of the Union other than railway and harbour revenues and the revenues which by law or regulation are accounted for by the Commissioner for Customs and Excise or by the Postmaster-General."Mandela and Mbeki presidencies
Katz Commission
At the time that the transition to democracy was completed in 1994, South Africa was marked by immense income inequality and by a long history of tax avoidance, which had been used as a means of protest against the colonial and apartheid governments. Moreover, under apartheid, various bantustans were governed by separate tax administrations. In 1994, the first post-apartheid government instituted the Katz Commission to review the tax structure in South Africa, with an eye to modernising it in line with international best practice and improving its equity and efficiency. The commission, which ran between 1994 and 1999, recommended an overhaul of the entire tax system. In particular, in 1997, the commission recommended that the two agencies responsible for revenue collection at the time – the Department of Inland Revenue and the Customs and Excise Department – should be amalgamated into a single entity and fundamentally reformed. This led to the passage of the SARS Act and the establishment of SARS on 1 October 1997.Following the retirement of the first SARS Commissioner, Trevor van Heerden, in late 1999, van Heerden's deputy Pravin Gordhan was appointed Commissioner. Gordhan is the longest-serving Commissioner to date, having held the role from November 1999 to May 2009, and by the end of his tenure SARS was widely acclaimed as a "success story" or "model public institution." During this period, SARS substantially improved revenue collections and tax compliance, establishing an effective tax bureaucracy. Between 1998 and 2002, for example, the number of individuals registered for tax purposes increased by 43% and the number of companies registered by 40%, while progressive reforms enabled the tax system to contribute to the government's redistributive programme. A 2014 benchmarking review by the International Monetary Fund found that SARS conformed to good international practice in 15 of 27 indicators and performed only slightly worse than that on the other 12 indicators, overall a "world class" performance.
Zuma presidency
Leadership changes
In May 2009, Gordhan was appointed Minister of Finance and replaced at SARS by Oupa Magashula. In March 2013, however, a recording was leaked to the media of part of a phone call in which Magashula improperly offered a top SARS job to a young female chartered accountant. Gordhan appointed a fact-finding inquiry, led by Zak Yacoob and Muzi Sikhakhane, to investigate possible misconduct. In July, the inquiry found that Magashula's conduct had endangered SARS's reputation and that Magashula had been dishonest during the course of the proceedings. Magashula resigned, apologising for the "inappropriate conversation," which he said had been "banter" and did not reflect any intention to subvert proper recruitment processes. It was later alleged, in 2016, that the conversation had been illegally recorded by crime intelligence operatives.Following a fourteen-month period in which Magashula's former deputy, Ivan Pillay, acted as Commissioner, President Jacob Zuma appointed the controversial Tom Moyane to replace Magashula. Years later, Moyane admitted that Zuma had informed him that he intended to appoint him long before the appointment was publicly or formally made. He has been described by journalist Adriaan Basson as having been "willing to choose the interests of Zuma and his cronies over those of the country," and by a subsequent commission of inquiry as having "considered SARS to be his personal fiefdom, whose money he could spend in his own interests."
File:Tom Moyane.png|left|thumb|250x250px|Tom Moyane at the Zondo Commission in 2019
State capture revelations
By 2016, SARS was being implicated in developing allegations about state capture under the Zuma presidency. In February of that year, amaBhungane published a story about an initiative to restructure the key Large Business Centre at SARS. It reported that the restructuring was destabilising SARS and might have been "a deliberate attempt by Moyane’s 'new guard' to give themselves undue influence." The journalists were subsequently sued by Moyane and acting chief operations officer Jonas Makwakwa, both in a personal capacity and on behalf of SARS, and both for defamation and for unlawfully disclosing taxpayer information in contravention of the Tax Administration Act. The latter charge led to a protracted dispute between SARS and amaBhungane about the correct interpretation of the law's confidentiality protections. Further journalistic investigations followed, including in Jacques Pauw's 2017 The President's Keepers; Pauw was also sued by SARS for contravening the Tax Administration Act. Other details were elicited or demonstrated during the course of the Nugent Commission, which ran in 2018, and the Zondo Commission, which has been ongoing since 2018.Involvement of Bain & Company
Soon after Moyane was appointed in September 2014, Bain & Company was contracted to review and later to restructure SARS. The Nugent Commission ultimately found that the procurement process had been "manipulated" in Bain's favour. Bain representatives had met several times with Moyane and with President Zuma himself prior to submitting a bid for the contract – and even prior to Moyane's appointment as Commissioner. The head of the local Bain office later testified that Bain had provided "executive coaching" to Moyane a year before his appointment. The commission also found that the restructuring plan ultimately recommended by Bain was highly damaging to SARS, and suggested that Bain and Moyane had pursued the plan "in deep collusion" and for purely self-interested reasons. It called thisa premeditated offensive against SARS, strategized by the local office of Bain & Company... for Mr Moyane to seize SARS, each in pursuit of their own interests that were symbiotic, but not altogether the same. Mr Moyane’s interest was to take control of SARS. Bain’s interest was to make money.Whistleblower Athol Williams, a former Bain partner, agreed with this assessment, testifying at length at the Zondo Commission about Bain's extensive engagements with Zuma and Moyane about plans to restructure SARS and other public entities.
Restructuring
The Nugent Commission found that the restructuring of SARS that occurred after 2014, under the advice of Bain & Company, largely had the effect of undermining SARS's tax collection capacity and quality of governance. Most significantly, oversight of individual tax and corporate tax were amalgamated into a single unit, called Business and Individual Tax, which reported directly to the Commissioner. At the same time, other key business units were fragmented, especially the Large Business Centre – which had been responsible for 35% of SARS's revenue and which the Nugent Commission said was "eviscerated" – and also the Litigation Unit and Compliance Unit. The Anti-Corruption and Security Unit, which investigated internal corruption at SARS and which had consistently been rated as among the best such units in the South African government, was also restructured such that its independence was undermined. The Executive Committee of SARS had by the end of 2015 "been denuded of virtually all the management and skills that had existed when Mr Moyane arrived." An existing modernisation strategy was also suspended, pending a review which the commission found to have been valueless.Gordhan, then Minister of Finance and reportedly clashing with Moyane on several fronts, attempted unsuccessfully to block the restructuring in 2016, raising concerns about its likely effects on the agency's capacity. He has said that, in the same year, he asked Zuma to fire Moyane, on the basis that his and Moyane's working relationship had broken down. Among the detrimental consequences of the restructuring later identified by the Nugent Commission were that non-compliance became easier; that some 200 managers were displaced from their former positions and often relegated to less meaningful roles; that SARS's relationship with other state institutions, and its international reputation, suffered; and that SARS's measures to counter criminality were "rendered ineffective," to the benefit of the illicit tobacco trade in particular. The Tobacco Institute of South Africa told Parliament that South Africa lost R27 billion in customs and excise revenue between 2014 and 2018, and total tax collections fell by about R90 billion between 2015 and 2018.