COMMISSION OF INQUIRY INTO TAX ADMINISTRATION AND GOVERNANCE BY SARS

FINAL REPORT

The previous part of the Nugent Commission report can be found here.

CHAPTER 8: THE ANTI-CORRUPTION AND SECURITY UNIT AND RELATED EVENTS

[1] Before the restructuring the Anti-Corruption and Security Unit (ACAS) functioned to combat internal corruption at SARS. In 2010 it was audited by the Department of Public Service and Administration and was found to be the best anti- corruption unit of 85 government departments. Again in 2013 it was the subject of a peer review and scored in the top bracket for each of its functions. A witness who gave evidence in public hearings in relation to the unit asked not to be named, and I refer to the witness only as ‘the witness’.

[2] On 18 December 2014 an internal communication from the Commissioner announced that the principal functions of ACAS were to be positioned within other business areas, the effect of which was that the unit was effectively disbanded. On 31 December 2014 an email was sent by HR to the managers of the various teams announcing new reporting lines. This was said to be for an interim period pending an overall review of the organisational structure.

[3] Under the new structure the unit came to be known as Fraud Investigations, comprising internal investigations, risk analysis and forensic audit, reporting to the Group Executive: Internal Audit, which undermined its very function of independence. Before ACAS had investigated major cases concerning allegations of collusion between SARS employees and syndicated crime. After the changes members of the unit, then operating as Fraud Investigations, were relegated to dealing with minor investigations, like forged medical notes, fraudulent mileage claims, and so forth.

[4] Mr Hlengani Mathebula, Chief Officer: Strategy and Communications, was appointed acting Chief Officer: Enforcement on 1 February 2016, a position he held until Ms Mogola Makola was appointed to that permanent position with effect from 1 July 2017. In September 2016 members of the unit were told that henceforth they would report to Mr Mathebula.

[5] By then Mr Yegan Mundie, who had been an investigator in the unit, had been transferred to the office of the Commissioner, forming part of a group that came to be known as the Tobacco Task Team, who seem never to have investigated the illicit tobacco trade, but investigated instead investigators of the trade. When queried, the managers of the former ACAS were told by Mr Mathebula that it had been the Commissioner’s decision.

[6] Mr Mathebula said in evidence that on one occasion (the date was not specified) Mr Moyane called him to his office and gave him a list of people he should either dismiss or suspend and investigate, who included Mr Yousuf Denath and Mr Kumaran Moodley in Fraud Investigations. He said he asked for time to consider. A day or two later he returned to Mr Moyane and said he was uncomfortable with investigating people with no information of what they were alleged to have done, and in this instance he was not willing to do so. Why he should even have thought of doing so is cause for concern itself.

[7] In about June 2016 Mr Denath received information that the State Security Agency was in possession of a lawfully intercepted conversation between Mr Mundie and a reputed tobacco smuggler in which, it was said, Mr Mundie disclosed information about competing taxpayers, and of SARS officials engaged in enforcement operations. Mr Denath met with Mr Moyane, Mr Mathebula and his manager and asked for urgent steps to be taken against Mr Mundie.

[8] According to Mr Mathebula, he was asked by Mr Moyane to resolve the matter, and he asked Mr Denath to obtain the intercept. Mr Denath returned to say the State Security Agency was unwilling to furnish it other than at the request of Mr Moyane. The email conveying that was taken by Mr Mathebula to Mr Moyane to which Mr Moyane responded that he ‘doesn’t deal with junior people’. There the matter rested, said Mr Mathebula at first in his evidence, though later he said Mr Moyane told him in a telephone conversation that he would take the matter up with the Director-General. For that reason, said Mr Mathebula, it was his view that his involvement in the matter had ended and that there was nothing further for him to do.

[9] On 10 August 2016, Mr Mundie sent an internal memorandum to Mr Mathebula, the stated purpose of which was to allege that SARS investigators were acting unlawfully so as to provide an unfair advantage to British American Tobacco (BAT). In effect, he alleged that SARS investigators were collaborating with BAT’s security company, Forensic Security Services, to undermine other participants in the tobacco industry, including some reputed to be engaged in organised crime. The memorandum recommended, amongst other things, that SARS investigate its own investigators, including Mr Denath and Mr Kumaran Moodley.

[10] Mr Mathebula signed the memorandum in support of the recommendations. Mr Mathebula sought in his evidence to distinguish support for the recommendations from authorising the recommended action, on the basis that the persons concerned did not report to him but to the Commissioner, though the relevance of the distinction escapes us in the present context. The point is not whether he authorised the proposed action but whether he was agreeable to it being taken, which clearly he was.

[11] Mr Mathebula also emphasised that what he supported was investigations., and no disciplinary action being taken against Mr Denath. With regard to Mr Moodley, he said that he was not involved in or even aware of disciplinary action against him. The fact remains that, under his watch, two of SARS’ key criminal investigators were suspended and disciplined on the basis of what turned out to be trumped up charges at the instance of a man whom Mr Mathebula knew the State Security Agency suspected of colluding with crime. SARS recently restored both Mr Denath and Mr Moodley to their positions.

[12] Sometime between 10 August 2016 and 1 September 2016, Mr Mathebula received another memorandum from Mr Mundie, the stated purpose of which was to request authority from senior management for certain SARS employees to work on a team established by the SAPS with a dedicated investigative capacity to investigate the high levels of corruption and fraud in the tobacco industry. Mr Mundie claimed there was a syndicate, including SARS officials, that victimised the competitors of BAT, by using state resources for illegal searches, audits, raids and intercepts. Mr Mundie identified five SARS employees who should join the SAPS team. He also asked Mr Mathebula for urgent approval for certain resources to be made available, including pool vehicles and a safe house. Mr Mathebula signed his support for the requests, though he said he overlooked the request for a ‘safe house’ when he signed the document. Again, he said, he supported rather than approved the requests, as it was the Commissioner who was in control of ‘the functional aspects’ of the task team.

[13] Mr Mathebula’s further evidence concerning that memorandum was nothing short of bizarre. He said he approached Mr Moyane and told him he was uncomfortable signing the memorandum because Mr Mundie and the Tobacco Task Team reported to Mr Moyane. He said the memorandum ‘went back and forth’ and he made changes to it. Why the memorandum went ‘back and forth’ and what changes Mr Mathebula made were not explained in his evidence. However, he said he was ‘comfortable’ with the version he finally signed, but for its reference to a safe house which, he said, he overlooked.

[14] He said Mr Moyane pleaded with him over a two-week period to sign the memorandum. Why the pleas were necessary was not explained. Ultimately Mr Moyane approached him and said he must leave the offices with him and must leave his cell phone behind, and they walked to Mr Mathebula’s vehicle, where Mr Moyane told him he must sign the memorandum. Mr Moyane told him he was amongst people who knew where he (Mr Mathebula) and his kin resided, which, said Mr Mathebula, ‘sent a chill down my spine that day because it appeared a very ominous threat…’. Mr Mathebula then signed the memorandum on 1 September 2016. He said he never reported the incident to anyone as there was no reason for him to do so, given that the Commissioner was the ‘functionary’ and he provided ‘administrative support’, but that misses the point. If a member of EXCO does not appreciate that something fishy is going on when the Commissioner of SARS insists on a meeting in his car, and insists he must sign a document against his will, because there are ‘people’ who wish him ill, then he lacks the vigilance that should be expected at that level of seniority.

[15] On 24 October 2016 Mr Gobi Makhanya sent an email to Ms Carol van Wyk, copied to Mr Mathebula, requesting permission to download emails from the SARS server. At that time Mr Makhanya was not even part of the Tobacco Task Team but was in debt management in KwaZulu Natal. Listed were a number of people within SARS, primarily those who had previously investigated the illicit cigarette trade, but also people outside SARS, including the head of the Special Investigating Unit, and a person from the office of the public protector. Much of that was sensitive information including the identities of whistle blowers and their reports. Mr Mathebula approved the request. He said in his evidence that he did not know whether it was lawful to download emails and made no inquiries to establish whether it was indeed lawful. He couldn’t say why the emails of people outside SARS, for example the head of the SIU, were to be downloaded.

[16] In response to an invitation by the Commission to furnish reasons why the Commission should not make certain findings, Mr Mathebula sought to justify his conduct on the basis that SARS’s internal policies allow for SARS to monitor its employees’ communications, which seems to be an afterthought, but in any event it does not give him carte blanche. It was a violation of the privacy of the individuals and he ought not to have supported it without proper and lawful cause, nor ought he to have done so when he did not know whether it was lawful, which he said he did not. And certainly it was a violation of his duties as a senior member of management to approve the downloading of emails of people who did not work for SARS.

[17] In November 2016 senior managers in Fraud Investigations, being the witness and Mr Yousuf Denath, were called to a meeting and told, without explanation, that the Tobacco Task Team was henceforth to be housed within Fraud Investigation, though would continue to report to the Commissioner.

[18] Meanwhile, the group was operating without due governance. Beforehand there had been strict governance, requiring cases to be registered, and separating case allocation from case investigation, but that was not observed by the Tobacco Task Team. The one thing the Tobacco Task team did not investigate was the illicit trade in cigarettes, but investigated instead the investigators who once investigated that trade. The investigation of SARS officials suspected of corruption should have fallen within Fraud Investigation, as that was the unit mandated to tackle internal corruption. The net effect of the restructuring and re-allocation of responsibilities, in other words, was that the internal corruption unit dealt only within minor transgressions; the Tobacco Task Team investigated SARS investigators who had investigated the illicit trade in cigarettes; and the units that investigated the illicit trades ceased to exist.

[19] In April 2017 the former members of ACAS (now part of Fraud Investigations) were advised that Mr Gobi Makhanya from the Tobacco Task Team had been appointed acting Executive of Fraud Investigations. The day after his appointment Mr Denath was suspended by Mr Makhanya. Mr Denath remained on suspension for a year and three months, before he was cleared by a disciplinary hearing conducted under an independent advocate, who described the charges, relating to events that had occurred five or six years earlier, as a sham. The inquiry cost SARS about R3 million in legal fees.

[20] On 11 November 2016, the Senior Manager of Criminal Investigations, Ms Ronel van Wyk, addressed a memorandum to Mr Mathebula, copied to Adv Neo Tsholanku, Group Executive: Criminal Investigations, dealing with an allegation made by Mr Paul O’Sullivan that Mr Mundie had been in a corrupt relationship with a taxpayer. Ms van Wyk said SARS’ criminal investigators had made preliminary finding to the effect that Mr Mundie had facilitated the taxpayer receiving substantial refunds on the basis of fraudulent VAT claims in exchange for a payment of R9m. She outlined the evidence that she considered supported the allegations, and recommended that the case be referred to SARS’s Internal Investigations to investigate the alleged conduct of Mr Mundie. She further recommended that SARS contact the SAPS official involved in the case and that the matter be handed over to the NPA.

[21] Two days later, on 13 November 2017, Adv Neo Tsholanku addressed a memorandum to Mr Mathebula. The content of the memorandum is identical to that of the memorandum Ms van Wyk had written, except that the recommendations are quite the opposite. Notwithstanding the analysis of the evidence by Ms van Wyk in the body of the memorandum, Adv Tsholanku recommended that ‘there is no prima facie evidence to suggest the involvement of Mr Yegan Mundie in illegal activities’. Mr Mathebula approved Adv Tsholanku’s recommendation, without having returned to Ms van Wyk to obtain her views, his explanation being no more than that he accepted Adv Tsholanku’s view.

[22] In the murky world suggested by the events above, and the incomplete picture of what might have lain under those events, certainly in relation to the clandestine meeting in Mr Mathebula’s vehicle, uncovering what was going on would require more time than is available to this inquiry. Nonetheless, the evidence I have related, is in itself, troubling indeed.

[23] One asks why neither Mr Moyane nor Mr Mathebula took steps to ensure the intercepted conversation that allegedly implicated Mr Mundie in unlawful activity was obtained and investigated. We do not think it is an answer from a senior member of management that it was not his affair because Mr Mundie did not report to him, which was Mr Mathebula’s explanation. Knowing that Mr Mundie was alleged to have been involved in criminal activity, but not knowing whether that had been investigated, Mr Mathebula was unperturbed by requests by Mr Mundie to investigate others, that he rejected Ms Van Wyk’s analysis without any reference to her, and that he was unperturbed by Mr Mundie and his team operating without due governance.

[24] Mr Mathebula claims that ‘throughout this process, I remained concerned about the lack of a holistic anti-corruption strategy and the fragmentation of the Units that are the key implementers of that strategy.’ To substantiate this claim, he submitted the minutes of the Audit and Risk Committee meeting during which the matter was discussed at his instance. However, that meeting occurred on 31 July 2018 and is no support for his alleged concern at the time.

[25] Then there is Mr Mathebula’s account of the clandestine meeting that is so extraordinary as to be bizarre. The idea of the Commissioner of SARS and a senior member of management meeting clandestinely in a car, where Mr Mathebula was told to sign a SARS memorandum that had, for unexplained reasons, been going ‘back and forth’, against his will and amidst ominous threats being conveyed by the Commissioner, is astonishing. Even more astonishing is that in relating those events Mr Mathebula seemed quite unperturbed.

[26] Mr Mathebula submitted a written statement to the Commission, to which he spoke in oral evidence. Much of what he said was appropriately high-minded, expressing, as he did, a commitment to integrity and protection of the reputation of SARS. He described his role in his permanent position as being ‘responsible for inter alia governance and the reputation of SARS, this being a significant fiduciary responsibility calling for care and diligence underpinned by hard work and SARS’ values.’ All of that is undoubtedly correct, but his conduct in relation to the events I have described does not seem to us to be consistent with those sentiments. I would expect senior management of SARS to be attuned to the considerable opportunity for corruption within SARS, and to take immediate steps to cause investigations to be made of any suspicion of corruption, which did not occur in this case.

[27] In our view, Mr Mathebula was duty-bound as a senior member of management to ensure the recording was obtained from the SSA and to take steps to ensure the allegations concerning Mr Mundie were investigated. He was also under a duty to report to the Minister of Finance and to his senior colleagues that he had been asked by the former Commissioner of SARS to sign a document against his will in clandestine circumstances, and was under a duty to ensure an investigation of why he had acted clandestinely. We do not think the public can be expected to have faith in SARS if its senior management does dubious business in the parking garage.

[28] We think it is clear from that evidence that investigation of the illicit tobacco trade was probably compromised in the period under inquiry, which is corroborated by the evidence of Mr Morden that I come to in the next chapter, but we are not able to make positive findings going beyond that in this inquiry. It is equally clear that capacity to investigate that and other illicit trades, under proper governance, needs to be re- established, which we recommend.

CHAPTER 9: REVENUE COLLECTION

[1] In litigation commenced by Mr Moyane against the President, the Commission and others, Mr Moyane claimed in his founding affidavit to have been the best Commissioner that SARS has had. The 64 witnesses we have heard, and others as well, seem not to agree, and I can find no basis in Mr Moyane’s affidavit for making that claim other than that revenue collection during his tenure exceeded R1 trillion for the first time. That is indeed correct, but the claim reflects that Mr Moyane has little understanding of economics.

[2] In revenue collection no figure is significant by itself, psychologically or otherwise. Inflation alone is bound to increase revenue beyond any arbitrary figure over time. It just so happened that Mr Moyane was in office when that figure was R1 trillion. As it was expressed in evidence by Mr Cecil Morden, who was Chief Officer: Economic Tax Analysis at the National Treasury before he retired in 2016:

‘I mean it's inevitable that we would've reached the trillion mark. I mean the trillion mark level is just smoke and mirrors really because the fact is that you have two factors that plays a role in nominal tax. One is the economy growing, expanding over time. In other words it's inflation. So if you have to buy a house in the year 2000 it would've cost you the average house 500 000. Today that same house will cost you a million Rand. So inflation plays an important role in the nominal numbers. So I don’t attach much value to the trillion Rand level.’

[3] Mr Morden undertook an analysis of the revenue collected by SARS during the period under inquiry, at the request of the Commission, for which we are very grateful. He pointed to two important considerations to be borne in mind when evaluating revenue collection.

[4] What is significant in evaluating the efficiency of revenue is the relationship between the amount collected and the amount required to meet government expenditure, which must be estimated for purposes of budgeting. The second is that it is misleading to refer to those as targets, which suggests they are aspirations, when that is not the case. The estimates are forecasts, aimed at predicting as accurately as possible, what is capable of being collected, so as to inform the budgeting for expenditure.

[5] Revenue estimates, or forecasts, are determined by a Revenue Analysis Working Committee, comprising representatives of National Treasury, the Reserve Bank and SARS. Its objective is to determine a best estimate of what can be expected to be collected, in advance of determination of the Medium Term Budget Policy and the Annual Budget. The Committee meets usually twice a year but sometimes more. The estimate that is made in anticipation of a particular budget year might need revision as the year progresses, producing more data on what can be expected.

[6] It is also misleading and self-defeating to evaluate the efficiency of revenue collection against a downwardly revised estimate. While the initial estimate might have been overly optimistic, falling revenue collection in the months that have passed by the time of the revision, will force the estimate down.

[7] The last estimate before the 2017/18 year was made on 22 February 2017. A revised estimate was published on 25 October 2017, and a further revised estimate was published on 21 February 2018. In October 2017 the initial estimate was revised in expectation of a shortfall of R50.8 billion, and was revised again in February 2018 to estimate that the shortfall for the year would be R48.2 billion. As it turned out, revenue collected for the year fell short of the initial estimate by approximately R49 billion.

[8] The shortfall for the 2016/17 year was the fourth in a series of increasing shortfalls. The shortfall for 2014/15 was R7.335 billion; for 2015/16 R11.292 billion; and for 2016/2017 R30.709 billion.

[9] This is what Mr Morden said in his evidence:

‘Okay now this is the 17/18 revenue performance. And I must suggest here that we are looking at the actual outcome versus the budget announcement in 2017, okay. So this is for the year 17/18. It goes from April to March. That figure is the figure that was announced in budget 2017, at the beginning of the financial year. That was the actual outcome which means we collected 21 billion less than we anticipated. So PIT under-performed quite significantly. CIT also under-performed but less so. VAT also under-performed quite significantly 14 billion below, dividend withholding tax also under-performed. Another one that also under-performed which I didn’t highlight but which warrants a little bit of deeper analysis is specific excise duties. This is mostly taxes on alcohol and tobacco, under-performed by 2.5 billion, similarly custom duties under-performed by 3.4 billion. So in total, this is where the figure that people talk about a lot. The under-collection was in the region of R49 billion for the 17/18 year….

Over the five years then if I add it up, from those four years, I think it's 2014, ja, it's five years the under-collection in PIT over a period was 22 billion, CIT 11 billion, VAT 40 billion, divided withholding tax 2 billion, specific excise duties 5 billion, fuel levy 2 billion, then custom duties 14 billion. Relative terms if I take a simple, take this number as a percentage of what we actually collected last year, so just normalise figures, you can take any base here, you can see the worst performing one was custom duties, specific excise duties, VAT and then PIT’.

[10] Albeit that revenue from excise and customs duties on tobacco products forms a small part of the total, the decline is significant, because it correlates with the disbanding of capacity for investigating the illicit trades. These are the conclusions reached by Mr Morden from his analysis:

‘So the problem with tobacco started in 16/17 where you expected it's more increases and then specifically in 17 18 there was a real problem. Now this goes beyond drop in cigarettes because it's just much lower than anything previously. So there is definitely a problem that occurred here. …. That’s why you need to look at the imports and the domestic one together but even if you do that you’ll find the problem started in 16/17 big time. It might have started there, I haven't got the previous figures to show you the actual increase but there’s definitely a problem there and obviously 17/18 is a big problem.’

And later:

‘Then obviously the significance, sorry, the significant slow-down in nominal excise duties in [inaudible] are a clear indication of problems with enforcement and or increased illicit trades’.

[11] I do not think it is necessary in this report to analyse the various components of the shortfalls. After giving evidence Mr Morden submitted a written precis of the views he had expressed, which explains his analysis and is Appendix 12. For present purposes it is sufficient to say that while it is not possible to make definite causal connections for the shortfalls, Mr Morden’s view was that only part was attributable to the shrinking economy, the remainder being attributable to inefficiencies at SARS. The evidence we have had of falling taxpayer compliance corroborates that view.

[12] It was supported, too, by an analyst from the National Treasury, and by Dr Randall Carolissen, Group Executive responsible for research, who also prepared a careful analysis, for which the Commission is grateful. He said that tax buoyancy (the relationship between revenue collected and GDP) retreated from an average of 1.2 prior to 2016 to 1, taxpayer compliance continued to slip, the debt book grew from 2015 from about R85 billion to about R135 billion, the credit book moved from R40 billion in 2013 to R70 billion.

[13] It is perfectly clear from the evidence that SARS has experienced severe damage under the stewardship of Mr Moyane. Dr Carolissen’s written submission, to which he spoke in evidence, and which is very helpful, is included in Appendix 4.

CHAPTER 10: VAT REFUNDS

[1] It is inherent in the nature of Value Added Tax that refunds become payable to vendors in certain circumstances with the result that SARS is continually indebted to vendors as a group. Bearing in mind that SARS accounts for revenue on a cash basis, withholding the refund of VAT is capable of inflating its apparent revenue collection. There is a temptation, then, artificially to delay the refund of VAT towards the end of the fiscal year, which will present a more favourable picture of revenue collection than is in truth the case.

[2] There are many other reasons, however, why refunds of VAT might be delayed. It will be delayed, for example, if the risk engine utilised by SARS detects the possibility that the claimed refund is not due, in which case a ‘stopper’ will be placed on the claim, until such time as the claim has been verified by audit. Even then, the stopper might not be lifted timeously once the audit is complete.

[3] Delaying the refund of VAT that is due for repayment might make SARS’ revenue figures look bright, but it has a deleterious effect on the economy. The cash flow of small enterprises, for example, might be seriously impeded, with the result even that the enterprise goes out of business. Moreover, the release of refunds provides stimulus to the economy, that does not occur if the money remains in SARS’ bank.

[4] During the period under inquiry there have been many complaints of undue withholding of refunds of VAT, so much so that the Office of the Tax Ombud conducted its own investigation. In his Annual Report for 2016, the Tax Ombud summarised the issue, the action taken by his office, and the response of SARS as follows:

Issue:

SARS places stoppers on refunds for various reasons and fails to remove them once the verification has been done or the requirements have been met. This causes delays in paying out outstanding refunds without any communication or notice to the taxpayer.

Action taken by the Office of the Tax Ombud:

Recommendation made for SARS to ensure that, after audits have been finalised, all risks identified must be cleared and the refund stoppers simultaneously lifted; the refund SLA is to be adhered to at all times. SAR is to communicate to affected taxpayers the reasons for withholding refunds.

Action Taken by SARS:

SARS has implemented stringent refund rules to mitigate its risk due to fraud previously experienced. SARS refund rules are consistently revised to catered for taxpayer behaviour and trends. There are ongoing enhancements to SARS’s refund systems which allow for the immediate processing of a refund and will improve turnaround times. This will include ensuring payments are not stopped repeatedly with no result. SARS further indicated that almost 90 % of all refunds are paid within 60 days of submission.

[5] There are signs in the trends presented to us by Adv Eric Mkhawane, Chief Executive Officer in the Ombud’s Office, and in figures presented to us by Mr Morden, that there might have been deliberate withholding of refunds in anticipation of the end of the fiscal year. However, our inquiries have not revealed any definite instruction for refunds to be withheld to boost apparent revenue figures. In response to questions posed to him in the course of his evidence, the acting Commissioner said he harboured some suspicion that it might be occurring, but had no firm basis for any such conclusion.

[6] This is a matter calling for operational investigation and correction of systemic obstacles that are preventing repayment of VAT that is due. The withholding of VAT refunds has serious consequences for the economy and in particular for the survival of small business. The acting Commissioner is aware of the problem, and we are told is acting to correct it, but we nonetheless recommend that SARS urgently undertakes an operational investigation for the purpose of correcting systemic obstacles preventing the prompt refunding of VAT that is due.

Refunds to Companies in the Oakbay Group

[7] Under section 44(3)(d) of the Value Added Tax Act 1991, since its amendment in 2011, VAT refunds may only be paid to the vendor, or, on certain conditions, to holding or subsidiary companies of the vendor.

[8] Sometime in 2016 the major banks refused to maintain accounts for companies associated with members of the Gupta family, that included Optimum Coal Mine (Pty) Ltd, Tageta Exploration & Resources (Pty) Ltd, Sahara Computers (Pty) Ltd, and Annex Distribution (Pty) Ltd, with the result that there were no accounts into which their refunds could be paid (it is said they still had access to accounts with the Bank of Beroda but that is not material for present purposes).

[9] During the period 13 December 2016 to June 2017 a number of VAT refunds were paid by SARS to the trust account of attorneys De Jager van Wyk Inc. It will be apparent that an attorney’s trust account is not one of those permitted by section 44(3)(d).

[10] An affidavit was submitted to the Commission, at its request, by Ms Estelle de Jager of the firm De Jager Van Wyk Inc., explaining how that came about. She said Terbium Financial Services (Pty) Ltd had been a client. Mr van der Zee of Terbium had asked her to allow her trust account to be used for the receipt of the VAT refunds, in view of the fact that the companies, clients of Terbium, had no bank accounts. She met with Mr van der Zee, Ms Ronica Rogovan and one other from the Oakbay group, and two SARS officials at the head office of SARS, who confirmed it was permitted, and she then allowed it.

[11] A schedule of the payments received by SARS was attached to her affidavit. It reflects that the vendors in each case were one or other of the companies I have referred to, and that the payments left the account within a few days, going to Terbium.

[12] I have examined the relevant SARS records and find no indication of any undue interference leading to the payments. The trust account ought not to have been registered for the various vendors, as that is contrary to section 44(3)(d) of the Act, but I find nothing to indicate anything other than systemic failures that caused that to incur. An investigation by Internal Audit ordered by the acting Commissioner of SARS indicated some irregularities in the payment of refunds (not confined to these) but gives no indication of intentional preference being given to the companies concerned.

[13] In evidence before the Commission the acting Commissioner said that it was not unknown that attorneys’ trust accounts have been registered for VAT refunds, albeit that that is not permitted.

VAT Refund Authorised by Ms Refiloe Mokoena

[14] Oakbay Investments (Pty) Ltd is one of the companies whose bank accounts were closed. A VAT refund fell due to Oakbay, and the company wanted it paid to a company that was neither a subsidiary nor a holding company. There had been some vacillation as to whether that could be permitted. Ultimately Mr Moyane instructed Ms Refiloe Mokoena: Chief Officer: Legal Counsel, to resolve it. She decided the payment was permissible, and it was paid.

[15] Early in the life of the Commission, Ms Mokoena approached the Commission and asked to appear before it, in order to answer the allegations, which the Commission was happy to permit. Soon thereafter she was suspended pending an inquiry relating to the matter.

[16] In deference to the pending disciplinary proceedings, the Commission has not inquired into the matter and makes no findings in that regard.

CHAPTER 11: LITIGATION

The Auditor-General

[1] I have referred elsewhere in this report to the dispute that arose between the Commissioner on the one hand, and the Minister of Finance and the Auditor-General on the other hand, concerning the authority to pay bonuses to senior management.

[2] That led to an application being brought in the High Court on 19 October 2017 by SARS, founded upon an allegation by Mr Moyane that

‘[in] auditing SARS financial statements and its annual report for the financial year ending in March 2017, the AG has made a finding that the payment of bonuses to SARS employees which I have effected without ministerial approval was in contravention of the SARS Act and thus constitutes irregular expenditure within the contemplation of the Public Finance Management Act No. 1 of 1999.’

Declaratory orders were sought in, amongst others, the following terms:

‘The Auditor General’s findings in the audit report in respect of the SARS annual report and financial statements that performance bonuses were paid in contravention of section 18(3) of the SARS Act due to absence of ministerial approval is invalid, unlawful and set aside.

….

The Auditor General is directed to issue a clean audit to the SARS in respect of the financial year 2016/2016’ (sic)

[3] As far as I am aware, litigation by a state entity against the Auditor-General contesting his or her audit findings is unprecedented, and for good reason. The independence of the Auditor-General is constitutionally protected, a protection repeated in s 3 of the Public Audit Act, under which the Auditor-General is the supreme audit institution of the Republic, is independent and is subject only to the Constitution and the law, and must be impartial and must exercise the powers and perform the functions of office without fear, favour or prejudice, and is accountable only to the National Assembly.

[4] It is in the nature of his or her function that the Auditor-General must form his or her independent opinions, rationally and in good faith, concerning the financial management of the institution concerned, and cannot be compelled to adopt in their place the opinions of even the courts. To conclude otherwise would entirely undermine the function of the Auditor-General. Should the institution concerned contest those opinions its remedy is to note its contestation to the National Assembly when presenting its financial statements.

[5] The application brought against the Auditor-General was misconceived, and was bound to fail, but no doubt if it was brought on the advice of SARS’ legal advisers it might have been misguided but cannot be said to have been brought irrationally. Nonetheless, the litigation was not brought in the interests of SARS, but in the interests of its senior managerial employees. Only a moment of reflection ought to have been sufficient to appreciate that defying both the Minister of Finance and the Auditor- General in pursuit of senior management’s own bonuses, would bring SARS into disrepute.

[6] The application has since been properly withdrawn by the acting Commissioner after the suspension of Mr Moyane.

Other Litigation

[7] On 19 February 2016 the Mail & Guardian published an article written in collaboration between two journalists, Mr Craig McKune and Mr Sam Sole, under the heading ‘SARS Wars: Moyane’s empire strikes back ‘. In essence, it was alleged that Mr Moyane, assisted by Mr Makwakwa, set about destabilising SARS, in particular the Large Business Centre, with the result that senior employees were marginalised and many departed, leaving control of taxpayer affairs in the hands of Mr Makwakwa. Those facts were substantially correct. The inference was drawn that this was done for nefarious purposes, which was plausible, though not necessarily the correct one, in the absence of contrary explanation.

[8] The response was a summons issued against the Mail & Guardian and the two journalists, in the name of Mr Moyane, Mr Makwakwa and SARS as plaintiffs. The first claim was for damages for defaming the three plaintiffs. The second claim was for a declaratory order that the defendants had breached section 67 of the Tax Administration Act, in that they had disclosed taxpayer information.

[9] On 24 March 2015 Mr Adrian Lackay, formerly the official spokesperson for SARS, who had by then resigned, addressed a letter to the Chairperson of the parliamentary Standing Committee on Finance, in anticipation of Mr Moyane addressing the committees in the next few days, ‘on the events that have recently occurred in [SARS] and related institutions’. It is a lengthy letter that I see no need to recite. Suffice to say it contained Mr Lackay’s account of the events ignited by the newspaper reports of the existence of a ‘rogue unit’.

[10] The response of Mr Moyane was to issue summons against Mr Lackay, in his name and that of SARS as plaintiffs, on 20 May 2015. The first claim was for an order declaring that Mr Lackay had unlawfully breached the oath of secrecy by which he was bound, and had unlawfully disclosed taxpayer information. The second claim was for damages for defamation.

[11] In about November 2017 a book authored by Mr Jacques Pauw was published under the title ‘The President’s Keepers’. The book contained numerous allegations relating to alleged irregularities at SARS, particularly in relation to its relationship with certain named taxpayers.

[12] On 8 December 2017 an application was launched against Mr Pauw in the High Court, in the name of SARS as applicant, supported by a founding affidavit deposed to by Mr Moyane, in which an order was sought declaring that he had unlawfully disclosed confidential information or taxpayer information in contravention of chapter 6 of the Tax Administration Act.

[13] There are three features of the litigation that I deal with separately.

[14] The first is that it is settled law that an action for defamation is not available to a state institution (Die Spoorbond v S.A.R. & H. 1946 AD 999). Secondly, it was not the esteem of SARS that was diminished by the publications of the Mail & Guardian and Mr Lackay, but that of the Mr Moyane and Mr Makwakwa. They sought merely to ride on the back of SARS in pursuance of their own interests and not that of SARS.

[15] It is improper for a state employee to litigate, purporting to act in the interest of the state, but in truth to advance the employee’s interests, which applied in all these cases. Amongst senior management, it also breaches his or her fiduciary duty owed to the organisation, in that his or her obligation is to pursue the interests of the organisation, and not those of their own. The litigation was not in the best interest of SARS. Indeed, one asks what was sought to be achieved by declaratory orders relating to past events.

[16] On the contrary, it was detrimental to SARS for litigation to be brought for the purposes of stultifying criticism of the management of SARS. The better response, if the interests of SARS are to be protected, is to investigate the alleged improper conduct, and where necessary correct it, instead of attempting to intimidate the bearer of the news.

[17] But there is a third issue that arises in relation to all the litigation that was brought. Under Chapter 6 of the Tax Administration Act 28 of 2011 a SARS official may not disclose taxpayer information or SARS confidential information other than is certain specified circumstances, and a person to whom such information is disclosed contrary to the Act may not, in turn, disclose or publish the information. SARS officials are also bound by an oath of secrecy concerning SARS affairs they take upon employment. Each of the cases purported to be brought to protect confidential taxpayer information, and in one case confidential information of SARS, and the oath of secrecy, and declaratory orders were sought to that effect.

[18] The prohibition against the publication of taxpayer information is intended for the protection of taxpayers and the facilitation of revenue collection by SARS. Similarly, the prohibition against the disclosure of SARS confidential information, and of the oath of secrecy, is aimed at facilitating revenue collection.

[19] The best interests of SARS would have been served by investigating the reported conduct, if it was unlawful, or explaining to the public that it was not unlawful, if it was not. If SARS was truly concerned that offences had been committed, they would have been reported to the press. Yet the only action taken so far as the disclosure of taxpayer and confidential information was to seek declaratory orders that served no practical purpose. What the litigation did do, was to expose the persons concerned to costly litigation, which they no doubt could not afford, and to warn others they could suffer the same fate. I think the inference is clear that the purpose of the litigation was not to protect the interests of SARS, but to stifle investigation of what was happening at SARS.

[20] In written submissions on behalf of the Mail & Guardian the Commission was invited to declare that taxpayer information may lawfully be disclosed where it serves the public interest, but I do not think the Commission should accept the invitation. It is not the function of the Commission to declare the state of the law. That is a matter for the courts in appropriate cases.

[21] The fact that Mr Moyane considered SARS to be his personal fiefdom, whose money he could spent in his own interests, is evident as well from three invoices rendered to and paid by SARS to a firm of attorneys. The invoices are Appendix 12.

[22] In two cases, according to the invoices, the instruction to the attorneys, and to counsel in one case, was to read two books – one entitled ‘The Maputo Connection’, the other entitled ‘Rogue’ – to determine in the first case whether it made reference to Mr Moyane, and in the second whether taxpayer information had been disclosed. The cost to the taxpayer in the former case was R120 000 and in the latter case R770 000.

[23] In the third case, Mr Moyane was alerted to suspicious financial transactions of Mr Makwakwa by the Financial Intelligence Centre, which I have not dealt with in this report, because it was a subject of disciplinary proceedings that only recently terminated, and Mr Makwakwa has not had an opportunity to respond. Nonetheless, the response to the alert was for Mr Makwakwa to be sent off to attorneys and counsel, at the cost of SARS, to advise whether the Financial Services Centre had acted lawfully in obtaining the information.

[24] The costs were paid from the employer relations cost centre under the control of Mr Lebelo. Mr Lebelo said he had no knowledge or involvement in the instructions that were given, which, he said at first, came from Mr Moyane. In a late written submission he said Mr Mathebula was instrumental in the instructions for the ‘Maputo Connection’ to be read, but we do not find it necessary to resolve that conflict.

[25] Mr Lebelo said as well that his department does not consider whether the work of attorneys is justified, but establishes only whether it has been done, before paying invoices. He said as well that if the Commissioner asked for invoices to be paid from his cost centre it was not for him to query the Commissioner. That reflects only how far any sense of governance had broken down.

[26] Clearly the litigation and other costs were incurred in the personal interests of Mr Moyane, in the last case to assist Mr Makwakwa in what was a personal affair, and not those of SARS, and we recommend that SARS take steps to recover the expenditure from Mr Moyane.

CHAPTER 12: SETTLEMENTS

[1] Section 146(1) of the Tax Administration Act empowers the Commissioner to ‘settle’ a ‘dispute’ in whole or in part, provided that, amongst others, the settlement is “to the best advantage of the state”, it is fair and equitable to both the person concerned and to SARS, and the Commissioner has regard to various factors. Similarly, the Customs and Excise Act permits the settlement of disputes.

[2] Section 149 of the TAA requires SARS to maintain a register of all disputes that are settled and to ‘document the process under which each dispute is settled.’ The Commissioner is required to provide an annual summary of settlements to the Auditor General, including the number of settlements, the amount of tax forgone, and the estimated savings in litigation costs. Section 77P of the Custom and Excise Act has a similar provision.

[3] In practice the prospect of settlement arises after a taxpayer’s objection to an assessment has been disallowed and the parties remain in dispute over a legal or factual issue. At that point, the matter can either be referred to Alternative Dispute Resolution (“ADR”), or one of the parties can make a settlement offer.

[4] Settlements are considered by National Appeals Committees of SARS, under authority delegated by the Commissioner to the chairpersons of the committees, to be exercised within the confines of terms of reference, at one of four tiers depending on the amount of the tax liability:

Tier 1: Above R1 million

Tier 2: R10 million to R30 million Tier 3: R30 million to R100 million.

Tier 4: R100 million and above.

[5] The procedure for settlements at the 4th Tier is that once an objection is disallowed and the tax payer appeals, the matter is allocated to the original auditor on the matter and allocated to an official within legal. If a settlement offer is made by the taxpayer, or the legal and audit personnel consider the matter ready to be settled, they will request that the matter be placed before the NAC. Legal and Audit will prepare a submission to the NAC meeting with the background of the case and a recommendation for settlement. They will attend the meeting, where they will present the case, and make their recommendations, and the chairperson of the NAC will, in the exercise of his or her delegated authority, either accept or reject the recommendation.

[6] The chairperson may not exercise that authority other than within certain confines, of which the following, which are not exhaustive, are stated in the terms of reference:

a) Since the Chairperson is the official to whom the Commissioner has delegated or designated authority, the determination of a matter before a Committee is the decision of that Chairperson, and not that of the Committee.

b) However, the Chairperson may not make a decision unilaterally, outside of the Committee process prescribed in this TOR or in a manner that disregards the purpose of the Committees.

c) The Chairperson should attempt to attain consensus amongst the Committee Members or, if consensus cannot be reached, then ascertain what the majority view is. The Chairperson must make a decision after proper deliberation with the Committee Members, and after taking into account the views, opinions, concerns and recommendations of all the Committee Members.

d) If the majority of members disagree with a proposed decision then the Chairperson must refer the matter to the next level Committee.

[7] The internal SARS documents governing the settlement process include the Appeal and Settlement Committees’ Terms of Reference signed on 15 April 2016. The Terms of Reference were first produced in January 2005 and have been amended over time. The former Commissioner approved amendments to the TOR in June 2015 and April 2016. On 29 May 2017, the TOR were amended to include the appointment of the Chief Officer: Legal Counsel, who was then and still is Ms Refiloe Mokoena, as the chairperson of the NAC 4th Tier.

[8] Needless to say, the potential for impropriety exists in relation to all settlements, not only those of high value, and it was not practical for the Commission to examine them all. The Commission selected seven high value cases in which offers of settlement were made, some of which were accepted, for evaluation.

[9] There are two in particular that bear mention, not because impropriety or preference was established. In both cases there were long-standing disputes. In one case Mr Moyane and Mr Makwakwa met with the taxpayer and agreed an amount to be paid in settlement. When presented to the NAC, however, the settlement was rejected. In another case there was some pressure on the NAC to settle the matter urgently but the NAC rejected offers. Ultimately it was settled on a split vote of the NAC, with the chairperson making the final decision. While there is lingering suspicion concerning that settlement we have found no evidence that the taxpayer was improperly favoured.

[10] All the selected cases were dealt with through the ordinary process, and the Commission is not able to say there was improper favouring of any of the taxpayers concerned. Governance in matters of settlements, achieved by delegation of the Commissioner’s authority to the chairpersons of the NAC’s, with clear terms of reference, appears to be relatively robust.

[11] But what might often be more revealing than settlements that are reached is what happens to cases after settlement proposals are rejected. There are cases in that category in which settlement offers were rejected but claims by SARS have not been resolved, and these might be irregular in the collection process that warrant investigation going beyond the scope of this inquiry.

[12] It is a matter of concern for governance of settlements that shortly before his suspension, the former Commissioner sought to retrieve for himself those delegated powers, to be exercised by himself solely, in disputes concerning tax claims over R100 million. Even more concerning is that EXCO seemed unperturbed. At an EXCO meeting held on 26 February 2018 it was ‘noted’ that:

‘In light of improvement of Governance processes, the TOR were revisited and amended as follows:

i. The previous four (4) committees (Tiers) had been reduced to three (3) committees;

ii. The oversight role of the Commissioner has been included. The Commissioner would consider and determine:

a) Settlement of any dispute that is referred by Tier 3; and

b) Any appeal where the amount of Tax, Customs or Excise in dispute exceeded R100 million and that was referred by any committee regardless of the amount involved (see Page 6, clause 3(b) of the TOR).’

[13] A draft of the amended terms of reference was prepared and submitted to the former Commissioner in about March 2018. As foreshadowed in the EXCO minutes, it removed from the Chairperson of the 4th level NAC his or her delegated authority to settle disputed claims, over R100 million, and placed authority to settle such claims solely in the hands of the Commissioner.

[14] We do not see how it could possibly have been thought by EXCO that the proposal was an ‘improvement of Governance processes’, or that the amendment provided a mere ‘oversight role of the Commissioner’. It was quite the opposite. Needless to say, the acting Commissioner has rightly withdrawn the proposal. We recommend that the terms of reference of bodies authorised to settle claims be reviewed to ensure, and if necessary strengthen, governance mechanisms.

CHAPTER 13: BONUSES

[1] It has become customary for annual bonuses to be paid to SARS officials if SARS achieves its Annual Performance Plan targets. The pool from which bonuses are to be paid having been established, a distribution is made of part to be awarded to senior management, and part for the remaining employees. Senior management comprises those on grade 8 and above (senior managers, executives, group executives, chief officers, and the Commissioner). Bonuses are then awarded to individuals based on their personal performance, measured according to the Employee Performance Management System and the Incentive Scheme Policy.

[2] It had always been the practice of the Commissioner of SARS (and the acting Commissioner while the post was vacant) to seek the approval of the Minister of Finance for the payment of bonuses. On 12 June 2015, upon the recommendation of Mr Moyane, the then Minister of Finance, Mr Nene, approved

‘the SARS Bonus Framework as proposed under section 8 above. The actual performance results in each financial year will be used to calculate the actual bonus pool to be paid.’

[3] On 26 June 2015 Mr Moyane applied to Minister Nene for the approval of salary increases for 2015 and bonuses for 2014/2015 for SARS EXCO members, which was approved by the Minister on 2 July 2015. Simultaneously the Chief Officer: Human Resources, applied to the Minister for approval of a salary increase for Mr Moyane, and a bonus, for the same period, which was also approved. The fiction resorted to, of the Commissioner and EXCO each awarding bonuses to the other, immediately exposes the conflict of interest inherent in senior management awarding their own bonuses.

[4] By 7 April 2016 Mr Gordhan was the Minister of Finance. On that day he wrote to Mr Moyane requesting ‘information regarding the arrangements in place in your entity (SARS) regarding salary increases and bonus payments for FY2016/17 and FY2017/18’.

[5] Mr Moyane’s reply, on 11 April 2016, so far as bonuses were concerned, was the following:

‘5 PAYMENT OF BONUSES

a. In 2015 SARS developed a three-year framework for the performance cycles 2014/15 to 2016/17; for the payment of bonuses in consultation and approval of the erstwhile Minister of Finance, Mr Nhlanhla Nene.

b. The framework provides for the payment of bonuses based on the revenue collection achieved and the annual performance plan score achieved. ‘

[6] It is apparent that the Minister asked for further information, because on 14 April 2016 Mr Moyane wrote to him saying he did not consider himself obliged to provide certain of the information, and declaring various intergovernmental disputes that he required to be resolved under the Intergovernmental Relations Framework Act 13 of 2005. Amongst them was

‘5.1 Whether the Minister has powers to supervise the office of the Commissioner for SARS, for purposes of employment relations.

5.2 The powers of the Minister in respect of bonuses and salary increment pertaining to the Commissioner of SARS.

5.3 The powers of the President in respect of bonuses and salary increment of the Commissioner of SARS’.

[7] That notwithstanding, on 21 June 2016 a recommendation was submitted to the Minister for approval, under the hand of Mr Teboho Mokoena, Chief Officer: Human Capital and Development, and Mr Moyane:

‘It is further recommended that the Minister approves the incentive bonus pool for SARS employees of R561 419 788 (10% of GTP). The framework approved in 2015 provides for a bonus pool on 10% of achievement of the target (The revised target of R1 069 billion was marginally exceeded).

[8] The Minister declined his approval. He wrote in handwriting on the document:

‘1. This memo was received in my office on 29 June 2016.

2 The memo signed by Min Nene on 12 June 2015 is revoked as far as its applicability to 2016/17.

3. The above memo is erroneous in several respects - which I will discuss with management.

4. The country is in a serious fiscal and economic crisis. This must guide my decisions.

5. My decision takes full account of the great commitment of the staff on the ground.

6. Government has been and will continue to promote prudence and modesty in salary increases.

7. Accordingly, the salary increases of non-bargaining unit staff will be in line with the SMS in the public service (see circular).

8. This is an interim measure given present circumstances.

9. Performance Bonus 2015/16

9.1 Given the fiscal circumstances, I am compelled to take this into account for the bonus as well.

9.2 The final decision on the bonus will be taken once the Performance Assessment takes place after you supply the information.

9.3 You will be informed of a date for 9.2.’

[9] Dissatisfied with this response, Mr Mokoena, wrote to Mr Moyane on 28 July 2016, advising that

‘SARS has in the past committed a mistake of law wherein the institution has requested an approval from the Minister of Finance prior to effecting payment of employees’ incentive bonuses and/or salary increments. For reasons explained hereunder as provided through legal opinion, such previous requests were purely based on a mistake of law and thus erroneous, irregular, and potentially unlawful’.

[10] He also recommended, amongst other things, repeating the recommendation that had earlier been submitted to the Minister for approval, that

‘the Commissioner approve the incentive bonus pool for SARS employees of R561 419 799 (10% of GTP). The framework approved in 2015 provides for a bonus pool of 10% on achievement of the target (the revised target of R1 069 billion was marginally exceeded)’.

That recommendation was approved by Mr Moyane on 29 July 2016.

[11] What Mr Mokoena wrote to Mr Moyane was wrong on every score. It was not SARS as an institution that applied for approval in the past, but the Commissioner as head of the institution, and he made no ‘mistake of law’ in doing so. Clearly he and senior management that supported the request had an interest in bonuses being awarded, potentially to themselves. It was thus not erroneous to have sought approval, nor was it irregular, nor was it ‘potentially unlawful’. And even had the law not required it, it can hardly be said to be erroneous, nor irregular, nor unlawful, to seek approval nonetheless.

[12] On 12 August 2016 Mr Moyane wrote to Mr Gordhan saying he had sought legal advice, which was to the effect that he (Mr Moyane) had exclusive administrative authority and operational control over all SARS operational matters, including employees' bonuses and salary increments for any financial year. In conclusion, he said:

‘In light of my acceptance of the aforementioned legal advice, I hereby inform the Minister that I have already taken the decision to effect payment of bonuses and salary increments to SARS employees. Therefore, it is unnecessary for the Minister to make any further decisions pertaining to the same as the Minister is not authorised by law to do so.’

[13] The SARS payroll reflects bonuses paid to then EXCO members, other than the former Commissioner, on 15 August 2016 (for the 2015/16 year). There is no indication that the bonuses took account of the fiscal and economic crisis referred to by Mr Gordhan. The following year bonuses were again paid to EXCO members, other than the former Commissioner, on 15 June 2017 (for the 2016/17 year). Ms Makola, Ms Mokoena and Ms Makhekhe-Mokhuane were not yet employees of SARS.

[14] That commenced a stand-off that ended in litigation. On 17 August 2016 the Minister of Finance wrote to Mr Moyane referring to a meeting on 15 August at which he had ‘emphasised the need to take into account the serious fiscal and economic crisis facing South Africa’. He continued:

‘4. As to performance bonuses, I referred to the need for performance assessments of SARS as a whole for 2015/16 prior to a decision on bonuses. This is normal in any well-run organization. This must determine the bonus pool and appropriate sharing of the pool between the majority of the staff at grades 1 to 6 and those on management levels, i.e. grades 7 to 10. In the light of the concerns relating to the payment of bonuses to staff I urge you to expedite the finalization of information that will enable the SARS performance assessment’.

He continued:

‘6. It is unethical, immoral and illegal for top management to determine its own salary increases and bonus payments without any external / executive scrutiny.

7. I am advised that –

7.1 the power to approve the terms and conditions of employment of the non-bargaining unit staff vests in the Minister in terms of section 18(3) of the SARS Act;

7.2 your decision to effect payment of salary increments and bonuses for senior managers as managers, as indicated in your letters of 12 and 15

August 2016, without my approval is contrary to section 18(3) of the SARS Act;

7.3 such expenditure will constitute irregular expenditure in terms of the Public Finance Management Act, which you as an accounting authority are obliged to prevent;

7.4 an accounting authority that makes or permits financial misconduct commits and act of financial misconduct which is a ground for dismissal or suspension (section 83 of the PFMA);

[15] Mr Moyane replied in a testy letter on 18 August 2016, of which the following is the relevant portion:

‘You have misconstrued the scope and meaning of section 18(3) of the SAS Act 34 of 1997 (“Act”), as amended. The provision of section 18(3) of the Act grants you the power to approve the terms and conditions of employment for any class of employees in the management structure of SARS. My decision to effect salary increment and payment of bonuses to SARS employees does not constitute an amendment and/or variation of the existing terms and conditions of employment for any class of employees in the management structure of SARS as contemplated in section 18(3) of the Act. For avoidance of doubt, salary increment and payment of bonuses does not constitute the terms and conditions of employment. Salary increment and payment of bonuses are subject to the discretion of my office. Therefore, your reliance on section 18(3) of the Act is misplaced.’

[16] On 9 September 2016, the Minister reported to the Auditor General that Mr Moyane had contravened section 18(3) of the SARS Act. The Auditor General shared that view and concluded that the resultant non•compliance with the SARS Act could result in irregular expenditure. The Auditor-General's view was communicated to SARS on 19 July 2017 for a response. The Auditor General duly reported his findings to Parliament.

[17] On 19 October 2017 SARS brought an application in the High Court, founded upon an allegation by Mr Moyane that

‘[in] auditing SARS financial statements and its annual report for the financial year ending in March 2017, the AG has made a finding that the payment of bonuses to SARS employees which I have effected without ministerial approval was in contravention of the SARS Act and thus constitutes irregular expenditure within the contemplation of the Public Finance Management Act No. 1 of 1999.’

Declaratory orders were sought in, amongst others, the following terms:

‘The Auditor General’s findings in the audit report in respect of the SARS annual report and financial statements that performance bonuses were paid in contravention of section 18(3) of the SARS Act due to absence of ministerial approval is invalid, unlawful and set aside.

….The Auditor General is directed to issue a clean audit to the SARS in respect of the financial year 2016/2016’ (sic)

[18] That application did not proceed and, wisely, has since been withdrawn by the acting Commissioner.

[19] Mr Moyane said legal opinions furnished by Adv Mokhari SC, Adv Maleka SC and Adv Trengove SC supported his position. That is not correct. I pointed out in Chapter 8 that Adv Maleka SC and Adv Trengove SC had furnished opinions to the effect that it was within the prerogative of the Commissioner to select the persons to be appointed to senior management positions, but that approval of their terms and conditions of employment required the approval of the Minister. Their opinions said nothing of bonuses in particular.

[20] The opinion furnished to the Commissioner by Adv Mokhari SC deals with the issue of bonuses only briefly, without analysis of the basis upon which he reached his conclusion. It also overlooks the fact that approval by senior management of their own bonuses and salary increases offends a basic principle of good governance.

[21] Opinions furnished to the Minister of Finance and to the Auditor-General by Adv Trengove SC and Adv Chohan SC respectively, both concluded that ministerial approval was indeed required for the payment of bonuses to senior management, on the grounds that the payment of bonuses fell within the scope of the terms and conditions of their employment, which, as Mr Moyane had been told, required ministerial approval.

[22] We share the views of Adv Trengove SC and Adv Chohan SC that ministerial approval is indeed required for bonuses to be paid to employees in the managerial structure of SARS (the category of employees now relevant), as reported by the Auditor- General. It is precisely because there is a potential conflict of interest that that is required. As it was expressed by Adv Chohan SC in the opinion furnished to the Auditor General on 10 September 2017:

‘As mentioned above, the Commissioner has the sole discretion to determine the terms and conditions of non-managerial employees at SARS. The Minister does not have to approve the terms and conditions of employment of non-managerial employees. But for employees that fall within the class of management, the Minister must approve the terms and conditions of their employment. The question that immediately strikes one is “why?” Why is such power conferred upon the Minister in respect of managerial employees?

The reason we submit is to provide the Minister with an oversight role in relation to those employees who exercise a degree of control within SARS in relation to their own terms and conditions of employment.

Having regard to the language of section 18(3) and the purpose of the provision, the Minister’s approval is intended to regulate the terms and conditions of those employees who otherwise would have an unrestricted discretion as to their own employment conditions.

In our view, the mischief that section 18(3) of the SARS Act seeks to address is the potential of senior managers determining their own remuneration and bonuses without any recourse to the fiscus or financial position of SARS which the Minister is naturally in the best position to assess. Without such oversight, there exists a danger that salaries or bonuses determined and approved by senior managers in conjunction with the Commissioner may detrimentally affect the financial stability of SARS and possibly the National Treasury. As head of the Treasury, the Minister must be in a position to oversee that the payment of performance bonuses or increase in salaries is on reasonable terms and is justified by the financial position of SARS.

The Commissioner cannot have the discretionary power to approve an increase in salaries and bonus adjustments for employees in the management structure, without the approval of the Minister. To interpret section 18(3) in a manner that provides this discretion to the Commissioner removes the Minister’s oversight functions’.

[23] In response to an invitation to make submissions on why certain findings should not be made by the Commission, Mr Mathebula said the bonuses for the 2016/17 year were lawful because they were approved by the then Minister of Finance, Mr Gigaba. That is not correct. On 16 May 2017 a memorandum was sent to the Minister requesting ‘ratification of the Commissioner’s authority’ to approve bonuses, which he approved. The Minister was not capable of conferring authority on the Commissioner of SARS, by ratification or otherwise, to award bonuses contrary to law.

[24] To avoid doubt as to the meaning of section 18(3) of the SARS Act, we recommend that section 18(3) be amended to clarify that the terms and conditions of employment of employees in the senior management structures of SARS include remuneration, bonuses, and all other benefits of their employment, and alterations to those terms of employment

[25] But leaving aside the legislation, there is a common law principle underlying the section, as Adv Chohan explained, which is that senior management owe a fiduciary duty to SARS not to act where they are conflicted. Both Mr Mathebula and Mr Mokoena contend that because EXCO did not award themselves bonuses, but they were awarded by the former Commissioner, they were not conflicted and did not breach their fiduciary duty. As they see it, only the Commissioner, who awarded the bonuses, would be conflicted, if he had awarded a bonus to himself. For the rest, senior management are free to acquiesce in the payment of bonuses to themselves.

[26] I regret we disagree. EXCO acts as an advisory body the Commissioner. They are conflicted in that advisory role, even if they do not have the final say. If bonuses to be awarded by the Commissioner to themselves are excessive, it is their duty to say so and not receive them. They will hardly be expected to do so if they are the beneficiaries. It is apparent from the submissions made by Mr Mokoena and Mr Mathebula either that they were oblivious to their duty, or failed to carry it out. Governance fails when senior management do not stop even to ask whether they are conflicted.

[27] There is another matter upon which the new Commissioner might review the system of bonuses, alluded to by the Auditor-General, and dealt with in chapter 15. In our view it is anomalous if the payment of bonuses is determined by whether SARS meets revised estimates. As I have pointed out elsewhere, estimates might be revised down precisely because SARS has not performed in the months leading to the revision. It can hardly be right that bonuses are paid because SARS met its under-performance.

CHAPTER 14: TAXPAYER AFFAIRS

[1] The terms of reference require the Commission to report, in various ways, on favourable or unfavourable treatment being accorded to a domestic prominent influential person (as defined in section 1 of the Financial Intelligence Centre Act), an immediate family member of such a person, or a known close associate of such a person. The Commission is also required to report on whether there has been non-standard treatment of any persons referred to in section 8(1)(e)(i) of the Income Tax Act, section 18(3) of the South African Revenue Service Act, any persons connected to such persons.

[2] Needless to say, a large number of people fall into those categories, and it is not feasible to examine the affairs of them all. I thus selected a sample of individual taxpayers and related companies, some falling within one or other of those categories, and others for comparison, on the assumption that if no favouring is detected in their affairs, it is then unlikely it will be detected in the affairs of others.

[3] Their tax records were inspected only by me, and in some cases with counsel for the Commission, in the company of the acting Commissioner and his colleague for purposes of explanation in some cases, and in other cases without the acting Commissioner but with the assistance of other authorised SARS employees.

[4] I did not detect favourable treatment to any of the selected taxpayers, but must also make it clear that I am not able to say whether or not all income was declared. In most cases the records indicate that the returns were subjected to audit, but what was meant by audit is no more than a desk-top document review. What is remarkable in the case of some taxpayers is that the income declared bears little or no resemblance to their reputed or ostensible wealth. The absence of any apparent relationship, however, is not a phenomenon that occurs only during the period with which this inquiry is concerned, but predates that period.

[5] One difficulty with auditing taxpayers is that the key performance indicators of auditors favour the number of audits that are completed and not the extent of the audit. In response to my request for the interrelationship of persons and entities related to one company, what was produced was a veritable web of interlinking individuals, companies and bank accounts that would no doubt take a skilled forensic investigator considerable time to unravel.

[6] Investigative audits are indeed carried out, but generally selected by the risk engine, and not human intervention. The acting Commissioner acknowledged that at least in some cases there was good cause for intensive audits that did not occur. In one case an investigative audit has been directed. Clearly SARS needs to review its audit policies, and the KPI’s associated with audits, to allow for greater vigilance in relation to persons of ostensible wealth. We recommend that the case selection and audit protocols be reviewed to introduce protocols to ensure proper investigation of tax returns with reference to the ostensible assets of the taxpayer concerned, and that the key performance indicators be reviewed to facilitate such investigations.

CHAPTER 15: REPORT OF THE AUDITOR-GENERAL

[1] In his report for the 2016/2017 financial year, the Auditor-General found that SARS had overstated revenue performance in 2016/17. The Auditor-General noted that, in the draft SARS annual report, SARS said that ‘despite challenging economic conditions SARS collected the revised estimated target, which represents a 6.9% growth in total tax revenue from 2015/16’. The Auditor-General also noted that SARS told the media on 3 April 2017 that it had achieved its revised estimate.

[2] The Auditor-General found the revised estimate had not in fact been met and that SARS undercollected an amount of R300 million. He identified the risks attendant on this misreporting as first, ‘possible reputation risks based on misleading facts presented to the public’, and secondly, the risk of ‘incorrectly paying bonuses to staff based on targets reached while evidence proved otherwise’. The Auditor-General criticised management for not exercising adequate oversight responsibility and recommended management ensure that in future the information reported in the draft annual report and communicated to the public be consistent with the achieved estimate.

[3] The Auditor-General noted in his report that SARS management had defended itself by pointing out that, in the media statement of 3 April 2017, SARS had described the figures as ‘preliminary’. The Auditor-General appeared not to give that defence much credence, and correctly so in my view. The media release created the perception that SARS had met the revised estimate and, when the final figures were available, it did not correct that perception. Nor did the fact that SARS had failed to meet the revised target stop the former Commissioner of SARS from awarding generous bonuses to EXCO.

[4] More disturbing, the Commission received evidence from two employees in Revenue Accounts that they told Mr Moyane before the release of the media statement of 3 April 2017 that the preliminary figures showed SARS had not met the revised estimate. In determining how much revenue SARS had collected as at 31 March 2017, SARS was obliged to deduct the non-tax revenue it had collected on behalf of the RAF and UIF, as well bank reconciliation items on the opening bank balance. Those deductions amounted to R300 million. The witnesses explained that to Mr Moyane but nonetheless released a figure that included the R300 million. The witnesses both said that SARS employees who were aware of the overstatement of the figures were prohibited from sharing the actual collection figures.

[5] This is supported by an email chain between Mr Moyane and one of the witnesses in late December 2017. The witness had reported to Mr Moyane that, based on revenue collections at the end of the third quarter, SARS was facing a growing shortfall. Mr Moyane responded by saying that the figures were ‘cause for concern’, but that ‘I would appreciate that you don’t post the outcome of today’s revenue figures.’

[6] The second adverse finding of the Auditor-General concerns the overstating of taxpayer compliance with regard to both corporate income tax and personal income tax. The Auditor-General found that SARS had not complied with the relevant laws and regulations in determining the percentage of taxpayers who had complied in the 2016/17 financial year.

[7] Dr Malovehle testified that he had warned EXCO that the definitions for compliance indicators SARS was using were not in line with legal requirements. His warning was ignored. His colleague, Ms Singh confirmed this evidence on affidavit.

[8] I referred in chapter 6 to further findings made by the Auditor-General relating to Information Technology Governance.

CHAPTER 16: DEBT COLLECTION CONTRACTS

[1] SARS has a sizeable book of debtors. At one time, before the period to which this Commission relates, it appointed debt collectors, who received a commission for their services, but with limited success. During 2015 it again set about appointing outside debt collectors.

[2] On 5 August 2015 Mr Makwakwa, then Acting Chief Officer: Operations, directed a memorandum to Mr Moyane, requesting approval for ‘the utilisation and funding of an external debt collection agency to collect specified categories of debt on SARS’ behalf’.

[3] He reported that at that time debt owing to SARS was approximately R96 billion, of which approximately R54 billion had been outstanding for less than four years (Category A), and approximately R14 billion had been outstanding for more than four years (Category B). The proposal was to outsource collection of Category B debt.

[4] Approval was granted and in October 2015 bids were invited on open tender for the appointment of service providers. Thirty three compliant bids were received and evaluated by the Bid Evaluation Committee, which recommended to the National Bid Adjudication Committee the appointment of 11 bidders to a panel of debt collection service providers for the collection of Category B debt.

[5] The National Bid Adjudication Committee adopted the recommendation and, in turn, recommended to the Commissioner the appointment of the eleven service providers to the panel. It recommended that the panel be appointed for a period of 36 months with an option to extend the contract for a period of twelve months. The recommendation was duly approved by the Commissioner on 17 December 2015.

[6] Amongst the eleven service providers appointed to the panel was Lekgotla Trifecta Consortium (LTC). The consortium comprised Trifecta Capital Collections (Pty) Ltd and Lekgotla Outsourcing (Pty) Ltd. One of the shareholders of Lekgotla Outsourcing was Mr Nhlamulo Ndhlela, who is a nephew of Mr Moyane. Another service provider appointed was New Integrated Credit Collections (Pty) Ltd.

[7] On 28 December 2015 the eleven members of the panel were invited to submit bids for the appointment of three members for a ‘pilot phase’ of debt collection. The bids were evaluated by the Bid Evaluation Committee, which recommended the appointment of NDS Credit Management (Pty) Ltd, CSS Credit Solution Services (Pty) Ltd, and LTC for the pilot phase. The Bid Adjudication Committee accepted the recommendation and, in turn, recommended the appointments to the Commissioner, who approved the appointments on 15 February 2016.

[8] Master Services Agreements were duly concluded between SARS and the three companies. The agreement with LTC was concluded on 1 March 2016. The agreements were for a period of 36 months, with an option on the part of SARS to extend the agreement for a further 12 months. Under the agreement SARS would, from time to time and when needed, issue a Service Request to the service provider to perform specific services.

[9] On 23 May 2016 a Service Request (No. 001 of RFP 29/2017) was issued to LTC, under which it was required to provide services for the collection of debt between R1 000 and R1 million that had been outstanding for four years or more. It was estimated that 85 000 debtors fell into that category with a total debt of R2.2 billion. The commission for collection would be 4.42% of debt collected, inclusive of VAT.

[10] The contract with LTC was terminated in about November 2017 in circumstances I come to presently.

[11] In about October 2017 SARS embarked on Phase 2 of its debt collection project, which was to ‘appoint Service Providers from the panel (RFP 28/2015) for the collection of all outstanding debt and all outstanding returns linked to the Service Providers.’

[12] The Bid Evaluation Committee, and later the National Bid Adjudication Committee, recommended the appointment for Phase 2 of eight service providers, amongst whom was New Integrated Credit Solutions. Mr Moyane approved the recommendation on 15 February 2018.

[13] A Master Service Agreement was concluded with New Integrated Credit Solutions on 1 March 2018. The following day a Service Request was issued, allocating debt of approximately R2.1 billion to be collected, at a commission of 4.05%. On this occasion the debt to be collected included debt that was less than four years old. As at 10 May 2018 the sum of approximately R103 million had been collected.

The LTC Contract

[14] Mr Nhlamulo Ndhlela, who is a nephew of Mr Moyane, was a shareholder of Lekgotla Outsourcing (one of the members of LTC).

[15] Bidders were required to complete a form called ‘Declaration of Interest’ (Form SBD 4), in which they were required to respond to a number of questions. The question that is now relevant, to which LTC replied ‘NO’, was the following:

‘Do you, or any person connected with the bidder, have any relationship (family, friend, other) with a person employed by the state and who may be involved with the evaluation and or adjudication of this bid’.

[16] In about August 2016 the Mail & Guardian newspaper directed queries to SARS relating to the relationship between Mr Ndhlela and Mr Moyane and whether the relationship had been disclosed when the contract was awarded. SARS wrote to LTC as follows:

‘SARS recently received an enquiry from the Mail & Guardian in which they allege that one of the partners in Lekgotla Trifecta Consortium, Mr Nhlamulo Ndhlela, is a close relative of the Commissioner of SARS, Mr Tom Moyane. The Mail & Guardian is questioning whether, when bidding for the debt collection contract, Mr Ndhlela and/or the Consortium disclosed his family connection with the Commissioner as a potential conflict of interest’.

[17] On 25 August 2016 Mr Marshall, a director of LTC (and of Trifecta Capital Collections (Pty) Ltd) replied to SARS. Amongst other things he said:

‘… we wish to advise and place it on record that neither Mr Ndhlela nor the Consortium was required in terms of law, the relevant practice notes, circulars and/or instructions issued by the National Treasury on supply chain management policy or the request for proposals (RFP) and in particular standard SBD 4 form which bidders were required to complete in relation to declaration of interest issues, to disclose such relationship with the Commissioner.

…

In this regard we wish to point out that, in terms of the SBD 4 form, and in particular paragraphs 1 and 2.9, a bidder is required to make such disclosure only if the person/s to whom he or she is related, “are involved with the evaluation and/or adjudication of the bid” or “may be involved with the evaluation and/or adjudication of the bid”, respectively. You will appreciate that the provisions of these two paragraphs are contradictory and/or inconsistent. To the best of our knowledge and belief, a person in the Commissioner’s position does not get involved with the evaluation and/or adjudication of bids. Notwithstanding this belief and as a precautionary measure, we sought external legal advice prior to the completion of the SBD 4 form, to the effect that the Commissioner may not be involved in the evaluation and adjudication of the bids.’

[18] On 8 September 2016 Mr Matsobane Matlwa, the Chief Financial Officer of SARS, met with Mr Moyane to discuss the contract with LTC. Mr Moyane gave instructions for the contract to be cancelled, and wrote to Mr Matlwa as follows:

‘It is my considered opinion that SARS has legal and factual basis to cancel this award.”

…

As it emerged during the meeting held on 02 September 2016, one of the successful bidders, Lekgotla Trifecta Consortium, failed to comply with the applicable National Treasury procurement requirements by failing to provide accurate information as per the requirements of SBD 4: Declaration of Interest template.

This act, in my view, constitutes misrepresentation and as such provides SARS with legal and factual grounds to cancel this award. A critical consideration to be had in this regard is whether Lekgotla Trifecta Consortium would have emerged as one of the successful bidders had they complied fully with the requirements of the SBD 4: Declaration of Interest template.

…

As stated earlier, it remains unwavering conviction that I would have acted differently had I been made aware of what was brought to my attention during the meeting held on 02 September 2016.

…

Lekgotla Trifecta Consortium’s conduct in this regard is likely to create a perception that SARS’s procurement system is not fair nor transparent, and as the Commissioner and Accounting Officer for SARS, this is a risk that SARS cannot afford to accept.’

[19] On 7 October 2016, in response to a letter from SARS, the attorneys for LTC wrote to SARS. Much of the letter is devoted to contending that LTC was not required to disclose the relationship because, so it was said, Mr Moyane had not been a person ‘who may be involved with the evaluation and or adjudication of this bid’ (a reference to the question posed in the SBD 4). It added:

‘Finally, LTC obtained external legal advice on whether it was required to disclose the nature of the relationship. Accordingly, it cannot be said that the non-disclosure was dishonest or fraudulent’.

[20] SARS launched an application in the High Court to set aside the contract, founded upon the failure to disclose the relationship. The application was settled under an agreed order in the following terms:

‘2. The applicant’s decision of 17 December 2015 to appoint the respondent to its panel of debt collection service providers in terms of Request for Proposals 28/2015 is reviewed and set aside.

3. The Master Service Agreement in respect of debt collection services concluded between the applicant and the respondent on or about 1 March 2016 is terminated by agreement between the parties.

4. Service Request Number 001 of RFP 28/2015 of on or about 23 May 2016 and any and all other Service Requests issued by the applicant in respect of the respondent in terms of the MSA are terminated by agreement between the parties’.

[21] The award of the contract resulted in benefit being received by Mr Moyane’s nephew. I have found no evidence that Mr Moyane was aware when he approved the award of the contract to LTC that his nephew had an interest, nor that there was any impropriety on the part of Mr Moyane or any other SARS official in the award of the contract.

The New Integrated Credit Solutions Contract

[22] I have already indicated that Mr Moyane approved the appointment of New Integrated Credit Solutions to the panel of service providers on 17 December 2015. Again on 15 February 2018 he approved its appointment for Phase 2 of the project. In each case he did so by signing the report of the National Bid Adjudication Committee. Copies of those approvals are Appendix 13.

[23] On 13 March 2018 Mr Moyane appeared before the parliamentary Standing Committee on Finance, accompanied by Mr Lebelo, where he was asked the following questions (a copy of the transcript is Appendix 14):

‘I just would like SARS or the Commissioner to confirm whether or not New Integrated Credit Solutions have been appointed to conduct debt collection and whether in fact there is the purported link to Mr Makwakwa through Patrick Monyeki and, if so, you know surely that would have disqualified under the present circumstances that we are talking about, that firm from being appointed and is it true they were appointed and is there, can he confirm the purported link to Mr Makwakwa? And if it is true, why did Makwakwa then sit on the National Adjudication Committee apparently, confirm whether or not he did, where the appointment of New Integrated Credit Solutions was made.’

[24] Mr Moyane was a long-standing acquaintance of Mr Monyeki. I have indicated in chapter 4 his role in securing the contract for Gartner. In response to the questions Mr Moyane said the following:

‘On the issue of NICS and the linkage with Mr Monyeki, I do not know whether Mr Monyeki is a board member or is a director of NICS, I do not know. All I can say is that I do know Mr Monyeki like any other person that I know. I think it is prudent and therefor important that the Committee can do its homework to prove that he is a director there. Certainly NICS has been doing work with SARS since 2004. They have been doing work with SARS on debt collection. That we have on record.

Now the point that says we may have – the procurement processes at SARS are very clear. There is all the tender processes that are followed and then you have bid evaluation, the bid evaluation committee. The Commissioner does not sit in any of those committee, none at all. The bid adjudication committee which is the NBAC, which is the highest, comprises of all chief officers except the Commissioner and then they take a decision based on the presentation of the bid evaluation committee and they make an announcement and the award of the tender to the preferring tender, tender presenter.

I do not get involved and I do not get informed as to who the companies are, except when they indicate in a meeting that six, eight companies have been submitted and they have been awarded and this is what happens. I do not get involved.’

[25] So far as Mr Moyane conveyed that he had no hand in the appointment of New Integrated Credit Solutions, that is not true. It is also not true that ‘the bid adjudication committee which is the NBAC … make an announcement and the award of the tender to the preferring tender, tender presenter.’ It is apparent from the documents that, on each of the occasions that New Integrated Credit Solutions was appointed to the panel, and again appointed to Phase 2, the National Bid Adjudication Committee made a recommendation to Mr Moyane, who then approved it by appending his signature to the report. He cannot but have known that the NBAC’s decision was not the end of the process, and cannot but have known that New Integrated Credit Solutions was appointed, bearing in mind that he approved it.

[26] It is also not true that he does ‘not get involved’ in such appointments. His was the final approval for the award of the contract. Indeed, that assertion contradicts the assertion he made in the application to set aside the contract with LTC, the very foundation of which was that he was ‘involved’ in the award of the contract. In his replying affidavit he acknowledged expressly that he had been ‘involved’ in the award of the contract:

‘As a matter of fact, I was “involved with” the evaluation and adjudication of the bids. The National Bid Adjudication Committee’s process resulted in a recommendation made to me in my capacity as SARS’ accounting [officer], which recommendation I personally signed. I was also “involved with” the evaluation and adjudication, in the sense that I am responsible for ensuring that all procurement occurs in accordance with a lawful system, and in that the ultimate recommendations emanating from that system needed my approval’.

[27] The records available to the Commission reflect that Mr Monyeki was never a director of New Integrated Credit Solutions and I have no evidence of any other direct interest. The records suggest that a business relationship of some kind existed in 2015 between New Integrated Credit Solutions and Mahube Payment Solutions, of which Mr Monyeki was then a director (he resigned on 13 February 2017), in that a large payment was made by Integrated Credit Solutions to Mahube Payment Solutions.

[28] I observed earlier that at the outset of the programme, debt to be collected by service providers was confined to Category B debt – debt that was older than four years. In the second phase, unaccountably, the service collectors were appointed to collect debt that was less than four years old. Needless to say, that is the easiest debt to collect, and I have seen no business case made out for that to be allocated to service providers. It is recommended that those contracts be reviewed, and that the use of debt collection services be reviewed to determine whether they add sufficient value to SARS.

CHAPTER 17: MEDIA STATEMENTS

[1] On 10 March 2017 and 18 September 2017 media releases were issued by SARS, which can be taken to have been approved by Mr Moyane, in relation to Judge Davis, chairperson of the Davis Tax Committee and KPMG respectively. Copies of the media releases are Appendix 15. They were said by Mr Mathebula to have been prepared by Mr Lebelo, but Mr Lebelo contends, in turn, that responsibility lies with Mr Mathebula. Mr Mathebula submitted a motivated denial that, on the face of it is credible, but we do not think it is a dispute we need to resolve.

[2] So far as the former is concerned, the media release records that it was issued in response to statements said to have been made by Judge Davis in an address to a conference on tax evasion and illicit financial flows, in his capacity as chairperson of the Davis Tax Committee. The statements were recorded in the media release as follows:

‘1.1 That the biggest challenge facing South Africa today is an erosion of the integrity of SARS;

1.2 That SARS has no capability of actually dealing with multinational corporation and capital that seeks to evade tax;

1.3 That he disagrees with the number 103000 that falls into the new top marginal tax bracket of 45% and that he knows more people on the Johannesburg Bar earning R5 million a year than the tax table show. Further, that wealthy individuals are managing to escape the tax net and SARS is disingenuous to blame it on the economy;

1.4 That we know the revenue is down by R14Bn on personal income tax. The Commissioner for SARS suggests that that is because of a downturn in the economy, Unfortunately for the Commissioner for SARS, corporate tax went up by R6.5bn.

1.5 That the recent tax amnesty as implemented in terms of the Voluntary Disclosure Program (“VDP”) will flop if tax dodgers were no longer scared of SARS; and

1.6 That some years ago, when SARS actually had a reasonably good transfer pricing unit, it audited 40 companies to see what the effect of a seriously audit would be. It collected R1.1 billion on one audit in one year. We are talking about a lot of money.

[3] There was some justification for all those statements. Integrity was indeed being eroded, as I have indicated in various parts of this report. With the evisceration of the LBC and the departure of skilled employees SARS had indeed lost at least much of its capability to deal with multinational corporations that sought to evade tax. No doubt he had reason to disagree with the number falling into the new top marginal tax bracket, and many members of the Johannesburg Bar do earn R5 million a year (contrary to what was asserted, the statement attributed to Judge Davis does not suggest they evade tax). Wealthy individuals are indeed managing to escape the tax net, and it is indeed disingenuous to blame it on the economy. As I have indicated elsewhere in this report, the shortfall of Personal Income Tax was approximately R16 billion and Corporate Tax was up R6.1 billion. A tax amnesty will indeed flop if tax dodgers are not afraid of SARS. It is not clear what years was being referred to in which R1.1 billion was said to have been collected in one audit, but it is credible that that indeed occurred when the LBC was functional.

[4] Be that as it might, even if there were errors in what was said, that would be deserving of no more than mature correction. What was said instead was that Judge Davis was fabricating with a nefarious motive, that he had ‘publicly misled the public’, that it was ‘suspicious’ that he had ignored facts alleged by SARS, that he had been dishonest, that it was ‘shocking’ that he was supported by two former employees of SARS who were alleged to have acted unlawfully, that Judge Davis had made himself party to a ‘systematically orchestrated narrative’ that sought to undermine the leadership of SARS so as to engulf SARS in a crisis of lack of public confidence and illegitimacy, that judge Davis had for some time ‘behaved in a manner that could be perceived as advocating a veiled strategy to mobilise a tax revolt.

[5] I need say no more than whatever grievance might have been held against Judge Davis, this was a scurrilous attack that had no place emanating from SARS.

[6] The media release relating to KPMG reflects the fury of Mr Moyane at KPMG distancing itself from the allegations that had been made in its report, and the reason is obvious. The report having played its role in discrediting Mr Pillay and others, Mr Moyane would tolerate no suggestion being made to the public that the recommendations in the report were not justified. Once again, the denunciation of KPMG was not only misguided, in that the contract did not somehow set the views of KPMG in stone, but also vilified KPMG to the discredit of SARS.

[7] What is disturbing about the release is its intent on keeping alive in the public mind the discrediting of Mr Pillay and others, as it was sought to be kept alive by Mr Lebelo in his evidence before the Commission, and by those who circled and sought to discredit the Commission. It has become perfectly clear in the course of this inquiry that SARS is still plagued by factional politicisation and intrigue that entered SARS with Mr Moyane’s appointment and it is set still to plague SARS. Without that politicisation being rooted out of SARS there is no prospect of its credibility being restored.

[8] On 28 November 2016 Mr Lebelo wrote a letter to the Business Day, in his personal capacity, railing at the rating agencies as ‘gangsters’, which is included in Appendix 15. It is clearly contrary to government policy that the rating agencies should be berated, and it is also damaging for vitriol of that kind to emanate from SARS, bearing in mind that the state of SARS is one of the considerations relevant to the country’s sovereign rating.

[9] In explanation Mr Lebelo told the Commission he has an interest in political writing, and that there was nothing untoward in a government employee holding political views, and expressing them in their personal capacity. He said he was nonetheless reprimanded by Mr Moyane and has not repeated it. If Mr Lebelo was indeed reprimanded, nothing was done to restore the credibility of SARS in the public mind.

[10] No doubt it is correct that government employees may hold political views, but I do not accept that a senior government employee is free to express them unrestrained, even in his or her personal capacity. Mr Lebelo must have known full well that he would readily be identified as a senior employee of SARS, which was demonstrated when his railing was elevated from the letters page of the Business Day to the news pages of the media, and every employee of SARS is bound not to bring SARS into disrepute.

[11] In my view Mr Lebelo brought SARS into disrepute by publishing his letter concerning the rating agencies. That he was protected from disciplinary action while Mr Moyane was in office is every reason why appropriate disciplinary ought now to be considered.

[12] So far as the media releases are concerned we are not in a position to resolve the dispute between Mr Lebelo and Mr Mathebula, but we recommend that disciplinary action be considered against any executive for publishing the media statements. It is further recommended that any such executive be deprived of any authority he or she might have to speak on behalf of SARS without the approval of the Commissioner.

CHAPTER 18: SARS AND OTHER STATE INSTITUTIONS

[1] The effective functioning of SARS calls for close collaboration between SARS and other state institutions. It is to be expected that the Commissioner of SARS will liaise closely with the Minister of Finance, but while Mr Gordhan held that position there was active defiance. When Mr Gordhan became concerned at the steps being taken to change the operating model he asked for it to be suspended, but that was ignored. When he disapproved the extent of bonuses to be paid, Mr Moyane again defied him, bringing him into conflict with the Auditor-General. According to Treasury officials, the relationship between Treasury and Mr Moyane has all but broken down.

[2] The media statement issued in relation to the chairman of the Davis Tax Committee is sufficient to demonstrate that that relationship has broken down. According to Judge Davis, the Committee was not able even to obtain information from SARS. The response of Mr Moyane to the former Director of the Financial Intelligence Centre, when alerted to apparent financial irregularities of Mr Makwakwa, was disrespectful and hostile. Mr Moyane went to war against the Auditor-General through litigation in the courts.

[3] We recommend that SARS take steps to restore the cordial relations that formerly existed with other state institutions including the National Prosecuting Authority, the Financial Intelligence Centre, the Auditor-General and the National Treasury, and develop protocols for interaction with the National Treasury.

CHAPTER 19: INTERNATIONAL RELATIONS

[1] At 1 April 2014 SARS had a long-standing and valuable relationship with the Organisation for Economic Co-operation and Development, a Paris-based inter- governmental organisation. In 2007 South Africa was designated a key partner of the OECD, together with Brazil, China, India and Indonesia.

[2] The history of its relationship, and the key role played by SARS, is related in a note prepared by the OECD’s Centre for Tax Policy and Administration, which is Appendix 16, and need not be repeated. Mr Kosie Louw, former SARS Chief Officer: Legal Counsel, completed his second term as Chairperson of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes in 2017. By 31 March 2018 the relationship with the OECD had all but ceased to exist.

[3] The value to SARS of associating itself with the OECD will be apparent from that note, and it is recommended that SARS take steps to resume that association.

[4] During Mr Gordhan’s tenure as SARS Commissioner, he served an unprecedented five terms as Chairperson of the World Customs Organisation (WCO) Policy Commission. Since 2009, SARS continued to represent South Africa as a member of the WCO Policy Commission through its position as Vice Chair of the WCO Eastern and Southern Africa (ESA) chapter. However, in 2017, South Africa could not muster sufficient votes to retain the Vice Chair of the WCO ESA chapter membership and lost its membership of the WCO Policy Commission.

The next part of the Nugent Commission report follows here: