Nugent Commission of Inquiry into SARS: interim findings and recommendations

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Finance Standing Committee

13 February 2019
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Committee received a briefing from Judge Robert Nugent on the findings and recommendations of the commission of inquiry he headed up into the tax administration and governance at SARS. 

Judge Nugent, in his report, said the failure of governance at SARS was made possible by weaknesses in the governing legislation for the revenue authority, which did not entrench governance structures in the organisation. A key focus of the recommendations was the introduction of mechanisms to prevent a recurrence of the breakdown of governance that occurred. Judge Nugent recommended an Inspector-General position designed to investigate internal governance at SARS as a way of ensuring a commissioner's conduct can be probed. Also, one or multiple independently appointed deputy commissioners, whom the commissioner cannot dismiss, would bolster accountability. This must not be a huge body with staff all over the place. This inspector general office must be a lean body that is able to make inquiries. If there were such a person, Mr Lackay could have gone to them. The Commission’s recommendations had to strike a balance between protecting the tax agency's autonomy, holding the commissioner accountable, improving SARS's ability to improve tax compliance, and improving synchronisation with the Office of the Minister of Finance. A new SARS commissioner, upon appointment, should review the fitness of the organisation's senior staff because they abjectly failed to challenge the improper conduct of their former boss. Further, the Acting SARS commissioner should review his senior staff and determine whether there are people who can inspire public confidence in SARS. The report recommended that a process for the appointment and removal of the head of SARS be enshrined in the Constitution and that at least one deputy commissioner be appointed in a neutral, transparent process. There should be somebody appointed there who the commissioner cannot simply get rid of. The SARS Act does not make provision for a deputy commissioner leaving the commissioner of SARS with sole and unfettered authority. Judge Nugent recommended the appointment of an Inspector-General to investigate internal governance at SARS as a way of ensuring a commissioner's conduct can be probed. This role properly performed, had it been in place during Mr Moyane’s incumbency, would in all probability have prevented much of the damage and destruction which the Commission has outlined in its interim report. It is contemplated that the Inspector-General would, on a routine basis, conduct enquiries from time to time at all levels of SARS. Such enquiries would ordinarily include conducting interviews with executives and employees to enable the Inspector-General to determine the general state of health of SARS and to uncover any particular event, action, or state of affairs that comes to the attention of the Inspector-General.

The Tax Ombud commented on the proposal to have a SARS Inspector-General. He believed a Board and an Inspector-General had different functions and roles to play- the former would govern and the latter would inspect. These were two different concepts. Both structures may as well be put in place. He observed that the country must do everything to populate public institutions with individuals with the utmost integrity. These were the basics that should be got right to diminish, if not eliminate, some of the problems being faced by the country. He did not agree with the view that interviews for the next Commissioner should not be held in public. For instance, prospective judges are interviewed and asked about their personal and financial affairs in public. He had serious reservations about the suggestion that selection process be conducted in private.  

Members appreciated the good work done by the Commission. They noted the Commissioner’s unhappiness with how the Lackay matter was handled. There were limitations as to what the Committee could do within the legal framework. The Committee, at all times, strives to exercise its oversight mandate at the best of its abilities. It would be very important to look into the role the so-called rogue unit played in the weakening of governance structures within SARS. The Committee would zoom into the recommendations in an effort to restore SARS’ integrity. The report must be engaged further before any decisions are taken. The pivotal points arising from the report relate to institutional collapse and poor governance. The report had to be studied properly and the Committee would rather dedicate some time to discuss aspects of its recommendations. The Committee should not lose sight of the real issues that required its focus. An EFF Member said Parliament needed to provide the legislative framework so that Members’ powers are not usurped by unelected people. With Parliament’s guidance, Judge Nugent would not fancy himself as a law-maker like he was doing now. How could the Judge recommend that SARS establish an intelligence unit outside legal prescripts? What kind of a Judge was he? In response, the Chairperson dissociated himself and the Committee from the EFF Member’s sentiments as he believed the respectable Judge had no such illusions. The position the Judge occupies must be respected. This was unacceptable and the Member’s issue was irrelevant to the Committee. The Committee was deeply grateful for the excellent work done by the Commission. The sixth term of Parliament would ultimately decide on the way forward.

Meeting report

The Chairperson welcomed everyone and indicated that Judge Robert Nugent would take the Committee through the final report of the Commission of Inquiry into Tax Administration and Governance by the South African Revenue Service (SARS) as he deemed fit. The Committee hoped the Judge would place much thrust on the recommendations part of his report to enable Members to look into amendments to relevant legislation.
 
Nugent Commission of Inquiry into Tax Administration and Governance by SARS
Judge Robert Nugent, Commissioner, Inquiry into Tax Administration and Governance at SARS, took the Committee through the Commission’s final report.
 
The failure of governance at SARS was made possible by weaknesses in the governing legislation for the revenue authority, which did not entrench governance structures in the organisation. A key focus of the recommendations was the introduction of mechanisms to prevent a recurrence of the breakdown of governance that occurred. Gaps in the SARS governing legislation enabled former SARS Commissioner Tom Moyane to dispense with oversight mechanisms soon after taking office, such as the dissolution of the executive committee, which was not mandated by law. SARS was set up as an autonomous body but the danger of this is that there is great potential for an autocratic body. The existing SARS legislation provided for very little control to be exercised over the commissioner. The commissioner is in charge of SARS and is answerable to no one. There are very few restrictions and guidelines in the legislation as to what he/she may or may not do. That can, of course, be a very dangerous situation. Much of the existing good governance practice at the tax body was reversed upon Moyane’s arrival. Within months of Moyane's arrival, the executive committee was disbanded as SARS's top management structure. Within a month or two, the information technology regime was halted. This regime cost billions in tax payers' money. During the probe, one central issue that arose was the massive failure of integrity and governance at SARS. The Commission delivered an interim report for that reason because what was abundantly clear to it, within a few months, was that Mr Moyane had to go. SARS could not carry on with Mr Moyane in charge, he had to go. And that was why in the interim report to the President the Commission recommended that he be removed urgently. Further, one of the most significant changes was a lack of communication and coordination between SARS as a tax revenue collector and the Minister of Finance, who is responsible for allocating tax revenues among departments, spheres of government and entities. In the past four years there has been little communication between the Minister of Finance and the SARS commissioner. The person collecting the money and the person allocating it should be communicating.
 
Judge Nugent mentioned former SARS spokesperson, Adrian Lackay, and the misgivings he registered before leaving the employ of SARS, especially regarding statements SARS made about the so-called "rogue unit". There is nothing wrong with SARS being able to perform covert functions or operations. There is nothing wrong with SARS holding a stakeout of a cigarette factory if there is reason to believe it does not comply with tax laws. However, it was not up to the Nugent Commission to decide whether an intelligence unit had existed within SARS and whether it had gone "rogue”. The inquiry’s concern was whether the establishment of such a capacity was lawful hence recommendation was made after ascertaining that there was no law against it. Moreover, the Commission was critical of the Committee’s refusal to assist former SARS spokesperson Lackay when he approached the Committee for help. Mr Lackay wrote a letter to the Committee in March 2015 to highlight the problems at SARS, but was then sued by Moyane for defamation. As an experienced lawyer, he considered it a ludicrous claim. If one cannot get assistance from Parliament, where does one go?
 
Judge Nugent recommended the appointment of an Inspector-General to investigate internal governance at SARS as a way of ensuring a commissioner's conduct can be probed. This role properly performed, had it been in place during Mr Moyane’s incumbency, would in all probability have prevented much of the damage and destruction which the Commission has outlined in its interim report. It is contemplated that the Inspector-General would, on a routine basis, conduct enquiries from time to time at all levels of SARS. Such enquiries would ordinarily include conducting interviews with executives and employees to enable the Inspector-General to determine the general state of health of SARS and to uncover any particular event, action, or state of affairs that comes to the attention of the Inspector-General. This must not be a huge body with staff all over the place. The office must be a lean body that is able to make inquiries. If there were such a person, Mr Lackay could have gone to them. The Commission’s recommendations had to strike a balance between protecting the tax agency's autonomy, holding the commissioner accountable, improving SARS's ability to improve tax compliance, and improving synchronisation with the Office of the Minister of Finance. A new SARS commissioner, upon appointment, should review the fitness of the organisation's senior staff because they abjectly failed to challenge the improper conduct of their former boss. Further, the Acting SARS commissioner should review his senior staff and determine whether there are people who could inspire public confidence in SARS. The current acting commissioner Mark Kingon appeared rather hobbled because he was not in a position to drive through major changes, such as updating the tax service's technology, firstly because he was on a 90-day contract and secondly because he lacked trust. The acting commissioner is having a lot of difficulty with some of people who have to be advising him.
 
Judge Nugent elaborated on the reasons his report calls for the National Director of Public Prosecutions to investigate whether Mr Moyane should face fraud charges for making false representations that led to the appointment of Boston-based consultancy firm Bain & Co to draft a new business plan for the revenue service. He pointed to Mr Moyane's failure to inform the then Minister of Finance that he had been in talks with Bain for about a year before he asked for outside advisors to be appointed. The letters written to the Minister were positively misleading. The report recommended that a process for the appointment and removal of the head of SARS be enshrined in the Constitution and that at least one deputy commissioner be appointed in a neutral, transparent process. There should be somebody appointed there who the commissioner cannot simply get rid of. The SARS Act does not make provision for a deputy commissioner leaving the commissioner of SARS with sole and unfettered authority. The main advantage of having a Deputy Commissioner is to provide continuity in the event that the Commissioner is unable due to incapacitation or any other reason to perform the functions of the Commissioner. Also, in the event that the Commissioner’s appointment ceases for any reason and a replacement becomes necessary the Deputy Commissioner would be a strong candidate, although not automatic, for the position of Commissioner. This would best achieve continuity and the preservation of institutional knowledge. In addition in certain of the cases where tax legislation confers a discretion in favour of the Commissioner, the involvement of the Deputy Commissioner may be a useful safeguard to ensure the optimum exercise of the Commissioner’s discretion.
 
Discussions
Ms T Tobias (ANC) appreciated the briefing from Judge Nugent. She noted the Commissioner’s unhappiness with how the Lackay matter was handled. There were limitations as to what the Committee could do within the legal framework. The Committee, at all times, strives to exercise its oversight mandate at the best of its abilities. It would be very important to look into the role the so-called rogue unit played in the weakening of governance structures within SARS. The Committee would zoom into the recommendations in an effort to restore SARS’ integrity. She added the inquiry’s findings on the withholding of tax refunds corroborated with those of the Tax Ombud as presented before the Committee previously, findings which were vehemently denied by SARS at that time.
 
Mr A Lees (DA) appreciated the good work done by the Commission. He noted the recommendation that SARS headhunt a new head for its IT systems. Was it correct to perceive that the current IT executive is not up to task? 
The need for taxpayer confidentiality as a general principle was understood. However, the SARS Commissioner’s ability to determine what should or should not be made public as a public interest matter ought to be looked into. Also, the Committee’s inability to get into the nitty-gritties at SARS was concerning. Public interest matters should certainly be made public. On the proposal to have an Inspector-General, it is all very well to have him/her but what feedback would be there to the public on the work done by such a functionary. Would he//she be able to put the public’s minds at rest in terms of public interest matters and also give reassurances that the job was being done. Within the confines of the Commissions’ work, were the identified cases of malfeasance involving Mr Moyane the only ones which he could have been involved in during his tenure?
 
Mr F Shivambu (EFF) criticised Judge Nugent for recommending the re-establishment of an investigative unit within SARS. He pointed out that Mr Moyane’s appointment at that time was as per the existing legislative framework, the Tax Administration Act. How former commissioner Moyane then recklessly handled the internal investigations and dismantled the intelligence unit at SARS must be separated from the fact that the rogue unit was unlawful. The illegal and covert nature that defined the unit’s operations should not be trivialised and condoned. More so, a report commissioned by SARS, together with one compiled by Adv Sikhakhane SC found its establishment to have been unlawful. The Inspector General of Intelligence also concurred with the two aforesaid investigations. That investigative unit led by Pillay and van Loggerenberg was hounding people and dabbled in politics. The Public Protector was also looking into the matter as the unit did not follow legal prescripts. The immediate intervention on the part of legislators is to put up a proper governance structure. There were governance issues which should be dealt with but the Nugent recommendations should not be taken in their entirety. Instead, existing legislation should be amended such that the governance framework which applies to other government entities under the National Treasury should equally apply to SARS. The manner in which the Tax Administration Act is currently tailored gives the SARS Commissioner too much power. The revenue service should have a Board with accounting officers that would consistently oversee the Commissioner and the executive committee. The proposal for the appointment of an Inspector-General was not sensible. The idea was questionable. SARS should get a Board similar to the Public Investment Corporation. This recommendation should be dismissed and expunged from the Nugent report. Also, he could not understand why there was a proposal to have the interviews for a new SARS Commissioner held in private. The Nugent Commission should not behave as if it is an executive authority. Even having the Commission release an interim report before finalising its investigations was based on wrong legal philosophy.
 
Ms P Nkonyeni (ANC) believed the Nugent report must be engaged further before any decisions are taken. The proposal to establish a board as suggested by Mr Shivambu should be supported. She pointed out there might have been an imperialistic agenda behind the actions of Bain & Company in relation to SARS. How could a US-based company be involved in the dismantling of a South African institution? There was need for extra vigilance particularly on the part of politicians.
 
The Chairperson said the briefing was an initial foray and the Committee would produce a report on SARS on a later date. He complimented the Nugent Commission for the rigorous work done within constraints and limited means. As alluded to by Mr Shivambu, it was interesting that the Commissioner was speaking with the emphasis of an executive authority. He was also a bit surprised by that. Further, Parliament needed to act decisively against people lying through their teeth before it. It was not true that the Committee did nothing about the Lackay issue. There is a lot of misunderstanding about the role of the Committee. The Committee could not intervene in labour disputes. On the so-called rogue unit, the matter was referred to the Joint Standing Committee on Intelligence. He was not sure what more the Standing Committee on Finance could have done at that time. There is a need for some sort of oversight authority over SARS. However, at this point, he had no view on whether having a Board or an Inspector-General would be ideal. Also, the majority agreed that SARS must have an intelligence capacity constituted in accordance with the law given the high levels of illicit financial flows and trade.
 
Mr N Nhleko (ANC) identified the need for a structured approach for processing the Nugent Commission report. The pivotal points arising from the report relate to institutional collapse and poor governance. The report had to be studied properly and the Committee would rather dedicate some time to discuss aspects of its recommendations. The Committee should not lose sight of the real issues that required its focus.  
 
The Chairperson said this was more of a brainstorming session and there were no party mandates on the way forward at this stage.
 
Judge Nugent noted Members had reservations with the Commission’s recommendation on the appointment of an Inspector-General. The proposal was made because of a shortage of oversight mechanisms. The intention was not to create an ‘empire’ through the office of an Inspector-General, but a single person with a few assistants. The big distinction between having an Inspector-General as opposed to a Board was that he/she would be in a position to interrogate people whereas the latter would not be able to do so. Ultimately, Parliament would decide on the way forward. On the extent of malfeasance involving Mr Moyane at SARS, as indicated in the report, ‘absence of proof does not mean proof of absence.’ These were matters that should be further inquired into. The Commission’s impression on the IT system and networks at SARS was that they were far too complex to be handled by the person currently in charge of them. This was also a matter the Committee should ultimately decide upon. On the so-called rogue unit, the matter did not necessarily fall within the scope of the inquiry as it dated back to more than ten years ago. The question was whether an investigative unit could be established within SARS. An opinion was furnished to the former Commissioner of SARS on about 1 September 2015, in response to the findings of a panel chaired by Adv Sikhakhane SC. It was said to be unlawful by a panel chaired by Adv Sikhakhane SC, but the Nugent Commission found nothing in its report to persuade it on why that was so. Adv Sikhakhane was asked if he could elaborate but his reply took it no further than what was said in the report. The SARS Advisory Board chaired by Judge Kroon, reported to the Minister, and issued a media statement, saying the unit was unlawful, but in evidence he told the Commission that was not a conclusion reached independently by the Board, but had been adopted from the Sikhakhane panel, and he had come to realise it was wrong. Indeed, he supported the re-establishment of capacity to investigate the illicit trades, which the Nugent Commission recommends.
 
Mr Shivambu said Parliament needed to provide the legislative framework so that Members’ powers are not usurped by unelected people. With Parliament’s guidance, Judge Nugent would not fancy himself as a law-maker like he was doing now. How could the Judge recommend that SARS establish an intelligence unit outside legal prescripts? What kind of a Judge was he? He lacked integrity. The next Committee needed to be given some direction in respect of the Commission’s recommendations.
 
The Chairperson said he would like to dissociate himself from Mr Shivambu’s sentiments as he believed the respectable Judge had no such illusions. The position the Judge occupies must be respected. This was unacceptable and Mr Shivambu’s issue was irrelevant to the Committee. He apologised on behalf of the Committee.
 
Judge Nugent indicated the hurling of insults would not deter him from carrying out his work. He reiterated the Commission had considered the merits and demerits of having either an Inspector-General or a Board and ultimately elected to recommend the former. These were clearly recommendations and may not be taken up if there is greater wisdom in having an alternative structure. Politicians could choose their battle grounds in other areas, but should leave SARS out of it. SARS should not be a political battle ground.
 
The Chairperson asked why a new SARS Commissioner should not be appointed through an open, transparent process. Was there a specific rationale for this?
 
Judge Nugent said, in his view, there was no reason why the selection should not be an open and transparent process. The question was what would be the best way to choose the person concerned. There was a danger that people would not speak openly when television cameras are on.
 
The Chairperson asked for inputs from the Tax Ombud.
 
Judge Bernard Ngoepe, Tax Ombud, commented on the proposal to have a SARS Inspector-General. He believed a Board and an Inspector-General had different functions and roles to play- the former would govern and the latter would inspect. These were two different concepts. Both structures may as well be put in place. He observed that the country must do everything to populate public institutions with individuals with the utmost integrity. These were the basics that should be got right to diminish, if not eliminate, some of the problems being faced by the country. He did not agree with the view that interviews for the next Commissioner should not be held in public. For instance, prospective judges are interviewed and asked about their personal and financial affairs in public. He had serious reservations about the suggestion that selection process be conducted in private.  
 
The Chairperson said the Committee was deeply grateful for the excellent work done by the Commission. The sixth term of Parliament would ultimately decide on the way forward. He thanked everyone for their inputs.
 
The meeting was adjourned. 

 

Present

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