The bane of Sars
Was consultancy Bain & Co complicit in the destruction of key units of the revenue service, which may have lost far more than R100bn in the perverse restructuring of the tax agency?
The commission of inquiry into governance and administration at the SA Revenue Service (Sars), chaired by retired judge Robert Nugent, heard evidence last week that Sars’ restructuring was at the heart of the destruction of its large business centre and other key divisions such as enforcement and compliance.
The overhaul of Sars’ operating model was conducted by consultancy Bain & Co, at a cost of R160m. Bain spent months putting together a diagnostic report on how to reorganise the complex, 14,000-strong organisation.
The evidence before the commission thus far is clear: the restructuring was essentially aimed at fixing what was by no means broken.
Finance minister Nhlanhla Nene will explain this week whether he did indeed approve the far-reaching overhaul, which severely dented Sars’ capacity and contributed to a R100bn hole in revenue collection.
Bain, too, was to begin giving evidence in the matter on Thursday. The critical question evidence leaders appear to be seeking an answer to is whether the consultancy was complicit in the destruction of units key to the efficient functioning of the tax agency.
The consultancy could also shed light on whether the restructuring was intentionally done to neutralise Sars, as has been suggested by a number of witnesses. Bain was accused of failing to consult key officials, basing its diagnostic report on outdated, inaccurate information, and failing to use actual data and instead basing its work on the views of certain top Sars executives.
Amid indications that the impact of the restructuring goes beyond R100bn in lost revenue collection, it emerged Sars is starting to rebuild some of the dismantled units.
The tax agency announced in a statement that it is rebuilding the large business centre as well as enforcement capacity to tackle the illicit economy.
Insiders are sceptical, however. Speaking on condition of anonymity, sources tell the FM that acting Sars commissioner Mark Kingon can do little to make real changes because of the continued dominance of allies of suspended commissioner Tom Moyane in the agency’s top leadership.
Evidence leader advocate Carol Steinberg said last week that little evidence had so far come to light to contradict the many senior tax officials who’d described the destructive effect of the restructuring. Moyane and his allies have not come forward to contradict mounting evidence of their misrule.
During the second leg of hearings, the commission heard from head of transfer pricing in the large business centre, Nishana Gosai, whose job included combating illicit financial flows. Gosai’s unit, a group of about 25 specialists, are understood to have resigned almost en masse after the restructuring. In an emotional submission, Gosai said the process had "broken" many people and the organisation itself.
Sars executive for compliance Fareed Khan said Bain did not create an operating model, but rather a "structure with reporting lines". He said Sars used to have a "strategic vision which influenced its structure". "What [Bain] simply did was reshuffle chairs; there was no vision we were made aware of."
Former Sars head of customs Rae Vivier said Bain did not consult the unit’s leadership or take international best practice into account. It had consulted only one member of the unit, Mpho Mashaba.
Mashaba later testified that his role was simply that of a "co-ordinator or facilitator" and that he had no say in the report produced by Bain. He said he knew from the start the Bain project would fail as no-one at Sars had "bought into it".
Sydwell Phokane, also a customs division head at Sars, where he has worked for 17 years, was shifted to a post where he did nothing for months on end and was given a new title of "domain specialist".
Evidence from former head of centralised project enforcement, Pieter Engelbrecht, and of high-value audit debt collection, Dion Nannoolal, as well as former senior national projects manager Keith Hendrickse, painted similar pictures.
They showed how the high court litigation unit, as well as another unit dealing with the illicit economy, were culled, resulting in the loss of "hundreds of millions of rands a year".
The commission concludes its second round of public hearings this week. One more round is expected before it hands over a draft report to President Cyril Ramaphosa at the end of September.