TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, June 13, 2018

NY Times: Corruption Gutted South Africa’s Tax Agency. Now The Nation Is Paying The Price.

New York Times, Corruption Gutted South Africa’s Tax Agency. Now the Nation Is Paying the Price.:

The nation’s tax chief steeled himself. Chiding and pleading with President Jacob Zuma to get him to file his taxes — much less pay the full amount — was always an excruciating task.

And it kept getting worse. One of the president’s sons, a nephew and countless business allies had serious tax problems as well, four former senior officials said, alarming investigators and leaving them wondering what to do.

South Africa’s young democracy had depended on the faith — and taxes — of its people since the end of apartheid, so the risks were evident. If the leader of the African National Congress, his relatives and his influential associates could dodge their tax duties, the rest of the country might shirk them, too, hollowing out the government’s ability to function at the most basic level.

The tax commissioner, Ivan Pillay, said he tried to be discreet, visiting the president several times from 2012 to 2014 to prod him to comply.

“If I am in the way, just tell me and I’ll go,” Mr. Pillay said in a rare interview, recounting his conversations with Mr. Zuma. “I won’t like it, but I’ll go. I’m a disciplined member of the A.N.C.”

Mr. Zuma demurred, insisting there was no need to resign, Mr. Pillay said. Instead, the president dealt with the issue himself a few months later: He abruptly replaced Mr. Pillay with a loyalist who led a sweeping purge of the tax agency, setting off a blistering national scandal that is threatening South Africa in unexpected ways.

Wielding a barrage of fictitious news stories and doctored assertions by one of the world’s biggest auditing firms, KPMG, Mr. Zuma managed to thwart scrutiny into his own taxes, his family’s affairs and his allies’ finances, according Mr. Pillay and three other former senior tax officials who confirmed the account.

Then, the president and his supporters went even further. They used the upheaval at the tax agency to seize greater control over the National Treasury, further enriching themselves at enormous cost to the country, according to government officials now trying to repair the damage.

The national tax agency, as prosaic as it may sound, had once been an extraordinary triumph, even for the party that helped defeat apartheid. Just a few years after it helped usher in democracy, the A.N.C. switched from liberation to the mundane workings of government and persuaded millions of South Africans to do the unimaginable: pay their taxes. ...

South Africa’s version of the Internal Revenue Service is perhaps an unlikely setting for a national saga involving spies, spurned lovers, secret brothels, double agents and one of the biggest journalistic scandals of the post-apartheid era.

But the story shows how an increasingly corrupt A.N.C. has undermined its own successes by betraying the very people who brought it to power.

And the drama is far from over. In today’s South Africa — dangling precariously between dueling factions inside the A.N.C. — the nation’s new president, Cyril Ramaphosa, is struggling to assert his authority and fulfill his pledge to root out corruption. He now stands knee-deep in a very messy fight to wrest the tax agency from the legacy of his predecessor, Mr. Zuma, and win back the confidence of an angry nation.

With corruption and political warfare gutting the agency, more and more South Africans have simply stopped paying their taxes, a dangerous turn in a nation where tens of millions depend on government services that are already enfeebled by graft and misrule. In the eyes of many experts, the government’s — and the country’s — ability to right itself is at stake.

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