State capture and institutional capacity: Lessons from the South African Revenue Service

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The South African Revenue Service (SARS) was established in 1997 as an autonomous agency for collecting tax revenue and customs duties. Under the leadership of Commissioner Pravin Gordhan SARS became internationally recognised as a leading revenue collection agency. It increased South Africa’s revenue collection and was regarded as a paragon for good practice and innovation in the public sector. Yet according to the Zondo Commission of Enquiry on State Capture (2021), SARS was one of several state institutions that were “captured” by allies of the former president, Jacob Zuma who was forced to step down in 2016 because of allegations of grand corruption involving the notorious Gupta family.

Especially now that Zuma is plotting a political comeback – and recently won an appeal to be able to run for election on the ticket of the recently created uMkhonto Wesizwe (MK) party – the question of how state capture happened, and how it can be prevented, is a critical one. The study of capture at SARS provides evidence of the the methods and processes used for capturing state institutions and of the detrimental impact that this has on public services. It also offers insights for differentiating state capture from neopatrimonialism in Africa – two concepts that have often been used interchangeably, but are actually subtly different.

What is state capture?

State capture occurs when a small number of influential actors in the public and private sectors collude to change rules, regulations, legislation and institutions to further their own narrow interests at the expense of the broader public interest. There were three components to how state capture happened at SARS:

(1) infiltration of the organisation by new employees who set out to weaken or manipulate the institution to serve the interests of captured politicians

(2) allegations in the media which cast doubt on the integrity of the institution and its leaders (especially if they were hostile to the interests of the capturers), and

(3) organisational change and staff purges that further weakened the institution.

In September 2014 Zuma appointed Tom Moyane as the new Commissioner of SARS, bypassing the required approvals by the finance minister, Nhlanhla Nene, and the Cabinet. The Sunday Times newspaper published (and later retracted) allegations of a “rogue unit” within SARS that carried out illegal surveillance at Zuma’s home.

SARS was adhering to international best practice for revenue authorities by collaborating with other branches of government to investigate tax and financial crime within the remit of legislation. However, the existence of the alleged “rogue unit” implied that SARS was exceeding its mandate to undertake politically motivated investigations. Both the Nugent Commission of Enquiry (2018) and the Zondo Commission found no evidence to support the “rogue unit” allegations, however.

Fall from grace

Despite the lack of evidence, these allegations discredited SARS and enabled Moyane to suspend and investigate several senior managers. The managers were replaced by people who were loyal to Moyane, like the new Chief Operations Officer, Jonas Makwakwa. Furthermore, the “rogue Unit” allegations were used to justify a radical organisational restructuring of SARS, undertaken by the local office of Bain International, which had no previous experience with revenue authorities. Moreover, the Nugent Commission found that Moyane and the local CEO of Bain, Vittorio Mazzone, held discussions about restructuring SARS and other state-owned institutions before Moyane became the SARS Commissioner.

The restructuring led to the disbanding of key units in SARS that were responsible for tax collection or detecting tax and financial crime, including the Large Business Centre that was responsible for corporate tax collection, the Tax and Customs Enforcement (TCE) unit, the Compliance Division and others. SARS lost capacity to collect revenue and investigate illicit economic activity and financial crimes. It stopped communicating with the National Prosecution Authority and the Financial Intelligence Centre.

Worse still, fear and intimidation led to staff purges and resignations. SARS lost approximately 100 investigators, 300 specialists in compliance audits, 200 professionals in debt management, 60 professionals in trade administration and 113 staff members from the Large Business Centre. The departing staff had well developed investigative and audit skills and experience, which cannot be easily replaced or automated with technology. It will therefore take several years for SARS to recover and regain its technical capacity.


It was necessary to capture SARS because it was a well-functioning institution which could have undermined the extent to which Zuma and his allies could move billions of Rands offshore, allegedly to Dubai. TCE was disbanded because it was very effective in investigating financial crime including money laundering and syndicates involved in illicit trades such as cigarette smuggling.

This helps to demonstrate the difference between state capture and neopatrimonialism. Where viable institutions exist, corrupt and irresponsible leaders seek to capture them. This is not necessary in countries where neopatrimonialism dominates, where institutions tend to be weak and so rules are easily bypassed through informal relations among state and nonstate actors.

In other words, the need for capture demonstrates that neopatrimonial networks had not previously permeated SARS. This situation may not last long, however: strong institutions that are captured can then become fertile ground for neopatrimonial relations to flourish.  

The impact of state capture

So what has been the impact of state capture? Perhaps most notably, SARS’s integrity as the receiver of revenue has been tarnished, leading to lower tax morale. In short, South Africans are less happy about having to pay their taxes than they were before.

Although there was a public apology to current and former staff who were discredited and harassed at SARS, the individuals implicated by the Nugent and Zondo commissions have not yet been prosecuted, raising doubt about whether President Cyril Ramaphosa and his African National Congress government is really committed to rebuilding institutions. Multinational corporations like Bain and KPMG that collaborated with Moyane’s to restructure SARS also evaded accountability, apart from returning the consulting fees that they were paid.

The impact of falling public confidence has been falling government revenue. SARS failed to meet its direct and indirect tax collection targets from 2014 to 2017, and the gap is getting bigger. According to the Nugent Commission, for example, the shortfall in tax revenue increased from ZAR 7.335 billion in 2014/15 to ZAR 23.709 billion in 2016/17. In addition, there was a decline in corporate tax revenue and revenue from customs duty collection.

Despite efforts to reform and rebuild SARS by the new Commissioner, Edward Kieswetter, appointed by president Cyril Ramaphosa in 2019, this trend has continued. In 2023, the tax shortfall, compounded by the economic decline caused by COVID-19, rose to ZAR 57 billion. Partly as a result, the National Treasury is curbing public spending except for education, health, social grants and housing.

Cuts to infrastructure spending will leave the country in a worse position, and mean that there will be no end to chronic service delivery failures, such as the rolling power outages that undermine productivity and access to clean water in some rural areas. Some eight years after the Zuma presidency ended, the impact of capture continues to undermine South Africa’s economic development and pursuit of the Sustainable Goals for Development, even as he prepares his political comeback.

Zenobia Ismail is a research fellow at the University of Birmingham.

Robin Richards is and independent researcher in Johannesburg.

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