South Africa’s tax authority has threatened to take legal action against KPMG for disavowing a report it commissioned that was used to discredit the former finance minister, dragging the accounting firm further into a deepening political scandal.

The withdrawal of the report last week placed KPMG in the midst of a struggle between two sides of the ruling African National Congress over the alleged corruption of key state institutions under President Jacob Zuma, including the South African Revenue Services (Sars).

The KPMG report implied that an alleged rogue spying unit of Sars was set up under Pravin Gordhan, the former finance minister who was an outspoken critic of Mr Zuma and his connection with the billionaire Gupta family.

But the accounting firm last week withdrew its report into whether the unit was set up illegally when Mr Gordhan was tax chief, saying that the recommendations “should no longer be relied upon”. The report was part of a Sars probe into the alleged rogue unit and was seen by critics of

The report was part of a Sars probe into the alleged rogue unit and was seen by critics of Mr. Zuma as a politically motivated investigation targeting the president’s opponents, including Mr. Gordhan. Tom Moyane, head of Sars, criticised KPMG for withdrawing the report — whose findings he defended — saying parliament should investigate the accountancy firm’s “immoral conduct” in backing away from its own investigation. The report concluded that a covert unit was set up under

The report concluded that a covert unit was set up under Mr. Gordhan at the tax office, and found other alleged governance failures during his time there.

Mr. Moyane also called for South Africa’s Treasury to “blacklist” KPMG from working with state departments. Sars would also consider using the auditor for reputational damage, Mr. Moyane said. “We are looking forward to having the opportunity to meet with him and discuss his concerns,” said a spokesperson for KPMG South Africa.

The attack by South Africa’s revenue service is the latest blow to KPMG, which has come under fire after admitting that it missed red flags over audits of businesses owned by the Gupta family. Eight senior executives have been dismissed from KPMG’s division in the country, in a political scandal that has already led to the collapse of PR agency Bell Pottinger.

Critics of Mr Zuma said the KPMG report was used to undermine Mr Gordhan, who was outspoken on alleged state corruption and of the influence of the Guptas. The Gupta family has been accused of using its friendship with Mr Zuma to influence political appointments and win state contracts. Mr Zuma sacked Mr Gordhan as finance minister earlier this year. Mr Gordhan on Friday said “KPMG has not done enough” to make amends after the report’s withdrawal.

He accused senior KPMG personnel of “witting and over-enthusiastic collaboration” and “collusion with nefarious characters in Sars” that contributed to alleged state looting. The Guptas and Mr Zuma deny all the allegations against them. Mr Moyane has in the past denied allegations that he is close to the family and, on Monday, said Sars had “capable” people and denied Mr Gordhan’s claim. KPMG said: “We have reached out to commissioner Moyane and look forward to having the opportunity to meet with him and discuss his concerns.”

Mr Gordhan told the Financial Times that he was discussing KPMG’s statement with his lawyers with a possible view to taking legal action.

He added that “the main issue is the huge amount of damage that has been done” to the credibility of the revenue office. “KPMG’s response has been inadequate. The bottom line is repair the damage you’ve caused,” he said. “One hopes KPMG is listening carefully to the discussion in the country if it wants to continue operating here,” Mr Gordhan added.

On Monday, Themba Godi, the chairman of a powerful parliamentary committee, also said that KPMG’s work with South African government bodies was at risk. Mr Godi said the standing committee on public accounts will “call KPMG to clarify its conduct and to justify why it should continue doing business with the state”.

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