Taxation Laws Amendment Bill: voting; SARS: Annual Report;

Meeting report

FINANCE PORTFOLIO COMMITTEE
11 May 2001
SOUTH AFRICAN REVENUE SERVICE: ANNUAL REPORT; TAXATION LAWS AMENDMENT BILL: ADOPTION

Chairperson: Ms B Hogan

Documents handed out
SARS Presentation
Annual report of SARS
Strategic plan for 2001/2002

SARS website: www.sars.gov.za

SUMMARY
The committee commended SARS for its impressive strategic plan for 2001/2002. Strategic goals include transforming SARS processes and technologies. A major task for the next two to three years is upgrading the technology network infrastructure and SARS will also have to deal with the implementation of Capital Gains Tax.

One of SARS achievements which was highlighted is the fact that they have completely revamped the way they do audits. SARS believes it is now comparable to the best in the world. There is also a consistent training of auditors to upgrade their skills.

Both the Portfolio and Select Committees accepted that deliberations on the Taxation Laws Amendment Bill had been concluded. [In the National Assembly plenary session, the DP, NNP, FA indicated that they were not in favour of the Bill].

MINUTES
A team from SARS was present. The Commissioner of SARS (Mr Gordhan) made the presentation. The Minister of Finance (Minister Manuel) and the Director General of the Treasury (Ms Ramos) were both present.

Summary of presentation
Achievements include:
- The revenue collection is consistently increasing.
- SARS has revamped the way they do audits. They are now comparable to the best in the world. There is a consistent training of auditors to upgrade their skills.
- SARS conducted various industry investigations. Criminal proceedings arising from this are still to come. Over the last financial year there have been 107 cases of criminal investigation.
- SARS want to be open about the fact that the phenomenon of internal corruption exists. Staff will be dismissed in accordance with labour legislation if corruption allegations can be proved.
- Regarding customs they have speeded up the processing time for bills of entry. They have also had greater success in spotting the things that should not be in the country.
- SARS plays a big role in terms of drug seizures.
- There has been a re-organisation of customs personnel into teams. This project will be expanded throughout SA.
- In terms of processing income tax returns all backlogs were cleared by 30 April this year. R1.7 billion additional refunds have been paid out.
- They have a new debt collection system and have already seen a huge improvement in debt collected.
- There are still too many complaints about bad services. There will be important improvements on this side.
- The human resources management system is a new system. In terms of this SARS is going to build auditor capacity.

Strategic goals for 2001/02 include:
- Optimising revenue yield
- Promoting good governance
- Transforming SARS processes and technologies

The transformation process has already started. Service centres are being set up. One hundred million rand will be used to set up the service centres. This process starts in KwaZulu-Natal. There is already an implementation team there. The people and the plans are ready. From October the form will change. It will start in KZN and later it will move elsewhere.

Focus for 2001/2002 includes:
- An account clean-up to ensure that the correct amounts go to taxpayers.
- They also want to develop simplified income tax returns.
- They want to analyse developments in the economy to find an opportunity for revenue collection.
- A major task for the next 2 - 3 years is upgrading the technology network infrastructure.
- They will also have to deal with the implementation of CGT.
- In terms of communication the focus will be on tax payer education campaigns. This includes a tax literacy campaign and a campaign on Income Tax Returns, and Provisional Tax.

Discussion
Mr Andrew (DP) highlighted a few complaints he had heard about SARS.
- People complain about receiving telephone calls from SARS at unacceptable hours. Some people have received calls between nine and ten o' clock in the evening even though they are available during office hours.
- Tax refunds for individuals are slow.
- Inspectors refuse to go into certain areas (where there is high crime) because they are afraid of being injured or attacked.
- Often there is slow or no response to answering telephones when someone telephones SARS to make enquiries. He asked if any monitoring has been done on how fast calls are answered.

Commissioner Gordhan replied:
- Calls at unacceptable hours: It is possible that this has happened. It is not the intent of SARS to harass people. It may be a PABX system that automatically keeps dialling a number until the person answers the telephone. They will investigate this. He emphasised that SARS discourages harassment.

- The refunds: This was a problem in the past but it is not a problem now. SARS has processed outstanding forms.

- The "no-go" areas: SARS is hyper-careful to treat all taxpayers on an equal basis. There are areas that they cannot reach because of administrative capacity. However the new service centres will now be in areas never seen before. He emphasised that there is not a ''map in SARS that says no-go areas''.

- Telephones: The systems are poor and the staff are poorly trained. SARS concedes that this is a problem. It is part of their plans to address this. They will get it right but they need some time.

Ms Marshoff (ANC) asked:
Doctors have complained to her that when their patients’ medical aid finally pays the doctor then SARS comes in and takes the first bite of it. They feel as though they are going bankrupt. The doctors respond to this by increasing their cash tariffs and then they do not declare the money, they put it into their pocket. The effect of this is that the patients pay more.

Mr Gordhan replied that if SARS is taking medical aid money then it is because the doctors are in debt. These doctors have not tried to come to an arrangement with SARS, and they have been recalcitrant in paying. Taking from the medical aid is a last step for SARS. He said the problem was that people should ''live within their means''.

Minister Manuel added that there is a tendency to try and use the Revenue Service as a bank. On the one hand they do not want to be punitive but on the other hand they do not want SARS to be seen as a cheap source of financing. This is not a uniquely South African problem.

Mr Gordhan said that there is a mindset in the country that if SARS does not come to collect the return, then they will not hand it in. This culture must be changed.

Prof Turok (ANC) asked about the correlation between the efficiency of SARS and social impact. He suggested that SARS or the Treasury develop a division to look at this correlation in respect of tax collection. If it is a regressive tax in that the poor are penalised more than the rich (in term of VAT) then what is the social impact of that. They should measure social policy outcomes.

The Minister replied that the situation is progressive. Many are excluded from paying tax. Efficiency gain is able to focus on the end of the spectrum where there is more manoeuvreability. The introduction of CGT is important for equalisation. VAT has been at the current level for ten years now. When revenue collections increase it is not because the taxes have been increased but rather the administrative ability to get to the intermediary is better and also the tax base is wider. He admitted that there are still loopholes in the system and noted that there would be periodic reviews.

Mr Theron (DP) asked about harassment of taxpayers from SARS. (He related a story where SARS phoned him on a Saturday morning to inform him that R 30 000 worth of his assets was going to be confiscated - it turned out to be an error on SARS part). He asked if SARS staff had been adequately trained in the area of public relations. For example, can personnel handle the public in a friendly and efficient manner? This is a concern especially in light of handling foreigners with the new residence based taxation. He also asked if SARS does a cost-benefit analysis to indicate if new programs are cost beneficial (if it is worthwhile producing them).

Mr Gordhan replied that the problems with harassment are isolated incidents. They will try to get facilities to deal with such problems. On the issue of cost-benefit analysis Mr Gordhan replied that if one cannot measure internally then one cannot have a cost-benefit analysis. In the past SARS was not measuring so they did not have such an analysis. They are measuring now which means that they will be able to do a cost-benefit analysis in the future. They are not there yet but they need to move into that direction.

Minister Manuel added that (on the cost-benefit analysis) in the process of change (example the processing centres) initially there will always be a hurdle. However, the introduction of change will have a long-running effect. By looking only at CGT for example one cannot accurately measure, one must look at the overall architecture. Effects are seen in the medium to long term (3 - 5 years).

Mr Andrew asked for a comment as to whether SARS exchanges information with the criminal justice system.
Mr Gordhan replied that there has been collaboration between SARS and the Asset Forfeiture Unit. They have tackled cases together. The Prevention of Organised Crime Act allows revenue services to share information with the Scorpions and so forth. The Financial Intelligence Centre Bill creates an obligation to report certain transactions (and SARS could possibly also be the recipient of reports). The relationship between SARS and the law agencies is a good one.

The Chairperson thanked the presenters and the meeting was adjourned.