Budget and 2003 Annual Report of the South African Revenue Service

Portfolio Committee on Finance
5 June 2004

Prepared by Albert van Zyl Research Associate University of Stellenbosch

The Committee recommended SARS for some of the vast improvements that had been brought about over the last years. These improvements resulted in some of the revenue windfalls that has facilitated the pursuit of fiscal and macro-economic stability in South Africa. The improvements include innovation in the areas of management, technology, human resource
development and processing reforms.

The Committee did however express its concerns around the quality of the information submitted to it. It would consult .with SARS about this issue and others to facilitate its general oversight of the agency.

1. Improvements of Customs
The Committee commended SARS on some of the improvements that have been made in terms of Customs over the last year. Firstly all customs collection points had been transformed in terms of Siyakha (described below).

SARS is also involved in a process of upgrading the infrastructure at all 19 the land border posts where it has a presence. This would involve upgrading the office and accommodation facilities as well as the technical equipment such as scanners used to survey goods. SARS did point out that its
cooperation with other agencies in this regard, such as the SAPS and Home Affairs was not unproblematic.

A further improvement revealed by SARS was the electronic collection of Customs information. This would improve the process and outcome of the production of trade statistics.

2. Implementation of Siyakha
The Committee welcomed the imminent rollout of phase 2 of the Siyakha programme. SARS pointed out that the project was in many cases delayed by the difficulty of finding appropriate premises, especially in the case of Gauteng. SARS acknowledged that there was no pre-existing blueprint for the roll-out of Siyakha as SARS was in the process of innovating as they
implemented. This would facilitate learning at every stage of the project SARS undertook to brief the comment on the rollout of phase 2 of Siyakha.

3. Improvement of documentation and oversight
The Committee expressed concern .about the .nature of documentation presented to it on the activities of SARS It specifically expressed a desire to have a follow-up hearing once the 2003 Annual Report for SARS is tabled.

The Committee expressed concern about the limited extent of the data and information provided in the ENE and SARS Strategic Plan and Annual Report. What information does get to the Committee is often too late to enable, it to perform its oversight. SARS undertook to revise its 2004 documentation and to present it to the Committee in the same format as used by departments in the ENE.

4. Improving Industry knowledge
SARS indicated that its capacity to engage analytically with certain industries is still limited. It was engaging these industries on a sectoral basis both to build its own understanding, but also to understand the sector specific challenges. Lessons had been learnt in the retail, electronics, and gambling industries. Such engagement could build better broad compliance, but also help to identify non-complying individual enterprises. Where possible SARS was trying to improve compliance without being vindictive and trying to build partnerships with industry. SARS found that most businesspeople were receptive to such interaction.

In some cases SARS found that it was too reliant on the information provided by industry SARS is now trying to build the capacity to verify such

5. Duplication of controls
One of the issues that the Auditor General (AG) based its qualification of the Administered Revenue Account on was the fact that certain registers such as the customs register and the IRPS register, were not kept up to date. SARS argued that its focus was on collection and not compliance, and that these registers were mere checks .and did not form part of the system of collection.

Even though some of them were not up to date, this did not therefore affect the system of collection. The Committee recommended .that such duplication of controls should rather be eliminated and not perpetuated.

6. Debt management system
The Committee recommended SARS for the improvements with regard to the collection of debt. Over the last year the: debt book has been stabilized and has not increased at all. This has been done by increasing the number of staff that are deployed to this end and by investigating the whole cycle of payments becoming debt. In this manner SARS hoped to intervene soon enough to prevent due payments becoming debt.

SARS has also learnt to be more selective about its debt collection, and to target specific sources more aggressively. SARS has also initiated personal meetings with debtors that owe more than R 1 million to SARS, rather than managing the relationship through correspondence. They found that this required special capacity that many SARS staff did not have. SARS would be embarking on a programme of building such capacity.

7. Technological advances such as e-filing

The Committee welcomes some of the technological advances being made by SARS. such as e-filing. After a slow start, the untake of e-filing has improved. SARS is continuing public awareness campaigns to boost this. In general SARS also found that it was easier to minimize fraud on such a
system.

Other improvements include the -introducing of software that can display a single debt profile for each user. This could prevent the payout on certain tax returns where users owe on other accounts.

Elimination of processing backlogs

The Committee commended SARS for the elimination of backlogs in the processing of Income Tax returns.

Unqualified Audit Reports
The Committee commended SARS for its unqualified Audit Report. SARS argued that it was only the Audit Report for its administered income that was qualified and that of the rest of its activities it received an unqualified opinion.

On its administered income, many of the reasons for the qualification of the AG's opinion was based on definitional rather than substantial differences between SARS and the AG, one example hinging on the writing back of stale checks as income.

10. Systematic process of eliminating the tax gap
The Committee expressed its satisfaction at the progress that had been made in understanding the nature of the tax gap. SARS pointed out that the gaps consisted of non-registering, non-filing and non-paying users. SARS has made progress in reducing the numbers of non-filing users and it arrested the growth in debt ( over the last year SARS improved industry knowledge referred to above (section 4) has further contributed to the reduction of the tax gap.

The SARS pointed out that contrary to conventional wisdom, the informal sector was not a major contributor to the tax gap.

11. Increased prosecution of tax offenders
SARS was also commended on its increased prosecution of tax defaulters. This discussion of building improved industry knowledge (see section 4) also made a large contribution to the reduction of the tax gap.

2. Customer service improvements
SARS also made giant strides in .-improving its customer services. Such improvements include the enlargement of various call centres and the introduction of a 'one-stop shop' providing information on the tax regime to potential investors.