- Report
of the Portfolio Committee on Finance on Budget Vote 7 (National Treasury),
dated 28 may 2008
The Portfolio Committee on Finance
having been briefed and deliberated on the Budget Vote 7 and the Strategic Plan
2008/11 of National Treasury and the Strategic Plan 2009 – 2011 (update for
2008/09) of the South African Revenue Services reports as follows:
1. Introduction
On 20 May the Minister of Finance,
the Director General, and senior officials from National Treasury briefed the
Committee on the overview of the department’s goals and objectives and details
of the strategic plan for 2008/11. On 21 May 2008, the Deputy Minister of
Finance and the Commissioner of the South African Revenue Services (SARS)
briefed the Committee on the Strategic Plan 2009 – 2011 (update for 2008/09) of
the South African Revenue Services.
The main strategic aim of National
Treasury is to promote economic development, good governance, social progress
and rising living standards through the accountable, economical, equitable and
sustainable management of public finances.
The Minister highlighted the current
global and domestic concerns. Financial market turmoil, sharp increases in
global food and oil prices were of particular concern in the global economic
environment. Economic growth had been very slow, especially in developed
countries. World growth had been
projected at 3.7% in 2008, from 4.9% in 2007.
There have been some signs that credit stress has eased since the
collapse of Bear Sterns and emergency liquidity measures by the United States
(US) Federal Reserve through the lowering of interest rates. There has also
been emerging consensus that the
The Minister further highlighted
that a key policy challenge is inflation targeting, specifically bringing
inflation back to within the target range. Inflation is likely to exceed its
target until the fourth quarter 2009. Higher inflation is a worldwide
phenomenon and is more severe in oil-importing countries. It is important to
distinguish between short-term adjustments in the price level from the
long-term inflation trend. The economy had to adjust to higher fuel and
electricity prices and higher food costs, hence monetary policy had to ensure
these relative price adjustments did not lead to an accelerating
inflation spiral. Fiscal policy had to support overall demand management and
strengthening the supply side of the economy. Wage adjustments this year would
have to take into account the higher cost of living. The policy framework aims
to achieve moderation of price and wage trend over medium term.
2. Programme
purposes, objectives and measures
National Treasury has nine programmes. Through its different divisions,
National Treasury is responsible for preparing the National Budget, putting in
place measures to raise revenue to fund the budget, and ensuring the equitable
division of resources among the different spheres of government. National
Treasury’s legislative mandate includes the following: to promote government's fiscal policy
framework, coordinate macroeconomic policy and intergovernmental financial and fiscal
relations, manage the budget preparation process, (which includes revenue,
expenditure, assets and liability management), control the implementation of
the national budget, (including any adjustment budgets, facilitate the
implementation of the annual Division of Revenue Act), and monitor the
implementation of provincial budgets.
2.1 Programme 1: Administration
The
purpose of the programme is to provide strategic
management and administrative support to National Treasury, giving managerial
leadership to the work of the department.
The key focus area for 2008 – 2009
will be:
·
Bi-Annual reviews and
update of Corporate Services policies, procedures and standards;
·
Implementation of an
integrated Client Relationship Management Strategy;
·
Acquire adequate, safe
and secure facilities for the National Treasury; and
Enhance and expand the knowledge management culture within the National Treasury.
2.2 Programme 2: Public Finance and Budget
Management
The programme provides analyses and advice on fiscal policy and
public finances, intergovernmental financial relations and expenditure planning
and priorities. The programme also manages the annual budget process and provide public
finance management support.
The
key focus areas for 2008/11 will be:
Budget Coordination
•
Maintaining a sound fiscal stance to
support growth and development in the context of global economic turbulence;
•
Budget process improvements focussed
on effective service delivery and better value for money;
•
Improving
the quality of performance information published in the budget consistently
until rendered auditable;
•
Enhancing financial management
oversight over public entities; and
•
Strengthen capital expenditure
planning, evaluation methods and capacity.
Sectoral
Priorities
•
Investment in the built environment,
road and rail transport infrastructure;
•
Information systems in the
integrated justice sector reform programme;
•
Asset management in government
buildings, maintenance and accommodation;
•
Continued work towards the
development of a contributory social security system; and
•
Education, health and skills
development.
Intergovernmental
Relations
•
Foster further equity in the
division of nationally raised revenues and intergovernmental transfers;
•
Promote transparency through timely
publication of provincial and local government budget and expenditure reports;
•
Continued efforts to increase
coverage and accuracy of local government reports;
•
To strengthen financial management,
governance, accountability and capacity in local government;
•
Rollout of Infrastructure Delivery
Improvement Programme (IDIP) in key provincial departments involved in
infrastructure; and
•
Support the Siyenza
Manje initiative to unlock service delivery and
infrastructure at local government level.
2.3 Programme
3: Asset and Liability Management
The programme manages government’s
financial assets and liabilities.
The key focus area for
2008/11 will be:
•
Active management of debt with a
view to reducing debt service cost, subject to acceptable risk levels;
•
Sound forecasting and prudent
management of Government’s cash flows;
•
Policy focus on managing external
vulnerability;
•
Increasing the operational
efficiency of SOEs through improved financial
oversight; and
•
Rollout of a treasury management
back office system.
2.4 Programme 4: Financial Management and
Systems
The
purpose of the programme is to manage and regulate
government’s supply chain processes, implement and maintain standardised
financial systems, and co-ordinate the implementation of the Public Finance
Management Act (1999) and related capacity building initiatives.
2.5 Programme 5: Financial Accounting and
Reporting
The programme promotes and enforces transparency and effective
management in respect of the revenue, expenditure, assets and liabilities of
departments, public entities, constitutional institutions and local government,
thus facilitating accountability and governance.
The key focus areas for programme 4 and 5 for 2008/11 are:
•
Coordination and implementation of
the Integrated Financial Management Systems (IFMS) - Phase III;
•
Rollout of strategic sourcing
principles;
•
Compliance with the standards of
Generally Recognised Accounting Practice (GRAP) in preparation of timely and
accurately consolidated financial statements;
•
Support
for all spheres of government and public entities, on compliance with
applicable standards and prescripts and
•
Greater emphasis on governance in
departmental operations through strengthened risk management and internal audit
functions.
2.6 Programme 6: Economic Policy and International
Financial Relations
The
purpose of the programme is to provide specialist
policy analysis and advisory services in the areas of macroeconomics,
microeconomics, financial sector, taxation, regulatory reform, tax policies,
regional integration and international financial relations.
The key focus areas for 2008/11 are:
•
Reforming the system of retirement
funding;
•
Enhancing accessibility to financial
services;
•
Replacing STC with dividends tax,
and finalisation of Mining Royalty Bill and Diamond Export Levy Bill;
•
•
Strengthened economic policy and
forecasting, covering microeconomic analysis, G20 policy themes, and continuing
research on growth;
•
Further development of research
capacity to address key economic focal areas such as growth, employment,
banking and taxation.
2.7 Programme 7: Provincial and Local
Government Transfers
The programme manages conditional grants to the provincial and
local spheres of government.
2.8 Programme 8: Civil and Military Pensions,
Contributions to Funds and Other Benefits
The
purpose of the programme is to provide for pension
and post-retirement medical benefit obligations to former employees of state
departments and bodies, and for similar benefits to retired members of the
military.
2.9 Programme 9: Fiscal Transfers
The programme transfers funds to other countries and
multilateral and domestic institutions and public entities, including
international development institutions of which
3.
Public entities and other financial responsibilities
Various
public entities report to the Minister of Finance. This takes place through
governance arrangements that allow reporting institutions the autonomy that
they require to meet their mandates.
Each
entity produces, operates and reports according to its own strategic plan,
which is of relevance to National Treasury’s strategic goals and business. They
are:
·
The
South African Revenue Services (SARS), the Accounting Standard Board (ASB) and
the Financial Intelligence Centre (FIC) receive
transfers from the National Treasury;
·
Other
entities that report to the Minister of Finance, but which do not receive
transfers from the National Treasury, are the Development Bank of Southern
Africa (DBSA), the Financial Services Board (FSB), the Public Investment
Corporation (PIC) and the South African Special Risks Insurance Association
(SASRIA).
4. Budget Analysis:
National
Treasury’s allocation as a percentage of the total budget allocation decreased
from 3.6 per cent in 2007/08 to 3.5 per cent in 2008/09.
Over the MTEF period, the allocation to National Treasury as a proportion of
the total budget allocation comes to 3.6 per cent for both of the outer years
of the 2008/09 MTEF. Table 1 gives a breakdown of the 2008/09 allocations, and
the nominal and real change in monetary values and percentages between 2007/08
and 2008/09.
Table
1: Allocations over the 2008/09 MTEF
Source:
National Treasury (2008) – Vote 7 National Treasury
5. Committee deliberations
Having deliberated and sought
clarity related to the 2008/11 strategic plan, the Portfolio Committee on
Finance raised questions around the following issues:
·
The
current status of the Harvard Group Report;
·
The
fiscal implications of programme 3 on the 2010 FIFA
World Cup;
·
The
conditions for the capital injections to Eskom;
·
The
finalisation of the poverty index;
·
Retirement
fund reform;
·
Filling
of vacancies;
·
Inflation
rate of
·
Non
performing loans;
·
Development
of protocols;
·
The
reuse of the equalization fund;
·
Increase
in the VAT rate of luxury items and zero rating of food items;
·
What
programmes with measurable objectives and outputs are
in place to strengthen financial management, governance accountability and
capacity in local government?;
·
In
terms of staff planning, no disability figures are reflected;
·
What
is the time period for conditional grants to FET Collages?;
·
Implementation
of the Integrated Financial Management System (IFMS);
·
What
are the support measures for the water crisis?;
·
Donor
funds;
·
What
is the qualitative aspects of training courses that is design to achieve
outputs;
·
National
Treasury’s views on virements?;
·
Financing
of Sentech; and
·
Progress
on regional integration.
Responses by National Treasury
In terms of the Harvard Group
report, National Treasury reported that a commission was established to look at
issues of growth and development and to make sense of the available
information. The Harvard Group report will be released on 21 May 2008. One of
the issues was that there were general observations that would influence policy
makers and heads of states. Every country had to deal with its peculiar circumstances.
The international panel had undertaken thorough analysis of the economic
development prospects of
Regarding the Development Finance
Institutions (DFI), National Treasury indicated that it had concluded a
detailed study that focused on the big DFIs, i.e.
Development Bank of
Regarding the poverty index,
National Treasury responded that there were a slew of technical issues that had
been worked on by Statistics South Africa. The details of the
system are under discussion.
On
inflation targeting, National Treasury responded that a lot of detailed
technical work was undertaken. Inflation targeting that speaks to the need of
price stability was required. When the
measure was introduced, National Treasury has done extensive technical work,
which include if under pressure the use of an escape clause in present circumstances.
On non-performing loans, National
Treasury indicated that some of the systems worked because of trust and that
other institutions are encouraged to be as compliant
as banks.
On protocol, National Treasury
highlighted that
On the fiscal implications of the
2010 FIFA World Cup, National Treasury reported that on the spending side, it
added a further billion rand this year to the
National Government’s contribution for stadiums. This brings the contribution
to stadiums to R9.5 billion. Another R3.5 billion has been made available by
cities and other sources. This brings the total stadium budget close to R13
billion. The projects are well underway. There have been concerns raised about
the cost escalations in these projects. Construction has been affected in the
inflation upturn last year. There are three other stadiums that can expect
significant cost over-runs. Approximately R9 billion from the national budget
was allocated for transport projects to the host cities in 2010. Work is near
completion on the large procurement of busses that has to be undertaken by the
Department of Transport. There were also fiscal implications on the
communications infrastructure that are not finalised.
However, good progress has been made this year. Government spending is close to
R20 billion in preparations for the event.
Regarding retirement reform and the
broader social security reform, National Treasury responded that this would not
be a single event. Steps have been taken through this year’s budget to equalize
social assistance grants through revising the qualifying age for men and women.
The means test thresholds for social grants have also been adjusted upward.
National Treasury highlighted that
the capital injection for Eskom was not a grant. The
underlying premise was that Eskom was to be funded by
electricity users. National Treasury
was cognisant that the built programme
of Eskom would put pressure on their balance sheet.
National Treasury was still in negotiations with Eskom
about the repayment modalities around the R60 billion and the conditions
attached to it.
Regarding
vacancies, National Treasury indicated that although progress had been made, it
still faced some challenges. One of the challenges with regard to the National
Treasury’s internship programme was that interns
often get better offers. National Treasury is faced with the fact that people
were working in a policy-making environment that was not easily available
elsewhere. National Treasury then ends up developing people internally, whether
as interns or as part of the talent pool. Labour
markets were competitive and skilled people are scarce. There was, however, a
different culture that drives people working in National Treasury. This had
been identified as the passion to serve, the understanding that the work of
National Treasury has an impact on the lives of ordinary people. The internship
programme and the training of accountants were some
of the interventions that National Treasury had put in place to fill vacancies.
With
regard to the equalization fund, National Treasury indicated that the principle
was that the state would not subsidize fuel. If this principle was accepted,
then the equalization fund would only be smooth on a quarterly basis instead of
avoiding monthly shocks. The equalization fund only delays the shock.
With
respect to VAT, National Treasury indicated that a measure had been introduced
and one of the key debates was the potential loopholes created. The basket of
zero-rated items had been in place with some additions. One of the difficulties
with food price issues was that it was very difficult to design a system.
National Treasury is assisting
municipalities with financial management. Past reports indicated that National
Treasury has established a municipal management technical assistance programme. This programme
introduced experts from abroad that have to be experience in municipal
financial management. These experts were deployed in municipalities to work
side by side with local officials. About 60 per cent of the experts were used
effectively. The programme has since been concluded
ended, with the result that knowledgeable and capable people have been left
behind. On a larger scale, through the financial management grant,
municipalities can appoint young professionals in the field of financial
management. The programme has seen over 500 people of
whom some became full time employees. The Siyenza Manje programme, run by the
Development Bank of
Interest rate changes impact more on
those in society who undertake debt, be that debt in
terms of mortgages, or debt relating to other credit transactions.
On administered prices, National
Treasury responded that it accounted for about 20 percent of the basket,
electricity was 3.6 percent and petrol prices were 5.08 percent. Petrol prices
were administered only because of a technical definition, and were not
administered in the same way as other prices.
The target that has been set for
people with disabilities in government is 2 percent of the total staff
compliment. National Treasury has approached sectors that deal with people with
disabilities to assist with the filling of vacancies. National Treasury has
experienced difficulties when people do not want to be categorised
as disabled.
Regarding SOE’s,
National Treasury has reviewed its operations on major SOE’s.
During this review, National Treasury discovered certain failures to comply
with best standards. SOE’s which were affected then
took corrective measures.
Regarding assistance to provinces,
National Treasury reported that a treasury control forum, consisting of
National Treasury and provincial treasuries had been established to provide
assistance to provinces. In addition, National Treasury has an
inter-governmental committee that also provide assistance to provinces
by performing benchmark exercises to determine whether provinces were on the
right track. This was done prior to the tabling of the Budget.
In terms of the Integrated Financial
Management System (IFMS), National Treasury responded that the main focus was
around the strategic intent that drives financial management. This was embedded
in the Public Finance Management Act. One of the challenges was the issuing of
tenders. During the procurement process of the IFMS, a process was set up
whereby the Auditor General would certify each stage. A certificate was issued
which indicated that each stage of the procurement process was free, fair and
transparent before the winning bidder was announced. National Treasury assessment
was that systems did not drive the management processes. It was the management
processes that would determine which systems were required. In addition to
this, National Treasury mentioned that the scarcity of information technology
skills presented another challenge for a project the magnitude of the
Integrated Financial Management System.
In terms of the growth forecast over
the MTEF, National Treasury indicated that, at the time the budget was tabled,
the growth figures were revised downwards. The figures in the MTEF were
projections rather than targets.
With regard to training courses,
National Treasury indicated that all courses have been accredited. The main
concern with training was that in many instances, people who have received
training while in the employ of National Treasury leave the department once
they have completed their training. National Treasury was in the process of
tracking down participants to establish how useful the courses were in the
working environment. This would form part of performance evaluation at the next
stage.
Regarding virements,
National Treasury responded that the Public Finance
Management Act (PFMA) was currently very restrictive. Currently, the PFMA only
allowed departments to utilise a saving of 8 per cent
of the amount appropriated to a specific main division to defray expenditure in
another main division of the specific vote. According to National Treasury,
they were not always able to predict spending flows and this required a degree
of flexibility. National Treasury was currently reviewing the specific PFMA
provision related to virements.
In terms of the Official
Development Assistance (ODA), National Treasury responded that the ODA was R1,
3 billion over the next 3 years and was invested largely in infrastructure.
Donor aid was channelled through the Reconstruction
and Development Fund and was approximately R 2 million. A report on the flow of
funds could be provided.
National Treasury
reported that Sentech had a meeting with the
Portfolio Committee on Communications who reported that further work would need
to be done on a business plan. Sentech’s core
business, as a signal distributor, was to provide a service to broadcasters.
The digitisation deal was not yet completed with the
SABC, as the SABC Board currently had other concerns.
Regarding regional integration, National
Treasury responded that the minimum threshold on SADC protocols had been
passed. Countries would now have to approve it in order for it to take effect.
6. Briefing by the South African Revenue Services on the 2009 – 2011
Strategic Plan (Update for 2008/09)
6.1
Introduction
The Deputy Minister of Finance,
Commissioner of the South African Revenue Services (SARS), and senior officials
from SARS briefed the Committee on, as the Commissioner puts it “an update of
their Strategic plan”. The Strategic plan under consideration was the 2009 –
2011 Strategic plan, which is an update of the 2007/10
plan. In the introduction of the presentation, the Commissioner placed the
2009/11 Strategic plan into perspective. The Commissioner made the point that
the 2009/11 Strategic plan gives further impetus to the modernization agenda
introduced by SARS in its previous Strategic plan. In the words of the Commissioner,
the plan is an update, since during the previous engagement with the Committee;
SARS outlined its plan which it needs to pursue over the next 5 – 7 years.
Notwithstanding the key strategic themes/programmes of the modernization
agenda, the Commissioner made it clear that the core business of SARS remains revenue collection to meet
government priorities, compliance, service, trade facilitation and border
control.
One
should take note that SARS in essence does not constitute a vote on its own. SARS
is categorized under “Public entities and other agencies” under Vote 7, which
is National Treasury. This report consists of different sections. Section 6.2
sketches the background against which the modernization agenda was drawn up –
essentially a transformation agenda in which SARS is set to become more externally focused by improving taxpayer and trader
service, adopting a new compliance model, including more assertive enforcement,
strengthening Customs’ role and increasing employee diversity. Section 6.3
gives an overview of the revenue challenges of the 2007/08 financial year, key
changes during 2007/08, and the key successes of the 2007/08 financial year.
Section 6.4 gives an outline of what is proposed for both employers and
employees for the strategic planning period. Section 6.5 provides and overview
of SARS’s Customs modernization. Section 5 provides
details of selected Human Resources issues. Section 6.6 gives a summary of
questions raised by Members of the Committee and the responses provided by the
SARS delegation.
6.2 Background to the
emergence of the modernization agenda
In
giving a background to the updated Strategic plan, the Commissioner outlined
that the transformation shift in SARS started way back in 2004. The three key
challenges that SARS faced back then were:
1. A shift from an inward
administrative view to an outward taxpayer view
·
Essentially,
this entails gaining a better understanding of the socio economic environment
of existing and potential taxpayers. Through doing this, SARS aim to cultivate
a culture of compliance.
2.
A shift from a manual to automated system
·
Given
the increase tax base that SARS is dealing with, the need arises for the
conversion of the manually-operated system to an automatically-operated system
to ensure greater efficiency and flexibility in its operations. Essentially
this means freeing up human resources to be used in other areas.
3. A shift from reactive to
proactive engagement with clients
·
In
essence, what this means is that instead of reacting to people not complying,
the objective should be to allow for individuals and businesses to be more
compliant. In this way the limited resources of SARS would not be used to chase
reactively after tax avoiders all the time.
The Commissioner mentioned that one of the programmes of the modernization agenda that SARS indicated
would be implemented was that of “creating a differentiated operating
model”. A huge amount of work has
already been put into place in implementing this programme.
This programme has reference to the different
customer segments of SARS and a lot of work has already been put in over the
last six months to create a clear differentiation of SARS’s
clients. SARS’s client base is currently divided into
the following categories:
1. Agents and intermediaries;
2. Individuals;
3. Businesses and State owned
enterprises; and
4. Special (Non governmental
organizations, Public Benefit Organizations, etc.)
Given
the fact the SARS has already made progress towards the implementation of the modernization
agenda, the 2009/11 Strategic plan put the key focus areas for the
next 18 to 24 months for the continuing implementation of the modernization
agenda into perspective. During the next two years the focus will be on the
following:
1.
Risk (developing an integrated risk
management and enforcement strategy);
2.
Service (improving customer service,
outreach and education);
3.
Operations (enhancing core
operations and building capacities);
4.
Customs (strengthening border
control); and
5.
Support initiatives (reinforcing
core support systems)
6.3
Revenue challenges, key changes and key
successes of the 2007/08 financial year
According to the Commissioner, SARS’s interaction with its customer base is underlined by
its compliance philosophy. This compliance philosophy essentially means that
SARS wants to make compliance as easy as possible for those who want to comply;
and non compliance as hard as possible for those who do not wish to comply. The
Commissioner further mentioned that when the 2007 Strategic plan was tabled
back then, the aim was to reduce the compliance burden, improve risk, better
service and utilise resources differently. It was
decided that the target group to focus on in terms of achieving these aims
should be individuals, specifically in terms of personal income tax. The
Commissioner advanced the following reasons for focusing on personal income tax
was put forward:
1.
a
high proportion of SARS’s resources were channelled to personal income taxes;
2.
the
majority of paper work comes from personal income taxes; and
3.
the majority of revenue to be collected from personal income tax has
already been collected.
The outcome of the shift in focus to
personal income taxes through the 2007 Strategic plan was the following:
1.
Changed
from a manual, paper-based process to an electronic, automated process;
2.
Eliminated
supporting documents and relied on third party data;
3.
Introduced
a sophisticated risk engine to flag non-compliance; and
4.
Quicker
processing, service and refunds.
Table 1 provides
details of the key successes SARS has accomplished during the 2007/08 financial
year.
Table 1: Key successes of 2007/08 and key challenges of the
automated process
|
Key successes |
|
|
Automated tax processor |
Over 4 million returns were
processed |
|
e-filing |
Submission through this medium
increase from 35 000 to 1 million |
|
Scanning facility |
More than 1 million returns
scanned |
|
Branch front end |
Over 500 000 taxpayers were helped
at branches |
|
Bulk data capturer |
Nearly 1m returns were processed
with double capture and quality verification to reduce SARS data capture
errors |
Source: SARS (2008a)
The
introduction of the electronic, automated tax processing system did present
some challenges for SARS. The automated tax processing system consists of the
following five phases: check for completeness; check for accuracy; check
outstanding obligations; apply risk rules; and banking detail verification.
Table
2 provides details of the key challenges, which SARS were presented with
regarding the automated tax processing system during 2007/08.
Table 2: Key challenges of the automated tax processing
system
|
Automated tax processing system phase |
Outcomes of the utilization of the automated tax processing system
during 2007/08 |
|
Check for completeness |
Approximately 600 000 returns send
back due to being incomplete |
|
Check for accuracy |
Approximately 400 000 returns not
matching 3rd party information |
|
Check outstanding obligations |
|
|
Apply risk rules |
Approximately 150 000 returns
flagged for further information |
|
Banking detail verification |
Approximately 150 000 returns
could not be paid because bank details not supplied or could not be verified |
Source: SARS (2008a)
Taking
into account the successes and challenges in terms of the different phases of
the automated tax processing system, the Commissioner was of the opinion that
the challenges presented at the end of the 2007/08 financial year, will inform
the formulation of strategies for 2008/09.
6.4 Proposals for employers and
employees for the 2009/11 strategic planning period
The
current approach in terms of employee/employer/SARS relations with regard to
PAYE is that employers on a monthly basis deduct PAYE from employees. The law
requires that employees pay those deductions to SARS in terms of the Income Tax
Act. Employers are required to keep records for five years of employees’
deductions. This is necessary as SARS can at any time send their auditors to do
a personal income tax audit of the employer’s records.
Proposals for employers
At
the end of the year, the employer is required to total all deductions and
payments made to SARS. This is required for reconciliation and balancing
purposes. The Commissioner stated that within 60 days of the end of the
financial year, the employer must submit to SARS the EMP 501 form that is a
summary of all deductions and all IRP 5 forms issued during the year.
What
currently happens is that a huge paper load accompanies the submission to SARS.
Also, as the Commissioner pointed out, in many case SARS need to make
corrections to the submissions made by employers. Furthermore, some people may
have been paid a late bonus or a retrospective salary increase may have come
into effect. This will add to the paper load and in many instances SARS has to
do the reconciliation.
The
new approach by SARS is one where SARS “PAYE software” is going to be made
available to employers to enable them to complete the EMP 501 form. This as the
Commissioner pointed out will effectively allow employers to do their own reconciliations. The software will be provided with a full
electronic interface with SARS for reconciliation and submission purposes. SARS
will also make provision for those employees which do not have access to the
appropriate technology through a simplified manual PAYE process.
The
60 day reconciliation period will remain under the new approach. This is to
allow employers to do their own reconciliations, –
the purpose of which is to allow for final reconciliations
of PAYE. The period will be from 01 July to 29 Aug. The Commissioner made it
clear that no employees will receive their returns/refunds if employers have
not submitted their reconciliations. Furthermore,
stringent new penalties will apply for non compliance. In terms of the
frequency of reconciliations, the Commissioner stated
that in order to prepare for the implementation of Social Security, the
frequency of reconciliations will increase as follows
over the next three years:
1. Annually in 2008;
2. Semi-annually in 2009; and
3. Quarterly in 2010.
In the same way that 2007
represented challenges for employers, it also presented challenges for
employees. The objective of all the new proposals is to make it easier for the
employee. In this way, it becomes important for employers and other third
parties to provide SARS with the correct information. The Commissioner outlined
the following key challenges for individuals from 2007:
1.
difficulty
of taxpayers to fill in forms correctly:
2.
difficulty
of SARS to capture information correctly;
3.
large
data differences between what is received from taxpayers, employers and other
third parties;
4.
difficulty
in offering first-time resolution to taxpayers at our points of contact; and
5.
strain on call centres.
Proposals for employees
The
Commissioner introduced a new set of proposals for the 2008/09 financial year.
The most significant of these proposals is that those employees who earn less
than R 120 000 per annum will not receive any tax return. This does not include
all those employees who earn less than this amount. It only includes those that
have been working for a single employer for the whole of the particular tax
year. Also, this category of employees must not have any additional deductions
or income. Another proposal is that the return will be customized to the
requirements of the tax payer and that it will be available on the Internet.
The
Commissioner further pointed out the following new developments as it relates
to individual taxpayers:
1. Tax returns to be pre-populated with
IRP5 data;
2. Multilingual returns;
3. Automated responses at Contact centres;
4. Tax calculators; and
5. Sending request forms to individuals
for completion. SARS realized last year that since many tax payers made use of
the e-filing option and many others visited SARS branches to fill out their
form at these branches, that it would be a paper waste to send tax return forms
to all registered tax papers. The new approach would be to send a request form
to registered tax papers for them to complete in order to find out if they
indeed need a tax return form to be send to them
The new approach requires taxpayers to collect their
documents (medical, pension, retirement annuities, etc.) and get their IRP5
form from their employers after 01 July. It is also important for taxpayers to
inform SARS of any change in contact details. In the midst of all these
developments, SARS is transforming its call centres
into contact centres with four different dimensions
or tiers. These tiers are as follows:
1.
Tier
1: Interactive Voice Response for most common queries;
2.
Tier
2: Highly-trained call centre agents;
3.
Tier
3: Subject matter experts; and
4.
Tier
4: Policy decisions
6.5 Customs
Modernization
According to the Commissioner, SARS has over the last two
years developed a Green Paper on customs, which placed it on the forefront on
changes in world customs organizations. SARS has also developed a new Draft
Customs Bill, which is currently undergoing consultations in the Southern
African Customs Union (SACU) community. With the help of the Canadian Border
Security Agency, SARS has introduced a cadet programme,
which will assist SARS in developing new training programmes
for customs staff.
The Commissioner also pointed out that the first 121 members
of the Customs Border Control Unit have recently graduated from the Mokgophong Military base. Of these 121 customs officials,
103 have been deployed to O.R. Tambo International
Airport (ORTIA), while 13 were deployed at the scanner site at
At the
January 2008 Cabinet Legothla, Cabinet took a
decision that SARS take a lead role at border control. This meant the adoption
of the National Integrated Border Management Strategy (NIBMS) in January 2008.
The Commissioner indicated that work is already under way on the 2010 FIFA World
Cup front. Also, an employee wellness programme has
been put in place for staff working at these border posts since people working
at these border posts usually have special needs. In terms of the organisational aspects, and specifically strengthening the capacity of SARS
as the lead agency in terms of border control, the following appointments have
been made:
1.
Nine
(9) Provincial coordinators;
2.
A
National Coordinator; and
3.
Thirty
Two (32) Port Coordinators.
6.6 Human Resources
issues
SARS
has experienced a positive staff turnover since September 2007. This was as a
direct consequence of the newly introduced Integrated Talent Management
Strategy. The Commissioner mentioned the following with regard to developments
in human resources at SARS:
1. Newly opened Recruitment Centre during December 2007;
2. New recruitment process redesigned
with the reduction in 90 days to fill vacancies to ultimately 24 days;
3. New performance management system
implemented;
4. The positioning of SARS as a “Value
Proposition” for current and future employees in our quest to become an
“Employer of Choice” and be a competitive and relevant role player in the “War
for Talent”; and
5. Improved induction, retention,
reward and succession planning initiatives to attract and retain critical
skills and core competencies.
The
following figure shows the categories of people with disabilities being
employed by SARS.
Figure
1: Disability categories at SARS
Source:
SARS (2008)
Figure
1 shows that 50 per cent of the total number of disabled people being employed
by SARS has a physical disability. The next large category of disabled
employees is those with a sight disability. Despite SARS’s
commitment to employing people with disabilities, people with disabilities make
up only about 1.4% of the total number of people employed by SARS.
7. Committee deliberations
Having deliberated and sought
clarity related to the 2009 – 2011 Strategic Plan (update
for 2008/09), the
Portfolio Committee raised questions around the following questions:
·
Non
compliance of tax;
·
Revenue
target;
·
Zero
rating on certain food items;
·
Tax
payers perception towards tax;
·
Penalties
on the manipulation of cheques;
·
Managing
the national savings fund;
·
Gender
equity in management;
·
Education
of third party providers;
·
Corporate
taxation;
·
Abuse
by tax practitioners;
·
National
Integrated Boarder Management Strategy(NIBMS);
·
Contracting
services by SARS;
·
Scanning
facilities at the Alberton offices;
·
Relationship
between Customs and the Financial Intelligence Centre;
·
Recruitment
of disabled employees;
·
Tax
implications for 2010 FIFA Word Cup;
·
Vacancy
rate; and
·
Compliance
with Preferential Procurement legislation.
Responses from SARS
Regarding the non-compliance issue,
SARS indicated that the responsibility lies with the individual to register.
People still need to comply whether or not a tax return form was received. A
request letter is introduced for those taxpayers who want SARS to mail them a
printed tax return. SARS has a resilient and sympathetic approach and will go
the extra mile to remind people about their tax responsibilities.
SARS work according to a model when
revenue expectations are addressed. Revenue projections are then made on the
basis of this model, which makes revenue changes sensitive to changes in
certain variables. The impact that variables will have on revenue projections
will change depending on the economic environment. This in essence means that
modelling is a dynamic and not a static process.
Regarding zero-rating of certain food
items, SARS highlighted that there has been a lot of discussion around the
issue of poverty. There is an interdepartmental committee that is looking at
the matter of intervention on increases in food prices and oil prices, and zero
rating on certain commodities. SARS is in co-operation with colleagues in
National Treasury to address this matter.
On taxpayer’s perception towards tax, SARS
responded that tax compliance is in part a function of social culture,
historical factors, administration capabilities and people’s consent /cooperation. Over several years, SARS has communicated to
people of what the benefits are of paying taxes. These have been reflected in
the SARS media advertisements pre and post the tax-filing season.
Regarding the penalties on the
manipulation of cheques, SARS reported that if money were not received on time,
a penalty would be issued depending on the tax you pay. There are sufficient
provisions that cater for misbehaviour.
With respect to managing the national
savings fund, SARS highlighted that their role is to participate with several
departments in an inter-departmental task team. SARS indicated that this is a
policy issue and once direction is received from policy makers on what
practically needs to be done, SARS will then determine the way forward.
On the subject of gender equity in
management, SARS indicated that about a week ago a flagship leadership
development pilot group that consists of 160 branch managers and team
management level staff was launched. From these, 70% were female, particularly
targeted to address gender challenges. This intervention would help to address
the feeder group and would address the retention of females at senior level. A
coaching programme with high-level senior managers was created to establish the
areas of development. SARS is also engaged in an assessment on specific areas
of development to assist female colleagues to succeed. At the graduate level,
SARS has revamped their talent management and recruitment processes. SARS have
also launched an ambassador programme at schools and universities.
Regarding education of third party
providers, SARS reported that it had high-level meetings with the Chief
Executive Officers of 35 of South Africa’s top companies and plan to have
regional meetings with businesses in provinces to following week.
In terms of corporate tax, SARS responded
that internationally, the corporate system is more complex than individuals.
Corporations operate in a very sophisticated environment. Unfortunately, the
tax regime must keep pace with developments. From operating side, SARS is
following the segmented approach that it has established. New rules for
reportable relations were published a few months ago.
With respect to the registration of
tax practitioners, SARS reported that work was in progress and the ultimate aim
was to create a regulated framework for tax practitioners to operate in.
According to SARS, it has been discovered that in some instances practitioners
work from the same tax practitioner number, while in other instances certain
tax practitioners have outstanding issues with SARS. A significant amount of
work needs to be done to promote the culture of compliance among practitioners.
Currently, SARS is functioning within the provisions of the Income Tax Act when
dealing with tax practitioners. Eventually, the objective for SARS is to work
towards an accreditation scheme for tax practitioners.
In terms of NIMBS, SARS highlighted
that NIMBS was adopted by Cabinet Legothla and will
be implemented soon. A challenge is the coordination among government
departments. The Border Control Operational Coordinating Committee
(BCOCC) is the
principal coordinating structure responsible for integrated border management
in
On the subject of contracting
services, SARS responded that their business is of a sensitive nature and
therefore their core business will not be contracted out. In the past SARS have
made use of debt collectors, while currently there are two areas where external
contractors are used, namely in security and e-fling.
Regarding
the Alberton offices, SARS reported that they are
pleased on how Alberton turned out. By March next
year 3 similar centres would have been established in
SARS looked at both the classes and
individuals when profiling is done. After the shape of the category of people
is determined, profiling took place. There will be a set of criteria when cases
are selected.
With respect to the relationship
between other institutions, SARS highlighted that it tries to build a link
between the SARB and SARS. SARS participates in activities with the Financial
Intelligence Centre in the form of regular meetings. On the customs side; a
joint team was set up at ORTIA on smuggling of cash. SARS’s
cooperation is extending to see how different parts/institutions among
government can help to manage this more effectively.
In terms of recruitment of disabled
employees, SARS responded that a panel of recruiters has been set up. A
recruitment agency is serving on the panel to assist SARS to achieve their
targets. The opportunities for disabled people are in national operations
specifically for those who are partly sighted and physically disabled. SARS has
accepted the challenge to employ 100 people with disabilities to reach the 2
per cent target for disabled persons in line with employment equity
legislation.
Regarding 2010 FIFA World Cup, SARS
indicated that they were involved from a coordination point of view. SARS
participates in the technical coordinating committee chaired by the Deputy
Minister of Finance. SARS is also involved in safety and security and logistics
committee at ports of entry. SARS is in the process of setting up capacity to
monitor guarantees, while other guarantees have been codified. Finally, SARS have to create certain
exemptions on the sale of goods around stadiums.
With respect to the vacancy rate,
SARS reported that their headcount last year was 534. The attrition rate, which
is the nearest equivalent of a vacancy rate, is 7.43 per cent. SARS appointed
more people than the vacancies that existed and have created 1061
opportunities. A specific challenge relates to the lack of experience in areas
such as IT.
On the subject of compliance with
Preferential Procurement legislation, SARS indicated that the nature of
contracts involves are very large amounts, which would in most instances not be
viable for the categories of people mentioned. However, SARS is accommodating
these categories of people through sub contracts.
8.
Recommendations
Based
on the deliberations with National Treasury and the South African Revenue
Services, the Committee recommends that:
1. National
Treasury submits a detailed report to the Committee on the impact of zero
rating of VAT on certain commodities;
2. National
Treasury submits a report to the Committee regarding the detailed study
conducted on Development of Finance Institutions;
3. National
Treasury submits a progress report to the Committee on the quality and timing
of the submission of Municipal Annual Financial Statements and Annual Reports;
4. National
Treasury should provide the Committee with a progress report on the
developments around the finalisation of the poverty index; and
5. SARS
submits a progress report on the reaching the 2 per cent employment equity
target for people with disabilities.
Report
to be considered