SARS 2015 programme: progress report; Committee Report on BRICS New Development Bank agreement

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Finance Standing Committee

03 June 2015
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Chairperson remarked that no-one, including government, really knew what the NDB would turn out to be. Yet the Committee recognised the role the bank could play to mobilise resources for infrastructure. The Committee would stress the importance of the NDB local office in South Africa, and the Development Bank of South Africa. The Committee Report on the BRICS New Development Bank (NDB) Agreement was adopted.

The South African Revenue Service (SARS) briefing indicated progress made with a review of the SARS operating model, and an ICT and modernisation review. The SARS operating model review had identified the need for building human capacities; gaps in tax collection, and the rebuilding of public trust. Custom processes were not up to standard. There was a relatively high administrative burden for taxpayers. Governance was poor overall. There was low senior employee morale and strong appetite for change. Technology changes were not implemented uniformly. The Committee was provided with a photographic record of fixed and mobile cargo container scanners installed at airports and border posts. Body scanners were envisaged for major airports.

In discussion, there was concern that IT modernisation could result in systems being discarded that were working well such as e-filing. There was considerable interest in skills, and Members suggested a scarce skill audit, and a demographic skills profile. There was a question about intergovernmental dialogue on base erosion and profit shifting (BEPS). The SARS Commissioner said that representivity of top SARS leadership had received considerable attention. There was concern about possible skills depletion caused by the exodus of a number of top officials from SARS.

There was a clear difference of position in the meeting between the DA and the ANC about the Sikhakhane Commission report on an alleged illegal/”rogue” intelligence unit in SARS, and a letter addressed to the Chairperson by the SARS spokesperson. There was a quite lengthy interchange between the Chairperson and a DA Member on the issue. The DA position was that the SARS Commissioner had undertaken to brief on the Sikhakhane Report during a previous meeting. The Commissioner had indicated that the report was then as yet incomplete. The DA insisted that there be a briefing in Committee, as the report had implications for SARS credibility, and the exodus of eleven top officials from SARS, which could cause skills depletion. The DA felt that the letter by the SARS spokesperson was not received by Members, and had to be dealt with in the Committee, in the interests of transparency. The DA did not agree with the issue being handed to the Joint Standing Committee on Intelligence (JSCI) to deal with. The DA Member went so far as to call that a cover-up.

The ANC position was that the Committee had adopted a clear position on the SARS spokesperson’s letter. It was not to be tabled in the Committee, as the DA had initially requested, when a DA Member received a brown envelope document in his pigeonhole. The Chairperson expressed outrage at the fact that the DA had then placed the letter on the DA website. The ANC reasoned that it could not be required of the Commissioner to brief on the Sikhakhane Report, because the amicable solution recommended by the Committee was subsequently reached. The Chairperson reminded the DA of the fact that a division of labour between this Committee and the JSCI was agreed upon in the Committee. Other Members pointed out that it had been resolved that the JSCI would deal with intelligence and legislative matters. One ANC Member called for maturity, and asked the DA to accept that the Committee could not deal with everything that came before it. She pointed out that the Chairperson allowed enough space for different views, and advised that the issue be laid to rest. Calm was restored.

Meeting report

Committee voting on the BRICS New Development Bank (NDB) agreement
The Chairperson remarked that no-one, including government, really knew what the NDB would turn out to be. Yet the Committee recognised that it could be valuable to mobilise resources for infrastructure and productivity. The Committee stressed the benefits of having an NDB local office in the country. The role of the Development Bank of South Africa (DBSA) had to be noted. The DA had reserved its voting position, as it currently seemed to do consistently. Before 2009 the DA sometimes came out in support, and sometimes not, or went into caucus. It seemed to be a new development. Currently the standardised response was for the DA to reserve its position.

Mr D Ross (DA) noted that a caucus mandate had to be obtained on the affordability of the NDB Agreement.

Ms D Mahlangu (ANC) moved for adoption, and Mr D Van Rooyen (ANC) seconded. The NDB agreement was adopted.

Progress report on SARS 2015 programme
Mr Tom Moyane, SARS Commissioner, noted that in a presentation to the Committee on 10 February 2015, SARS undertook to conduct a review of the SARS operating model, and an ICT and modernisation review. The SARS operating model review identified the need for building human capabilities, gaps in tax collection, and the rebuilding of public trust. Custom processes were poor by international standards. There was a relatively high administrative burden for taxpayers. Governance was poor overall. Appropriate policies were either not in place or not implemented. There was low senior employee morale and strong appetite for change. Technology changes were not implemented uniformly. The services of Bain & Co would be retained for phase two of the operating model review. The services of Gartner would be retained for phase two of the IT renewal programme.

The Committee was provided with photographic evidence of fixed cargo container scanners installed at Durban and Cape Town, and the mobile cargo container scanner to be installed at Beit Bridge by 1 December 2015. Baggage scanners were to be installed at key airports and border posts. Body scanners were envisaged for major airports. Once the Customs Control Act took effect, the SARS could continue with the implementation of generic image type body scanners.

Progress made to its Small Business Desk was reported on. SARS would launch the Small Business Desk and mobile business registration in Soweto on 5 June. The Small Business Desk was a dedicated channel/counter for small business owners who visited SARS branches to resolve their tax matters. It would deal with queries such as business registrations, tax clearance certificates and general business tax issues. The desk would make it easier for small business taxpayers to comply in accordance with their unique needs.

The Chairperson said that they would pick up where they had left off at the previous engagement. SARS had responded to the recommendations 1 to 9 from the Committee. He referred to recommendation 4. He had met with the Chairpersons of the Trade and Industry and Minerals and Energy Portfolio Committees. Small Business; Labour, and Science and Technology Portfolio Committees had to report on the issue. The Parliamentary Budget Office (PBO) would be asked for information about transfer mispricing and base erosion and profit shifting (BEPS).

Mr D Ross (DA) noted that the Chairperson had asked for submissions from all parties. The DA supported the initiatives.

Dr B Khoza (ANC) said that the SARS response to Committee recommendations was a good one. It was beyond Committee expectations.

Mr D Van Rooyen noted that crucial issues that came up in deliberations were skills gaps in SARS, and tax evasion. There had to be an audit to indicate the level of scarce skills in SARS. Adequacy of resources had to be indicated.

Dr Khoza referred to BEPS. SARS had to consider a risk assessment. BEPS affected different sectors differently. A risk hierarchy had to be established. There had to be a mandatory disclosure of the operations of companies outside South Africa, to identify risk issues.

Mr Moyane replied that SARS was doing a sectoral analysis.

Mr Ross asked if South Africa was sufficiently protected against BEPS. SARS had primacy in dealing with transfer pricing. Recommendations had been made that the Davis Tax Commission could be engaged, as well as the Johannesburg Stock Exchange (JSE).

The Chairperson said that the Committee did not expect SARS to solve the issues alone. There was a good report from the Trade and Industry Portfolio Committee, based on public hearings it held, that could be of assistance.

Mr Moyane noted that 24 BEPS specialists were being appointed. A think tank was established in SARS to deal with issues of tax avoidance and the illicit economy.

The Chairperson said that the Thabo Mbeki report had shown that more funds were going out in the form of illicit flows from the continent than what entered as development aid.

Ms T Tobias (ANC) noted that a review of the digital and legislative framework was being proposed. SARS had to go beyond the think tank regarding installment of IT systems. Gaps had to be identified.

Dr Khoza asked about progress with intergovernmental dialogue on BEPS.

Mr Moyane replied that he had recently met with the Governor of the Reserve Bank and the Statistician General on issues of integration. There was the need for a common position. There were initiatives already on the table. A heads of entities forum was created. The Reserve Bank and the Development Bank of South Africa (DBSA) were involved. There was traction for intergovernmental integration, which was deemed highly important. The forum gave the opportunity to move away from silo-based mandates. The Treasury had to lead with digital issues. Trade and Industry could cooperate on BEPS and Small and Medium Economic Enterprise (SMME) trade facilitation. The scope was huge. Human resources were prioritised.

The Chairperson said that the Davis Tax Commission would be called to the Committee in the following week.

Mr Van Rooyen said that Members had to attend small business and scanner launches, to gain firsthand experience. Members had to be invited. The Beit Bridge launch on 1 December 2015 was a milestone. Constituencies had to know that the Committee was there to oversee. Members had to be invited to give a political face to activities. There was a launch coming up in Soweto on 5 June. It could be fortunate if some members attended.

The Chairperson jested that two ANC members and one EFF member could go, as Mr Ross usually had to wait for a mandate from his party. He had to go to the caucus to get a position. The DA leader was not there, only the rank and file.

Mr Ross countered that there would be no problem, as small business supported the DA.

The Chairperson noted that recommendation 7, about scanners, was covered well. Human resources was an issue previously referred to. He asked for a comment about representivity.

Mr Moyane replied that the representivity of the SARS top leadership was an issue. It had become clear to him during his first week in office. The operating model had to address the matter. There were untransformed units in SARS. It was not only restricted to issues of gender and race. It was also extended to skills. Transformation was essential. Certain areas were the preserves of certain groups. No skills transfer had occurred. He agreed with the CFO about the recruitment of people. Leadership had to step in and do what was within the ambit of the law. SARS had to attract skills. There had to be less dependence on outsourcing. The State had a responsibility in that regard. He assured the Committee that the operating model would not disappoint. It had to be possible to rise in SARS without suppressing other people. When he took office there was only one woman in human resources, and he appointed another. More had to be appointed. Young men and women had to be brought in. A lower level succession plan would be developed, together with talent identification. It had to be possible to replace a leader very quickly. It did not have to be necessary to wait until someone died or was fired. The operating model aimed at producing human resources from the inside. The human resources strategy was extremely important.

Ms Tobias noted that sophisticated scanning equipment had to be acquired. There were advanced detection technologies. The Department of Defence (DOD) had technology that could detect a missile at 40 kilometres. There had to be scanners that could scan before one entered. The Lesotho border was very small, yet very active. There was clothing that was labeled Lesotho that actually came from Swaziland. People got to know that scanners had been acquired, and shifted their operations. She was excited about scanners at Beit Bridge. Scanners had to be sophisticated. It did not have to require that people wave their arms in the air. She agreed that the Committee had to attend launches. Government was accused of not communicating enough.

Mr van Rooyen remarked that suspensions and litigation could lead to the depletion of SARS. There were high level cases involving senior members.

Dr Khoza said that the Commissioner had limited the matter to a top level report. SARS was skills-driven. It was a key institution. There had to be a report on age analysis, and a demographic profile of skills. The budget would be informed by such a report.

Dr Khoza asked at what stage the new Customs Control Act would direct the issue of scanners. There were challenges that went beyond the influence of SARS. South Africa was vulnerable. A South African air hostess was caught with drugs at London Airport. Risk issues had to be identified, in harmony with the legislation.

Ms Makungu Mtebule, SARS Acting Chief: Strategy, Enablement and Communication, replied that the new Customs Control Act came into effect early in 2014. An in-house committee was looking at challenges of implementation. Implementation would be completed at the end of 2015. Systems utilised were being looked at. Things could be running smoothly by the beginning of 2016.

The Chairperson referred to breakdown according to gender and race. The term “black” as generic term was not helpful, because it did not differentiate between African, Coloured and Indian. There had to be targets linked to the focus on certain age groups.

Mr Ross referred to SARS representivity. Skills had to be retained after the exodus of 11 top officials. There had to be capacity building and knowledge management. There was a void left after the exodus. Skills were not being retained. He asked if Bain and Gartner would be able to fill the gap.

Dr Khoza said that there had to be a proper skills analysis. It had to be known what would happen if a key official died. There had to be a skills profile.

Mr Moyane replied that skills transfer was the key issue. There had not yet been an audit of skills transfer. There were people who had been there for 30 years, without contributing to skills transfer. SARS would submit a written report on gender and race.

Mr Ross referred to the Sikhakhane Report on an alleged illegal unit within SARS. The Commissioner had said that the report was incomplete. To delegate the matter to the Joint Standing Committee on Intelligence (JSCI) was to assign it to a grey area. SARS had made a commitment to speak to the Committee. He asked that SARS honour that commitment. The question was if the exodus of top officials was of relevance to the report. It had been stated before that the report was incomplete. He asked if the report was completed, and could be presented. He asked if the Chairperson was going to present the letter by SARS spokesperson Mr Adrian Lackay. Confidence and trust in SARS had to be restored.

The Chairperson responded that he had written to Mr Ross and Dr George, about the Lackay letter. There was astonishing misrepresentation. It was deliberate and amounted to cheap politics. He had in fact written a personal letter to Mr Ross on 7 May. He received the letter from Mr Lackay on 24 May, and immediately tried to reach the Chairperson of the Joint Standing Committee on Intelligence. He wrote to Mr Lackay and received a reply. He sent the letter and the reply to both DA members. Nobody hid the letter. He was outraged that Dr George published the letter in the way he did. Mr Lackay had agreed that the matter had to be processed by the JSCI, and that the letter would not be distributed to members. He knew about the political process. Yet the DA placed the letter on its website. He asked Mr Ross what game he was playing.

Mr Ross said that it was unfair to accuse the DA of grandstanding. The Commissioner had committed himself to presenting the report when completed. The DA was only asking that the letter be presented to the Committee, in the interests of transparency.

The Chairperson reminded Mr Ross that he was bound by the rules of Parliament. He said that he had explained the division of labour in the parliamentary committees. He had advised that the DA member in the JSCI take up the matter there. The DA wanted to table the letter, which meant that it did have a copy. When the Committee was against that, the DA put it on the website. He asked why the DA insisted that the letter be tabled, whilst they had a copy of the letter.   

Mr Ross said that the Chairperson had been unhappy with the situation the day before. It was in the interest of transparency to present the letter in the Committee.

The Chairperson said that it was not acceptable to discuss the letter in Committee, when Mr Lackay was not present to account from his side. He asked why the DA wanted the letter presented when it had a copy of it. A division of labour was decided upon, regarding the roles of the Committee and the JSCI. It was not proper to question the SARS Commissioner, especially when subsequent developments were considered. There was no need for the Commissioner to speak on the matter. The Sikhakhane Commission had recommended that an amicable settlement be reached, which had in fact occurred.

Mr Van Rooyen remarked that the Committee position on the matter had to be looked at again. The meeting was turning into a two man show. Members wanted to participate as a Committee and spell out the Committee position.

The Chairperson said that it was not to be viewed as a two man show. He was doing what was required of him as Chairperson. Mr Ross had to answer on what he was trying to achieve.

Mr Ross objected that the Chairperson was placing him in a ‘court of law’, by insisting that he answer questions. He was concerned that the document which Dr George had received, was not presented to the Committee. Dr George took the letter to the National Assembly, which was unfortunate, as it should have come to the Committee. The SARS Commissioner had committed himself to a discussion of the Sikhakhane Report. The letter and the report were never presented formally to the Committee. There had to be transparency. The Commissioner had said during the previous engagement that the report was incomplete, and could be discussed later. Mr Ross believed that the relegation of the matter to the JSCI was a cover-up. Dr George received a letter that was addressed to the Committee. That letter was only given to the JSCI. If the Chairperson wanted dialogue, he had to present the letter to the Committee.

Mr Van Rooyen confirmed the Chairperson’s statements that the Sikhakhane Commission  had agreed that the Joint Intelligence Standing Committee (JSCI) would process Committee recommendation nine. It was agreed that the document received by Dr George was not to be tabled in the Committee, and that the Sikhakhane Report was not to be a concern of the Committee. He was unhappy about what Dr D George (DA) did. Dr George had received a brown envelope document, and the Committee had felt that it was not official. The Committee had agreed that the document contained information valuable to the JSCI, and belonged with that Committee. The DA had defied the Committee position by placing the letter on the DA website. It was not a cover-up to delegate the matter to the JSCI. The Committee would receive a report. He advised that the DA wait for the appropriate time, if it had valuable information, and then forward it to the relevant committee.

Dr Khoza told Mr Ross that Members were not simply agreeing with the Chairperson because they were of the same party. The Chairperson was giving a true reflection of what had transpired in the Committee. It was stated in a meeting of 5 May that there would be a complementary relationship between the Sikhakhane Commission  and the JSCI. The JSCI was to look at legislative issues and the Sikhakhane Report.

The Chairperson reiterated that the recommendation of an amicable SARS settlement was achieved. The DA had received a copy of Mr Lackay’s report. Parliamentary Legal Advisor, Adv Jenkins, present in the meeting, could vouch that correct procedure had been followed. The JSCI tabled some reports in Parliament, and some not. The DA Member in the JSCI could raise the matter with that Committee chairperson.

Ms Tobias advised that the matter be laid to rest. She pleaded for maturity. There were matters not worth playing to the grandstand about. Those were not only labour matters. There had been an amicable political solution and the matter could be laid to rest. The Chairperson had the prerogative to use discretion with correspondence. When there were matters that could divide a Committee, it could be decided not to discuss it in Committee. She asked that the solution achieved be accepted. The matter had not been thrown out of the window, but given to another parliamentary committee to deal with. The Committee could not deal with all matters that came before it. The Chairperson had been consistent in allowing open discussion of many issues. He wanted the majority to open up to others, and had gone so far as to put the views of others on record, even when it differed from those of the majority party. She begged the indulgence of the DA. The route it was following could not benefit the Committee. The matter had already been resolved. Bad blood would not benefit the Committee.

Mr Van Rooyen referred to the IT renewal focus. The best IT innovation to date had been the e-filing system. He asked how overall IT renewal was linked. He was concerned about the possible replacement of technologies that worked well.

Mr Moyane replied that the operating model was assembled from an IT perspective. A total overhaul was not being planned. Scaffolding was being built. There would have to be a review.

Mr Jonas Makwakwa, SARS Chief Operations Officer (COO), added that the IT review would not undo what had been done before. The question was how SARS could be taken to the next level. Stakeholders were involved. There was interaction with them to build systems that suited its needs. But systems also had to cater to the SARS need to collect as much revenue as possible. There were systems that could cause problems for private income tax (PIT) taxpayers and banks. Representative bodies of those were engaged with. There had to be feedback on what the challenges were. There was a concerted effort to look at where corporate income tax (CIT) was not collected efficiently. Not enough CIT was being collected. Transfer pricing contributed to that. There had to be skills to tackle challenges. Analysis and intelligence had to be sharpened.

Mr Matsovane Matlwa, SARS Chief Financial Officer (CFO), said that tax collection was compared year to year. Companies were looked at over a period of years. A company would have to explain why it was currently paying x-minus, if there was a dip in their contribution that caused a difference between what SARS should be getting and what it was actually getting. The Tax Act contained a mechanism that could assist compliance.

Dr Khoza remarked that weaknesses in the tax system design had to be identified. Employers generated the IRP 5 tax form for employees without submitting all disclosures, and employees encountered problems with SARS as a result. The system favoured employers. Employers submitted returns higher than actually earned, which became a tax liability. The system was efficient but there were verification problems.

Mr Moyane replied that efficient tax collection was a concern. The yearly target was R1.1 trillion by 31 March 2016. Targets had to be adjusted when global conditions changed. SARS worked out internationally acceptable targets. External factors had an effect. If electricity problems persisted, it could cause downstream tax collection problems. If international conditions changed and South Africa could achieve positive balance of payments and exports it could affect the economy and impact positively on tax collection. There were monthly reports to the Minister.

Mr Ross asked if the gross tax revenue for the previous year had been R993 billion. It was stated that the previous year had been a difficult year for tax collection. PIT had contributed 37% and CIT 19%. Increased CIT collection could lead to more growth.

Mr Moyane replied that the initial target of R993 billion was revised in October 2014 to R983 billion. In February 2015 it was revised again to R979 billion. The revenue forum had to decide how to meet the Ministerial target. Efficiency was enhanced, and there was better skills output. The final delivery of R986 billion surpassed the adjusted target of R983 billion.

The Chairperson remarked that it was a good report, but it could be more focused and concrete. Ms Yolande Brown, Committee Researcher, had done some work on report formats. Actual targets could be stated in more concrete terms. It also had to be stated whether targets were achieved. The Committee wanted a precise understanding of progress. The quarterly reports were a quarterly breakdown of the Annual Performance Plan (APP). It could broadly resemble the Ministerial performance agreement with the President. There was a report to the Minister on targets at the end of the year. The Minister had to make a public statement on what was expected, and what was actually delivered. SARS gave a quarterly report to the Minister, which could also be submitted to the Sikhakhane Commission .  The Committee Researcher was working towards a certain format for all entities. She would coordinate that and the Parliamentary Budget Office could assist with this.

Mr Moyane replied with regard to targets, that there was a new administration and an annual revenue forum. There was a division of labour, all hands were on deck. SARS would report on quarterly milestones.

The Chairperson adjourned the meeting.

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