The South African Revenue Service (SARS) presented on the 2015/16 to 2019/20 Strategic Plan and the 2015/16 Annual Performance Plan. SARS would continue to invest in employees to serve taxpayers and to address sophisticated tax avoidance and evasion. To increase customs compliance, SARS would improve the management of bonded warehouses and deploy additional cargo and baggage scanners at key points of entry. There would be a rollout of small business desks at branch offices. It would deliver an improved dispute resolution management process and Tax Clearance Certificate process. It would implement a new human resource (HR) framework, an operating model review and an information communication technology (ICT) modernisation review. The Base Erosion and Profit Shifting (BEPS) team would be increased, with penalties imposed on large corporations. A customer-centric approach was to be embedded.
The Financial and Fiscal Commission (FFC) presented on the 2014 to 2019 Strategic Plan and the 2015/16 Annual Performance Plan. The FFC mission statement was to provide proactive, expert and independent advice on promoting a sustainable and equitable intergovernmental fiscal relations system. A skills shortage in the financial and economic domains had to be overcome. The Parliamentary Budget Office (PBO) impacted on the budget process and how the Commission did its work. Risks included a historical financial deficit, budget constraints in implementing IT systems, and difficulty in retaining research expertise. Research strategy would be guided by the fact that there were regions that had hardly seen the growth in the country’s more affluent regions. The FFC thesis statement for 2016 would be that South Africa had fiscal and structural challenges that impeded the effectiveness of rural spending and programmes.
The Committee’s report on the Rates and Monetary Amounts and Amendment of Revenue Laws Bill was considered and adopted.
The two briefings were discussed together. There were comments and questions to SARS about HR sourcing; electronic tax clearance certificates; compliance of trusts; reduction of debt; IT review costs; the new prominence of customs and excise; the classification of taxpayers; the rollout of small business desks and IT to rural areas, and dispute resolution management. The FFC was urged to engage with the provinces. A DA Member expressed appreciation for an FFC report on demarcation and municipal sustainability, and asked how much clout the FFC had, in terms of legislation.
Introduction by the Chairperson
The Chairperson said that the meeting was an important one. It would deal with the role of the South African Revenue Service (SARS) in terms of the fiscal picture. Revenue could be divided only if it had first been collected. The meeting would refer back to the Budget and the Budget Review and Recommendations Report (BRRR), and in advance to the Medium Term Budget Policy Statement (MTBPS), which would be tabled on 21 October. The Select Committee had completed a draft programme schedule for the MTBPS process. He had received a quarterly economic briefing from the Parliamentary Budget Office (PBO) that morning. What was captured there related to the SARS presentation.
SARS on 2015/16 to 2019/20 Strategic Plan and 2015/16 Annual Performance Plan
Mr Tom Moyane, SARS Commissioner, briefed the Committee. SARS would continue to invest in employees to serve taxpayers and to address sophisticated tax avoidance and evasion. Taxpayers that failed to meet tax and customs obligations would be identified. To increase customs compliance, SARS would improve management of bonded warehouses and deploy additional cargo and baggage scanners at key points of entry. Processes would be implemented to reduce taxpayer debt, and there would be a rollout of small business desks at branch offices. SARS would deliver an improved dispute resolution management process and an improved Tax Clearance Certificate process. There would be implementation of a new human resource (HR) framework and talent management model. The 2014/15 Strategic Plan included an operating model review and an information communication technology (ICT) modernisation review. SARS would utilise its economic research and analysis data. SARS was committed to addressing the tax gap and to increasing taxpayer compliance. Port and border control had to be regained and increased. The Base Erosion and Profit Sharing (BEPS) team would be increased, with penalties imposed on large corporations. A customer-centric approach had to be embedded.
Financial and Fiscal Commission (FFC) on 2014 to 2019 Strategic Plan and 2015/16 Annual Performance Plan
The briefing was presented by Ms Ansuyah Maharaj-Dowra, Secretary; Mr Mavuso Vokwana, CFO, and Prof Daniel Plaaatjies, Commissioner. The FFC mission statement was to provide proactive, expert and independent advice on promoting a sustainable and equitable intergovernmental fiscal relations system, through evidence-based policy analysis to ensure realisation of constitutional values. A skills shortage in the financial and economic analysis domains had to be overcome for the FFC to deliver quality products. The PBO impacted on the budget process and how the Commission did its work. Risks included a historical financial deficit; budget constraints in implementing adequate IT systems, and the difficulty in retaining suitable research expertise. A key strategic objective was to ensure that FFC research was converted to policy advice and recommendations, written in a language that was accessible to policy makers, and to ensure that new knowledge would be transferred to other role players in the Intergovernmental Fiscal Relations (IGFR) system. Research strategy would be guided by the fact that there were regions that had hardly seen the benefits of growth in the country’s more affluent regions. The poor, especially in the rural areas, remained the most disadvantaged in terms of quality and access to services. The thesis statement for the 2016 Division of Revenue would be that South Africa had fiscal and structural challenges that impeded effectiveness of rural development spending and programmes.
Committee report on the Rates and Monetary Amounts Amendment Laws Bill
The Chairperson said that the Bill had to be adopted before discussion could proceed. It had to be done before the MTBPS was tabled. The Select Committee (SC) had gone through the process and had been briefed. The SC report on the Bill was dated 22 September. The SC had examined the Bill, and it was classified as a money bill report.
The report was adopted. It would go to the ATC that afternoon and appear at a Plenary on 11 or 12 October in the House.
Discussion of SARS and FFC briefings
The Chairperson said that pages 13 and 14 of the SARS briefing were linked to page 24. Implementation of SARS objectives was crucial, and for that warm bodies were needed. Customer service and client care was different to 20 years before. The idea of SARS kiosks in malls was a good one. He had asked at the previous February/March engagement if it was possible to establish a SARS office at Springbok. There was no IT equipment, and a lot of old people there.
People were asking what was possible in terms of the SARS budget. International agreements on taxation were part of the taxation context. Oversight of points of entry at Komati and Zimbabwe was essential.
Mr Moyane replied that SARS indeed wanted to open an office at Springbok.
The Chairperson said that the engagement of the FFC in and with the provinces was very important. Visits were crucial. The Committee could facilitate the process. It was not in order to speak only to members of the legislature and to exclude the EXCO. At collective meetings of the provincial legislatures, every member had to be involved. The Committee would be looking at the annual reports of SARS and the FFC in January. The annual reports could then be measured against the Strategic Plan and Annual Performance Plan.
Mr S Mohai (ANC, Free State) said that the SARS report was good. The issue of the current economic situation had been flagged. There were domestic and global challenges. He referred to HR strategy. He asked where personnel had been sourced from. To realise HR potential, there had to be a a dedicated institution that offered specific training.
Mr Moyane replied that sourcing was mainly from institutions, but there was some internal sourcing as well. SARS was a specialised institution that dealt with taxation and customs. Some things could not be taught at other institutions. A specific SARS learning and leadership institution had to be developed. SARS had a good relationship with the universities, and was developing an internal think tank. SARS was the owner of trade statistics, which could influence policy. SARS owned information about volumes of trade with other countries. There was a gold mine of information which could be of political and economic use. Industrialists would know where to focus.
Ms E van Lingen (DA, Eastern Cape) remarked that a visit to a SARS office could be a painful experience. She asked if SARS paid incognito visits to offices. It caused frustration. She was happy that tax clearance certificates could be obtained electronically. It indicated progress.
Mr Moyane replied that SARS did not wish to ambush, but there were unannounced visits. Service offered had to measure up to the SARS mandate. The need to attract people was recognised. The mantra that officials had to hold on to, was that they were there to serve. There was a customer-centric approach which aimed at maximum efficiency, and relied on the optimal use of people and resources. People lamented if they did not get good service, but the SARS staff complement was a mixed bag. However, there would be fewer inefficient officials seen in SARS over time.
With regard to tax clearance certificates, SARS worked with the National Treasury (NT) against fraud. There was an electronic approach that was speedy and efficient, and could be done at home.
Mr Jonas Makwakwa, SARS Acting Chief Operations Officer, added that the electronic tax clearance certificate process was a brilliant innovation through the combined efforts of SARS and the NT. There were two million applications per year. As from the following year, no-one would have to queue for cerificates. The taxpayer had to have complied to obtain the electronic service. The customer could see his tax status displayed on the system. Issues had to be resolved before the customer could apply for the service. A better service could henceforth be offered to taxpayers.
Ms Van Lingen referred to the statement that South Africa had the highest figures related to High Net Worth Individuals (HNWIs) in the world. She asked what facts the statement had been based on, or whether it was based only on analysis.
Mr Moyane responded that sources like the World Wealth Report had been referred to. SARS also attended international forums, and did its own research. If the extent to which people were possibly not paying tax was known, it could create the capability to deal with it.
Ms Van Lingen asked how SARS would ensure compliance with regard to trusts. It often happened that social investment in large development projects went into community trusts, and the individuals in control could not be accessed. With a company, one could do a search, but with community trusts one could not tell if councilors were involved, and it could not be established where the money went. She asked if there was a process that could be followed to obtain information.
Mr Moyane replied that there were different kinds of trusts. Multinational corporations created convoluted trusts that impacted on SARS’s collection ability. It had become pervasive. It was against the principles of citizenry and good corporate practice. SARS had to take a strong stance. Audits were done. Community trusts interfaced with the Master of Deeds’ office. Any tax jurisdiction had the means to know whether a trust was compliant.
Mr Makwakwa added that the matter had been discussed with the Master of Deeds office, to make information on trusts accessible. SARS would integrate its systems with those of that office. When systems were aligned, there would be improved accessibility.
Ms Van Lingen said that she knew of a community trust created by a developer. It was managed by two people. R1 million in management fees had disappeared. She asked if she could write to SARS about the matter, to ask if financial statements had been handed in. There were trusts in Kouga and Tstitsikhama, where money was not getting to the ground for schools.
Mr Moyane replied that intitutions had to report to SARS. Offices were at Ms Van Lingen’s disposal. SARS could not disclose names of trusts in the meeting, but it could be dealt with off-line confidentially.
The Chairperson advised that an e-mail should be sent to the Commissioner.
Ms Van Lingen referred to the reduction of debt processes. Municipalities did not see SARS as a priority creditor. Payment of VAT was not always seen as a priority.
Mr Makwakwa replied that the debt issue was a serious one. R97 billion was owed to SARS. There were different categories of tax due to the State, which impacted on overall revenue collection. Municipalities which owed debt were monitored by a dedicated team. All taxpayers in the public sector had to comply. The South African Local Government Association (SALGA) had to be engaged to eliminate non-compliant municipalities, by helping them to do the right thing. There was a special project to recover debt owed to SARS.
Ms Van Lingen asked about time frames for the revised operational model. IT reviews were normally very expensive. She asked if SARS was on target with time frames and budgets.
Mr Moyane replied that SARS had done a diagnostic analysis, to say where it was in terms of structure. Interviews had been done to fill positions. It had been approved by the Minister and the Board. A fully fledged leadership core would be appointed. With respect to time lines, SARS had started with a road map. There could not be a definite date, as operating models could change. There was an 18-month window in which to create stability in SARS. IT reviews were indeed expensive, but SARS would not be reckless with expenditure. The modernisation process had commenced in 2007. There had to be a pause to see if objectives had been attained. There had to be scaffolding and strengthening of areas of weakness. SARS would accept good advice from Gartner, an internationally renowned organisation, to establish a good IT footprint.
Mr Makwakwa added that it could not be said that the IT modernising process that started in 2007, had been concluded. IT improvement was a continuous process. Technologies kept changing. One had to think of the taxpayer of the future. There would be much less reliance on paper.
Ms Van Lingen appreciated that improvement of the SARS “stepson” -- customs and excise -- was being speeded up. There were three ports in the Eastern Cape that could be improved. There were yacht builders at Cape St Francis for whom it was easier to land in Cape Town and then convey by road because it was easier than getting through customs. Every hour’s delay with customs increased storage costs. She had visited the new port at Kouga, and wondered about the efficiency of the system.
Mr Moyane replied that customs had to attain greater prominence. The World Customs Organisation stressed the importance of customs for the security of state control. Customs had to stop the illegal influx and generate revenue through the transition of goods and services.
Ms Van Lingen asked about the classification of taxpayers as gold, platinum and bronze. She assumed that bronze would mean “in the red.”
Mr Makwakwa replied that four areas were considered -- registration, filing of returns, declaration and payment. A customer who performed on all four imperatives would be classified as platinum, and could count on tailor-made service. Complying with three imperatives scored gold. Less than three was classified as bronze. A bronze customer could aspire only to normal service. The customer would have to stand in long queues. The process was under way. Payers at the top of the tier, who were compliant, could count on good service.
Ms Van Lingen remarked that SARS could not be held responsible for the deficit in the fiscus. Every department had responsibilities. SARS had to ensure compliance and work efficiently to address the tax gap. She asked about SARS targets with reference to the tax gap.
Mr Moyane replied that the tax gap was a global problem. Every tax administration wanted to collect all potentials. SARS examined all potentials and did a tax gap analysis. The Tax Institute looked at all available avenues.
Mr L Gaehler (UDM, Eastern Cape) asked if the small business desk would be rolled out to all municipalities. It was being done in the bigger municipalities, but small rural municipalities presented problems. The dispute resolution management process was more effective with small businesses, but most were running away. Good relations had to be established so that there was no need to run, if issues could be resolved. But there also had to be experienced people to deal with that.
Mr Makwakwa replied that SARS wanted a small business desk at every branch. In areas where there were large business volumes, it would be expanded to two desks.
Mr Gaehler referred to an oversight visit to Mdantsane police station. There had been a problem with foreign shops being robbed because it was known that money was not banked, but kept under mattresses. The Police had been asked why SARS was not involved. The Police were aware of Intergovernmental Relations (IGR) meetings, but it was said that SARS did not attend the meetings People were killing each other. There had to be plans to ensure that everybody complied with tax laws. There were a lot of spaza shops. Money was leaving the country. SARS had to work with the SA Police Service (SAPS). SARS was not present at most of the meetings.
Mr Moyane replied that it was the first time he had heard about the situation at Mdantsane. SARS had to be part of dealing with crime and illegal trade, and the cash economy. Banks and other finance institutions had to be brought in. Companies that were not registered for tax could not bank. Everything had to be brought into the tax net.
The Chairperson noted that there was an IGR forum in each region, even in the sub-regions. His region was Namaqua, and he attended meetings there. It was under the authority of the Director General in the province. The Director General fell under the Premier’s Office. It was taken down to grassroots level from there.
Mr Gaehler said that the IGR forum was not working in the Mdantsane area.
The Chairperson commended the SARS office in Kimberley, which treated customers professionally.
Ms Makungu Mtebule, SARS Acting Head: Strategy, Enablement and Communication, responded with regard to dispute resolution. SARS engaged with and educated taxpayers at all levels about dispute resolution mechanisms. Alternative dispute resolution mechanisms were encouraged as a first step. If taxpayers and SARS were still not happy, they could go to court. Amounts of less than R500 000 could be taken to the tax board. Disputes were taken through various levels.
The Chairperson asked about the tax ombud.
Ms Mtebule replied that the ombud was not part of internal resolution. The ombud could be approached if the taxpayer was not happy. It was mostly with regard to procedural, not material issues. Reports were received from the ombud about the kind of issues raised and analysed.
Mr F Essack (DA, Mpumalanga) remarked that SARS was migrating to sophisticated IT systems. He asked about the SARS IT presence in the rural areas. He had seen in the Appropriations Committee how millions were appropriated for tribal authorities. He asked how rural issues were to be addressed. He asked about strategic plans related to the R97 billion owed to SARS.
Mr Makwakwa replied that the rural context had been taken into account in the development of IT. There was a mobile tax unit that was fully IT equipped. Community radios were used when SARS visited. SARS joined forces with other departments like Home Affairs and the Department of Trade and Industry (DTI). SARS would be established in rural shopping malls, so that people would not have to travel hundreds of kilometres to a SARS office. SARS was planning to outsource outstanding debt to debt collection agencies. Mechanisms were being created to ensure that backlogs did not build up. If anyone missed the deadline, SARS would remind them within two days. If there was still no compliance, the customer would be handed over to enforcement. The customer could not expect SARS to be smiling at that point.
Mr Gaehler referred to oversight at rural towns. There were people who were not registered for taxation. There were complaints about the business sector. Much was happening there, and the question was whether the business sector was complying.
Mr Moyane replied that that the country had to rid itself of the illicit economy. All entities of government had to cooperate. People had to report on non-compliance and any other issues.
The Chairperson noted that there would be another engagement with the FFC on the following day.
Ms Van Lingen remarked that she had great respect for the FFC. She had read chapter 12 of the FFC report on the impact of demarcation on municipal sustainability. It was a wonderful report. She wondered if the sound advice in there was being listened to. There was a transparent approach. She hoped that it would be released to Parliament some time. She asked how much clout the FFC had in legal terms.
The Chairperson said that the FFC recommended to the Finance Minister, in the Budget Council and in forum meetings, to Committees in the National Assembly, and thereafter to the NCOP.
Prof Plaatjies replied that the constitutional nature of the FFC was such that it was committed both to the advancement of democracy, and to advice on the distribution of revenue. The FFC was autonomous and independent of institutional structures. The FFC advised on the budget. It was an advisory constitutional body. It could not dictate to the Minister or the MECs how the budget ought to be shared. Advice was based on an assessment of spending pressures in the country. There was concern over the role of the FFC and its legislation. The FFC reviewed revenue before the Minister tabled it. It was incumbent on the SC to look at what the FFC provided on an annual basis and to take it forward in terms of the National Budget. Technical staff were involved in technical and political structures related to public finance and fiscal management.
The Chairperson noted that the FFC would be met with on the following day, and then after the tabling of the MTBPS. The provincial treasuries’ report had to be dealt with. The report had been circulated among Members, including the KZN oversight report. He thanked the staff for assistance with oversight visits. He had received correspondence from the Chairperson of the NCOP, Mr Modise, about matters that had come up during “Taking Parliament to the People,” in the Eden district. He had received the correspondence and given it to the Secretary. It would be referred to the Committee through the Announcements, Tablings and Committees (ATC). The programme would be circulated in October/November. It was a packed programme. Everyone had to be present. Parliament would adjourn on 25 or 26 November. The January/February schedule would already be dealt with by then.
Mr Mohai said that visits to Limpopo and KZN had been planned, but the Western Cape also had to be included. He asked when it could be discussed.
The Chairperson said that the Western Cape had to be included in oversight. Stakeholders could be called to Cape Town. It had to be part of the Committee programme. The Committee could sit with the staff on the following day to get a framework.
The Chairperson adjourned the meeting.