SARS Commissioner & National Treasury on 2016 results

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Finance Standing Committee

17 May 2016
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Director General of National Treasury took the Committee through its 2015/16 performance, and also responded to the Committee’s 2015 Budgetary Review and Recommendations Report (BRRR). The pre-audited outcome was R28.690 billion or 98.9% of the final budget with R314 million unspent. An area of significant variation between budget and expenditure with R225 million unspent, was the employment facilitation fund, in which the Jobs Fund was located, due to the challenges facing Treasury in disbursing the Jobs Fund. A total of R23.4 million was unspent of municipality funds which were withheld due to non-compliance of these municipalities with the Division of Revenue Act. R20.2 million was saved due to cost saving measures on items such as travel, training, stationery, and consultancy.

Treasury’s responses to the BRRR addressed non-achieved targets, the status of investigations conducted internally by Treasury and externally through the Public Service Commission, state-owned enterprise (SOEs), and transformation compliance within Treasury.

The SARS Commissioner presented the South African Revenue Service 2016 results. A landmark achievement was the over R1 trillion tax collection for the first time by SARS. This achievement was attributed to the operating model that had been adopted by SARS since 2015, and was still in the process of implementation. Other contributing factors to this landmark achievement were elaborated upon. Other highlights included the efforts by SARS to assist people with queries through the national call centre, and other operational initiatives; the number of dispute cases dealt with in the quarter; the progress made on key initiatives, such as tax compliance status, client information systems, and the illicit economy; the introduction of the new Customs Act programme (NCAP); the deployment of mobile cargo and baggage scanners; the complaint management system that was underway; and achievements in the processing time for company income tax (CIT) returns.

SARS also responded to the Committee’s recommendations in the BRRR.

Members discussed the need for Treasury to submit impact reports on its performance; the placement of too much emphasis on cigarette seizures by SARS instead of other illegal items; existing gaps noticeable within the base-erosion and profit shifting (BEPS) project and a legal framework needed to be put in place to close such gaps; the importance of having a tracking system in place through the border control operational coordinating committee (BCOOCC) or border management agency (MBA); revenue estimate for the current year in comparison to the budget; details on Treasury’s cost containment measures; the growth prospects in terms of the current exchange rate; report on the status of non-core assets; value added tax (VAT) refunds and the numerous complaints about these; the percentage of CIT derived from smaller employers; the need for Treasury to conduct its evaluation process of expected or projected outcomes of municipalities; proper mechanisms for Jobs Fund disbursement; the need for SARS to align its recent successes with the new operating system; the rationale for moving the mobile cargo scanner from Durban to Beit Bridge; the hierarchy of the different audit processes adopted by SARS; indirect taxes, and the need for more education on VAT refunds; the nature of voluntary disclosures; as well as the nature of the matter reported to the SARS ombudsman.

Meeting report

The Chairperson reflected on the absence of the Minister from the meeting, noting that the Minister should be compulsorily present during the presentation of budget and annual reports.

National Treasury briefing on 2015/16 Quarter 4 Report and BRRR responses
Mr Lungisa Fuzile, Director General: National Treasury, spoke about Treasury’s alignment to the medium strategic framework (MTSF). For instance, in achieving the NDP/MTSF goal to provide decent employment through inclusive economic growth, Treasury ensured that government could fund all its borrowing optimally, as this would enable government to contribute towards growth and job creation. This was indirectly connected to the need to preserve the investment grade rating for South Africa. The way government borrowed and the amount borrowed must be such that it would preserve the country’s credit rating. Government could not raise money in the economy in a manner that would push the cost of borrowing in all spheres of the economy. Treasury had an asset and liability division that was tasked with managing government’s borrowing. Treasury also contributed to the creation of an efficient, effective and development oriented public service. Treasury organised training programmes, and developed regulations aimed at ensuring that people with the right set of skills were employed to operate Treasury’s advanced financial management system in terms of financial accounting and supply chain management. Treasury had approximately 1 200 staff.

In its responses to the BRRR, on the several targets yet to be achieved, Treasury noted that it had improved on its style of reporting. In previous times, Treasury only showed targets with 100% achievement. The current report for the Quarter 4 however, showed targets that had been partially achieved, with an indication of the degrees of achievement on such targets. The current report showed that 96% of the expenditure was incurred, while a number of targets yet to be achieved had been partially achieved.

Treasury summarized the status of each investigation as requested by the Committee. One of the investigations was done externally through the Public Service Commission. Treasury’s role in the investigation was to furnish the Public Service Commission with necessary information to ease their job. One of the investigations carried out internally had been concluded. However, the investigation could not confirm the allegations brought against the staff.

On the Committee’s request for Treasury to report on its role in building capacity in other parts of government, and especially the municipalities, Mr Fuzile said Treasury had always helped in building capacity over a long period of time. For instance, Treasury started helping provinces to set up infrastructure delivery programmes, which involved sending people to provinces, with the required expertise needed for efficient delivery of infrastructure in provinces. Treasury had been running a local financial improvement programme for municipalities, aimed at assisting municipalities that would ordinarily not be able to build technical skills on their own. R1.5 billion had been allocated over the Medium Term Expenditure Framework to run this programme. Experienced people, qualified in the various areas of technical skills, and with a proven record of capability were often hired as long-term experts. Municipalities were also given grants to hire young graduates, who would then be trained by the experienced expert. As at 31 March 2016, this programme was supporting 50 municipalities with long term advisers. The interns were larger in number and they covered many municipalities. The approach taken by Treasury in supporting financial management in municipalities was to encourage these municipalities to set up units that could develop similar initiatives like those of the 17 municipalities that reported directly to Treasury. Treasury would therefore assist provinces and strengthen their capacities to support the remaining delegated municipalities.

On state-owned enterprises (SOEs), it was noted that government had internalized a lot of this and elevated it as a committee that was chaired by the Deputy President, who in turn, had answered several questions in the National Assembly on the ongoing work to strengthen SOEs, ensure that they were financially stronger, and could play a more meaningful role in driving the development agenda of government. On transformation compliance, it was noted that the Chief Financial Officer’s post was currently filled by a competent woman.

A summary of the service delivery targets that had been fully achieved, partially achieved, and yet to be achieved, was highlighted (page 6 of document).  Quarter 4 target performance status was also highlighted in terms of the various indicators, annual target, performance status, and reasons for deviation or variance (pages 7 to 18 of document).

Treasury’s financial performance as at 31 March 2016 was highlighted according to programmes in relation to the adjusted budget, virement/shifts, and the final budget (page 20 of document). The actual outcome that had been pre-audited was R28.690 billion (98.9% of the final budget). The areas of significant variations between the final adjusted budget and actual expenditure resulted in a total of R314 million unspent.

R225 million was unspent on the Employment Creation Facilitation Fund, which was where the Jobs Fund was located. The difficulty with the Jobs Fund was although Treasury would like to spend the funds fully to achieve the intended objectives of the fund, the Jobs Fund entailed a lot of compliance. The fund required that private sectors brought in their own contribution, which could be a maximum of 50% or any lesser amount depending on the proposal made. Applicants were often optimistic after submitting their applications. Their thinking is that they could set up the enterprise at a faster pace for whatever initiative they choose, they could employ more people and raise more money. The reality however is different. The approach adopted by Treasury was to suspend the transfers upon the failure of private sector parties to comply with the requirement. The rate at which the draw-downs were made would then be revised.

R23.4 million of unspent funds due to municipalities were withheld due to non-compliance of municipalities with the Division of Revenue Act. A total of R20.2 million was saved due to cost saving measures on items such as travel, training, stationery, and consultancy. The debts service cost was however higher than the projected amounts. This was expected as the debt service costs were estimates that were based on interest rates which were prone to fluctuation during the course of the year. The interest on treasury bills also went higher than expected from 6.75% to 7% due to the change in the repo rate.

South African Revenue Service (SARS) Quarter 4 performance (January - March 2016)
Mr Tom Moyane, SARS Commissioner, began the presentation by noting the achievement of R1 069 trillion in tax collection, which was a historic achievement recorded by SARS. This achievement was a result of several factors and measures put in place. One such measure was the operating model, which was a response to the commitment SARS made to Parliament in its 2014/15 annual performance plan (APP). The operating model established a strong development of the SARS core mandate, and strengthened governance measures to ensure effective and efficient collection of all revenue due. The operating model was communicated to various stakeholders, including the Finance Committee, the SARS board, organised labour, Davis consulting, from which support was given to the model. The model was also approved by the Minister in August 2015. However, greater appreciation was received from the 15 000 men and women of SARS that experienced the historic achievement.

The landmark achievement of over R1 trillion in revenue collection was achieved through meticulous planning and forecasting; strong leadership and focus; as well as the hands-on management approach adopted by SARS. SARS visited all provinces in the country. The group executive revenue forum that looked into special initiatives, also contributed to the achievement of this milestone. These initiatives included corrections made to late payment of taxes. SARS leveraged its capabilities, collective resources and partnerships. This was done through effective technology that helped SARS in its client-facing workforce; automated risk engines and data matching across all tax types; synergy from debt collection efforts; and partnership building.

The narrative that SARS had disbanded the Large Business Centre (LBC) was false. This false narrative was the imagination of those that sustained an anti-transformation agenda. In 1994, the LBC was known as a corporate income assessment centre. It evolved in October 1996 to become an official centre for large corporates. In 2000, the mining corporate tax that was included in the large corporate centre, was included in the LBC. The large business office was established in 2004. However, the turning point in the history of LBC was in 2007, when it was introduced as a relationship management between big business and high net worth individuals, with the objective of tracking all revenue due by the sectors that made more capital in the South African economy. In 2009, focus was placed on transfer pricing and the LBC was saddled with the responsibility of addressing transfer pricing. When the operating model was approved in 2015, SARS upscaled the process of recruiting additional skills to deal with profiting shifting, transfer pricing, and relationship enhancement. The importance of the LBC was to heighten skills and capabilities, in order to close the gap around illicit financial flows.

SARS’ mandate was based on provision of service, education to the tax payers, and enforcement, which was used if the first two options fail.

Revenue collection highlights included SARS collecting R309.5 billion in Quarter 4, which amounted to a marginal surplus of R0.3 billion against the estimate. Overall, SARS recorded a positive performance. An important performance indicator was the higher domestic value added tax (VAT) of R0.4 billion. R0.3 billion, which translates to 1.8%, was brought in on customs duties, which was due to slightly higher imports, gains from exchange rate, and the weakening of the currency. Company income tax (CIT) collection went up by R1.7 billion, which was 3.5% higher than the expected provisional payments from small and medium enterprises.

Operational highlights within Quarter 4 were that SARS interacted with 1.4 million tax payers through its branch network and mobile tax units. SARS received 1.1 million calls through the national call centre, out of which 94% of the queries were resolved at the first contact. 301 voluntary disclosure applications were successfully processed, which generated R444 million. 885 investigative audits and 3 468 compliance audits were conducted, and R922 million was generated from this. In Quarter 4, the debt book was 9.01% of revenue against the target of 8% despite the R4.75 billion collected in that quarter. R15.11 billion of the total debt book was collected by 31 March 2016. SARS was doing all it could to reduce the debt book to a manageable level. 2 461 dispute cases had been dealt with in Quarter 4, through the alternative dispute resolution process.

The pillars of progress SARS made on key initiatives were tax compliance status, client information systems, and the illicit economy. An online Tax Compliance Status (TCS) system had been established, and had been launched in December 2015. The second phase of the system had also been launched in Quarter 4, and was already producing results. The old tax clearance certificate (TCC) system would however, continue to run until the new TCS system that was implemented in April 2016 was fully operational.

With regard to the client information system, also referred to as single registration, SARS piloted a merger of tax and customs records of 100 tax payers into a consolidated entity. 82% of selected tax payers were merged successfully.

With regard to the illicit economy, SARS had a customs and excise unit that was charged with the collection of 20 to 30% of the revenue. In Quarter 4, 25.9 million illegal cigarettes worth R22.1 million were seized at the port of entry. Total for the year was 134 million sticks. 15 892 clothing and textile items worth were also seized. 2.6 tons of narcotics worth R69.2 million and illicit cash of R13.15 million were seized. Total narcotics is R286 million for the year and cash seizures for the year is more than R148 million. SARS seized R97 million in September/October 2015 at the O.R. Tambo International Airport, though the help of the scanners installed at the ports of entry.

One of the key initiatives of SARS was the New Customs Act Programme (NCAP), which was in the process of being implemented. A mobile cargo scanner had also been deployed as one of the key initiatives. SARS had initiated a procurement process for an additional air cargo scanner, a mobile cargo scanner, 16 baggage scanners, and terminals in the post office.

A complaints management system was in process. This system aligned with and was reinforced by the tax ombudsman.

In terms of the preferred trader programme (PTO), SARS had assisted the Southern African Customs Union (SACU) member states to identify capacity building requirements and develop a work plan for implementation.

SARS had submitted its APP and Strategic Plan to the Minister on 6 March 2016. The Minister called a meeting with the SARS officials on 23 March 2016, and requested some changes, which had been effected by SARS. The issues around the Strategic Plan would be finalised in the next ten days.

SARS was unable to meet the set target for customs revenue which includes import VAT, due to drop in imports, particularly on vehicles and machinery. However, an increase was recorded in the percentage of cargo declaration targets, from a target of 11% to an achievement of 12.34%. The alert ratio is higher as a result of the increase in reference prices due to the increase in the rate of exchange.

With regard to the increases in tax compliance, the percentage for personal income tax (PIT) had increased slightly. An over-achievement was recorded in the percentage of in-depth audit coverage of registered tax payers including PIT, CIT, VAT/Excise and pay as you earn (PAYE), due to the revenue drive initiatives.

The average processing time for CIT returns that was targeted at <1 day, SARS over-achieved its target due to systems enhancement where assessment was almost in real time.

It was noted that VAT refunds had become a problem all over the world. SARS had however put systems in place to protect its fiscus. SARS had never withheld VAT refunds in order to jump up its revenue collection. Where refunds had been properly investigated and confirmed, they were paid within ten to 15 seconds. Those that were yet to receive their refunds had to go through a system.

SARS noted that it took cognizance of issues around employee engagement, and employment equity in terms of gender in management and with regard to disability. The target of employment equity in terms of people with disability was a difficult target. SARS had however made it its duty and responsibility to recruit people with disability. The target set for the quarter was 2.06%, out of which 1.18% had been achieved. This underperformance was as a result of attrition and the low recruitment rate in the same sector.

SARS had an improved representation of female employees and was proud of its achievement of the recruitment of a female CFO. However, the process of change within SARS was yet to be completed. The three management positions that were yet to be filled were reserved exclusively for women. However, the quota for middle and senior management had been achieved, resulting in equity in gender sensitivity.

SARS had a total headcount of 14 198 employees at the end of Quarter 4, which excluded all vacancies. Overall, there had been an increase of 220 employees from April 2015 to March 2016. SARS had recruited 189 new employees, and at the same time lost 170 employees. This ability target was one that was yet to be fully achieved.

In terms of equity in human resources, the annual target for March 2016 was 72% but SARS had achieved 74.55% by 31 March. The 47.2% target for females in grades six to nine, SARS overachieved with 48.5%. The target for disabled people was however underachieved.

Mr Moyane responded to the recommendations affecting SARS in the Committee’s 2015 BRRR. Firstly, SARS was not responsible for setting the targets for revenue collection. Rather, a wide range of quantitative measures were put in place through the Ministry or Treasury, and target forecasts were put together. Treasury would engage with SARS officials and look at the macro-economic conditions of the country regarding the development of the economy, after which the Ministry would set the targets. Based on this phenomenon, SARS joined the joint revenue analysis committee, comprising of Treasury, the Reserve Bank and SARS, where deliberations were made on what was realistic for SARS to collect. The Minister could revise the targets based on the macro-economic conditions of the economy. For example, the target set out in the last budget statement by the Minister was revised from 1 074bn to 1 069bn, and this target had been achieved by SARS.

Secondly, SARS was cognizant of the issues raised by the Auditor-General (AG) on information technology (IT). SARS was IT-driven; IT protocols and governance was key to the operations of SARS. In the first quarter of 2016, SARS had an internationally renowned organisation to carry out an assessment of SARS IT environment, by looking into its IT strategy, architecture in technology, sourcing governance application, development and project management, and modernization. This organisation was of the opinion that the second phase of this assessment had to be conducted so that SARS could renew its capability. If SARS remained behind in the technology that was applied internationally, it would be faced with serious problems. It therefore needed to align itself with industry frameworks, such as IT infrastructure library, and COBIT. SARS also established a digital technology and management committee to govern IT related matters such as the adoption of the new standards, technology investment decisions and technology related projects. The establishment of the domestic treasury management companies (DTMC) enabled SARS to ensure that its IT related processes were aligned to revenue collection.

Thirdly, base-erosion and profit shifting (BEPS) was a very topical issue that had been duly noted by SARS. A presentation would be made on the number of double taxation agreements that SARS had signed with various tax administrations across the world. However, it had been observed that foreign companies were shifting billions of rands or dollars out of the economies of developing countries. SARS had therefore, decided to upgrade and entrench capacity building in this area. BEPS had been discussed with the commissioners-general of Southern Africa in October 2015 in a meeting called by the SARS Commissioner. The matter was an ongoing issue that was currently being addressed by SARS, through the participation of experts in various leadership forums to provide solutions on this factor.

In response to the concern raised by the Committee on the border management agency (BMA), it was pointed out that SARS was not against the BMA. SARS only looked forward to a collaborative approach, since the BMA carried out some of the functions within SARS’ purview of revenue collection. The Committee however, committed to supporting SARS on non-defragmentation of SARS in terms of revenue collection and its mandate. The Minister of Finance would discuss with the Minister of Home Affairs, on the means of resolving this matter. It was noted that Customs was responsible for 20% of the revenue collected by SARS. SARS was not included as part of government’s constituency in the ongoing consultations. Therefore, it could not comment on the ongoing deliberations.

Mr Fuzile commented that whenever Treasury dealt with security concerns, it did not erode the customs/revenue capacity that had been built by SARS. BMA was not a Ministry issue; it was an issue to be resolved by government. Government had to find the right balance between filling the existing gaps in the ideas that gave rise to BMA and the institution saddled with the responsibility of monitoring goods.

Mr Moyane continued with the responses on the BRRR. On the Committee’s request for SARS to explain how it decided what share of revenue would be raised from each of the tax sources, the forecasting and analysis of SARS were based on macro-economic time series, model trend analysis, and statistical modeling. SARS usually considered the gross operating surplus, remuneration, trade flows, and consumption trends. These factors often contributed to most of the tax basis and flows. The estimates indicated by SARS was arrived at by looking at final household consumption, the exports, imports, the gross domestic product (GDP) ratio to inflation, and the total revenue due to the fiscus. Treasury would then calculate the total revenue that was collected, and distribute between the various government departments, and in accordance with the needs of the state in terms of domestic investment. SARS was not involved in the distribution of the collected revenue across departments.
 
Discussion
Ms P Kekana (ANC) suggested that Treasury’s subsequent quarterly reports should reflect a separate column for impact. Some of the highlights in the presentation conflicted with each other. One of such is the type of capacity building programmes and support being given to the treasuries of local municipalities through various programmes, versus the reports on the underspending in some areas due to incapacity. Cases of municipalities surrendering their money due to incapacity to spend should be curbed. Another example of the conflict identified in Treasury’s presentation was the neighbourhood grant which were designed to assist urban regional programmes. The inability of municipalities to access this grant would therefore defeat the purpose of the grant, and the good intentions of Treasury. The Jobs Fund was also a noble idea, but the problem of incapacity to spend affected the effectiveness of the grant. There should be more focus on the impact of the programmes developed by Treasury.

She commended SARS for exceeding its target and achieving the milestone of R1 trillion in revenue collection. She wanted SARS to clarify the ongoing rumours of withholding certain payments in order to achieve the R1 trillion. It was pointed out that the Committee’s approval of the operating model was done without any expectation that this model would undermine the ongoing transformation process. It was not acceptable for SARS to submit that it could not get women to fill positions within the system. It was proposed that the Committee should henceforth meet with the SARS ombudsman to familiarize itself with the opinions of people on SARS’ services. With regard to BEPS, SARS was asked to speak on existing gaps, if any, and if there was a need to put in place legal frameworks to assist SARS in handling BEPS. It was noted that SARS placed much emphasis on the seizing of cigarettes at the borders, without mentioning the seizures of other items like gold, watches, vehicles and so on. SARS was asked to explain how it quantified the seizures on some of these other items, in order to determine the level of porousity of the South African borders, and the measures put in place to curb that. The need for SARS to have a tracking system through the border control operational coordinating committee (BCOOCC) or BMA was emphasized. SARS was urged to transform its modernization unit in a gender sensitive manner.

Mr R Lees (DA) asked Treasury to give a revenue estimate for the current year in terms of the budget; and detailed departmental achievements in relation to the cost containment measures. He wanted to know what Treasury’s growth prospects were, especially in the light of the exchange rate; as well as a progress report on the status of non-core assets and whether or not these assets would be disposed of.

He noted that VAT refunds were not happening, contrary to the comments of SARS on VAT refunds. He wanted to know what the extent of unpaid VAT refunds were at the end of the financial year. He asked if the Gupta airplane that left on 7 April passed through all the required border controls, and if it did, whether it was cleared or not; the narrative was that there was a huge amount of cash on board. He asked whether any intervention had been made by the President as promised in the relationship between the Minister and the SARS Commissioner and if there was any progress. Everyone wants the relationship to be good so that the impact on the economy goes away. He asked about the status of implementation of the operating model, what stage of implementation had been reached, and the high level costs associated with such implementation. He asked about the progress that had been made on the court action involving the Huang case, whether the case had been resolved, the outcome of the case, and the amount of tax collected, if any; and when the KPMG report would be presented to the Committee.

Mr B Topham (DA) proposed that SARS should give a proper report on the extent to which the economy had transformed and how that transformation had affected the taxpayer base in terms of the size of entities. He wanted to know what percentage of CIT was derived from smaller employers; when it would be appropriate for the public to take up cases from the SARS ombudsman to court; and what SARS was doing in ensuring simplification of registration, and what the norm was in terms of the number of days for registration.

Mr P Mabe (ANC) commented that non-compliance contributed the corruption and audit findings noticeable in municipalities. Treasury was urged to conduct its evaluation process on the expected or projected outcomes of municipalities. The Jobs Fund continued to record roll-overs each year, which could be as a result of an onerous process put in place to disburse the fund. He asked if Treasury had considered a policy review for the Jobs Fund.

He wanted to know what SARS had done to educate people on the integrated tax adherence system and its other interventions and services, instead of applying the enforcement route of its mandate. There could be no compromise on the issue of gender. There was a need for SARS to develop a clear programme aimed at achieving gender equity within SARS. Treasury should also set a target for the achievement of gender equity at the senior management level within a specified period.

Ms M Khoza (ANC) said that there was a need to confront the issues facing the economy holistically. In terms of transformation, it was noted that the key individuals in the fiscal policy and monitoring policy space were all blacks.  There had been a one-sided narrative on the devaluation of the currency, which dwelled on the negative consequences of the devaluation. There was a need to hear the other side of this narrative that highlighted the positive effect of devaluation. With regard to the disagreement of the Minister with the Commissioner on the Strategic Plan and APP of SARS, she asked what the issues surrounding the operating system were that resulted in the delayed approval of the Strategic Plan and APP.

She asked if SARS had aligned its recent successes with the new operating system. SARS was urged to give a commitment on its intention to work with a collective team in moving South Africa forward. She requested the rationale for moving the scanner from Durban, which had the largest port to Beit Bridge; the hierarchy of the different audit processes adopted by SARS; and the rationale behind the higher collection of CIT despite the tight economic situation.

Ms T Tobias (ANC) noted that SARS and Treasury were interconnected and their work should not be separated. Treasury was charged with developing the forecasting of the economy, while SARS worked in relation to the forecasting already done by Treasury. It was noted that the actual forecast for the 2015 fiscal year was R1 081 275 trillion, while SARS achieved R1 069 983 trillion, which meant that -1% of the forecast was not achieved. This reflected the performance of the economy in terms of the commodity prices that affected the economy. More work should be done on indirect taxes. She asked if it was possible to get education on VAT refunds.

Mr S Buthelezi (ANC) said that the meanings of the various acronyms in the presentation should be spelt out for better understanding of the documents. He asked for an explanation of the grading equation adopted by Treasury. He asked if efforts were being made to revisit the Preferential Procurement Policy Framework Act (PPPFA), as it only benefited big business and not the small ones.

Mr Buthelezi said that the successes recorded by SARS should be celebrated. He asked if SARS could promise better delivery going forward, and maintain the high standard already set; what the nature of the voluntary disclosures were, reasons for non-compliance of people to their tax obligations, and if there were any criminal activities involved; the nature of the matters reported to the SARS ombudsman; the amount of procurement funds spent on black companies; and how SARS dealt with tax evasion.

The Chairperson said that the Committee could not honour the invitation by SARS to come to Beit Bridge due to the tight calendar of Parliament. The Committee would visit Beitbridge at a later time. The issues around BMA should be sorted out in Cabinet. The Chairperson would speak with the Minister to hasten the process of sorting out the BMA Bill. It was pointed out that SARS should not expect politicians to understand the intricacies of its operating model. The Committee had no issues with the model presented by SARS, but it did not scrutinize the model nor compare it with other models in developing countries. The only issue the Committee was particularly concerned about, was the result of the model in operation.

Mr Fuzile said that Treasury could report on the impact of some of the items it engaged in. It was however, complicated to report on the impact of some other items because Treasury contributed towards an objective, with a limited role to play.  The Neighbourhood Development Partnership Grant (NDPG) had two windows; one of which was aimed at helping municipalities build capacity to enable them to access the money.  Treasury would prefer not to underspend on the Jobs Fund, and had tried to simplify the programme. The combination of the money raised from the private sector and public sector had resulted in over R11 billion worth of investment, which was a great achievement.

In terms of legislative gaps with BEPS, there would always be scope to improve the legislation. The discussion amongst the finance ministers at the G20 focused on the countries that failed to sign up on the voluntary automatic exchange of information.

In terms of forecasting, Treasury noted that it conducted an internal check on what the high frequency data meant for the overall growth, projections, and revenue, and prepared itself for October accordingly. Treasury had observed the reasons for the downward revisions to growth forecasts made by the International Monetary Fund (IMF). The relationship between GDP and taxes was complex, in the sense that a given change in GDP did not translate to a proportional change in taxes. Nevertheless, Treasury would most likely achieve the revenue targets and fiscal consolidation targets it had set. There was likelihood that the revenue estimate may be more than Treasury could achieve in the long run. The Minister had also tasked the Chief Procurement Officer to put in place initiatives that would result in the achievement of more than R25 billion in savings by 2018/19. The Minister had already mentioned the areas where these savings could be secured, which meant that interactions with contractors, negotiations of discount, and abandonment of certain ways of procurement and replacement with new methods had begun.

On the cost containment measures, Treasury noted that the targeted areas of expenditure where the rate of growth in expenditure was targeted for reduction actually slowed down. In other words, the growth rate was either negative or slower every year. Treasury could not give a specific number on the cost containment measures.
 
With regard to non-core assets, it was noted that the R23 billion that went to Eskom came from the sale of Vodacom shares. A process was underway to develop a better framework that would broaden consultations, and enable Treasury to achieve the developmental objectives it was set to achieve.

Treasury had the same responsibility towards SARS in ensuring that SARS reported on financial issues, just like other departments.

With regard to the PPPFA, proposals could be given to Treasury on how to make the Act better.

There had been a leveraging of the positive effects of the devaluation of currency. However, the economy was yet to take full advantage of this leverage. More focus was usually placed on the negative effects of things.

Mr Moyane replied that in terms of budget versus target setting, there was a revenue analysis working committee that set the targets in the two parties. In terms of tax buoyancy, the revenue estimate provided by the Minister was R1 081bn, and tax buoyancy was 25.6. SARS however achieved a tax buoyancy of 26. Tax buoyancy is calculated by dividing total tax revenue by nominal GDP growth.

SARS took the issue of transformation of women in the operating model very seriously. It committed to meeting gender parity and assured the Committee that it would fill the vacant positions with women.

He reiterated the point that no funds had been withheld in order to meet set targets. If cases of delayed tax refunds arose, SARS would treat such matters when reported.

On the airplane that left on 7 April, he noted that SARS could not disclose taxpayers’ information in public. However, instruments and mechanisms had been put in place for every flight leaving any of the airports. SARS played a role in this, but that role could not be disclosed publicly.

The milestone of over R1 trillion in revenue collection was achieved through the operating model. Ninety percent of the achievements SARS recorded was attributed to the operating model. The other achievements included the recruitment of a new chief officer for human resource and capital, and a new chief officer responsible for customs.

It was noted that the scanner moved from Durban to Beit Bridge was replaced by another scanner in Durban.

Mr Jonas Makwakwa, SARS Chief Officer: Business and Individual Taxes & Digital Information Systems and Technology, replied about the new system to deal with tax clearance certificates, as well as SARS’ efforts to reach out to the previously disadvantaged communities to use the system. He said that SARS worked jointly with Treasury to link the supply chain management system with the tax clearance certificate system. SARS’ communication strategy was aligned with that of Treasury. SARS however, needed to ensure that it leveraged on the current infrastructure of the two, where SARS would be present to assist tax payers who were without infrastructure, in applying for tax clearance certificate through the system. SARS also had mobile tax units that went into the remote areas that were without facilities, to educate and show the public how to make use of the new system.

In terms of provisional tax, SARS referred to paragraph 19(3), which provided the estimation for provisional tax. SARS used to focus on large businesses in previous times. It had, however, shifted focus to small businesses. SARS was able to collect over R1 billion from small and medium companies through this process outlined in paragraph 19(3). In actual fact, the small businesses complied with tax payments, unlike large businesses.

Mr Hlengani Mathebula, SARS Chief Officer for Strategy, Communications and Enforcement, replied that communication and simplifying the functions that SARS carried out, were crucial for the public. However, SARS could not control communications made by the media. He went on to explain the magnitude of the R1 trillion achieved by SARS, by breaking it down into understandable values of R50, R200, and R10 notes.

The Chairperson said that more questions would be forwarded to Treasury and SARS within the next ten days, and the two institutions were expected to provide written responses to the Committee.

The meeting was adjourned.

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