National Treasury and South African Revenue Service on their Quarter 3 performance

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Finance Standing Committee

28 March 2017
Chairperson: Mr P Mabe (ANC) (Acting)
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Meeting Summary

The Department of the National Treasury (NT) and the South African Revenue Service (SARS) briefed the Committee on their third quarter expenditure and performance reports for the financial year 2016/17.
National Treasury’s quarterly performance had accelerated in terms of the number of targets achieved between the second and third quarters, while non-achievement had decreased as well. It was expected to achieve its outstanding targets in the fourth quarter, as measures had been put in place to accelerate delivery and address under-performance in under-achieved areas.

The current work focus was around strengthening and accelerating systems of governance and financial management processes in municipalities, and in national and provincial departments. Performance emphasis in the third quarter was around this area. Also, vacancy rates had been quite low owing to the strengthening of internal systems within the NT.

Members commented on the significant variances in projected and actual expenditure outcomes. They also noted that investigations carried out by the NT had constituted a significant expenditure item. They asked if it had the internal capacity to do investigations, as a cost-saving measure, as the outsourcing of investigations was straining finances.

Members said that under-spending on infrastructure development programmes was a cause for concern. They emphasised the need for forward planning, as service delivery was of paramount importance to them.

The Acting Chairperson noted that mitigating risks and the enforcement of internal capacity was critical in reducing overspending. Non-compliance by departments, especially in supply chain management, led to unnecessary over-expenditure.

SARS expressed concern over the negative comments about it lately. The Commissioner said SARS found such negative comments damaging and distracting. They impacted negatively on the reputation of SARS and the morale of its staff. People peddling unsubstantiated allegations must be made aware that they might be sabotaging the South African economy, as SARS had an important role to play in the economy.

The current onslaught was affecting tax compliance levels across the spectrum, and SARS warned that its revenue collection ability would be affected and could lead to a failure to meet revenue collection targets. It added that a drop in confidence was clearly noticeable from engagements with taxpayers.

SARS had managed to grow revenue collection by 8.5% year-on-year, despite the dampening economic growth outlook. Under difficult economic conditions, SARS had managed to maintain a 26% revenue to gross domestic product (GDP) ratio.

Compared to previous periods, lower Value Added Tax (VAT) and progressive income tax had been collected, mainly due to rising costs of imports, combined with weak domestic activity, constraining growth levels of key contributing commodities such as machinery, electrical machinery and vehicles.
 
Members sought clarity from the SARS Commissioner on the working relationship he had with the Minister of Finance. They also pointed out that taxpayers were unhappy with how refunds were being handled, and that had to be addressed. A Member identified refund claims that had gone unpaid for ten months, and noted that this had a huge impact on cash flow, especially for small businesses. Also, the perception was that the good story about revenue collection was being manipulated by SARS by playing with refunds -- refunds were being withheld to balance its books.

The Commissioner said there was no warfare, as alleged, between SARS and the Ministry. There could be differences in opinions as part of their development and relationship building, but not warfare.
 

Meeting report


The Acting Chairperson, in his opening remarks, conveyed condolences on behalf of the Committee to the Kathrada family on the passing of struggle stalwart, Ahmed Kathrada.

National Treasury: Third Quarter Performance

Ms Silindile Kubheka, Chief Finance Officer: National Treasury (NT) took the Committee through a presentation on the third quarter expenditure report of the National Treasury. She identified cash flow projections as well as the actual expenditure outcomes as at 31 December 2016. 

The main contributors to the negative variance between projected and actual outcomes were operational expenditures (R383.4 million), transfers (R162.3 million) and payment of financial assets (R82.2 million). She explained the reasons for the overspending. R348.6 million of the overspending was as a result of additional expenditure incurred on the Integrated Financial Management System (IFMS) Solution, amounting to R461 million for the purchase of the software licence. The funding to augment the over-expenditure incurred on the IFMS project had been sourced from South African Revenue Service (SARS) through the 2016 Adjusted Estimates process.

R23.4 million, representing an overspending on consultancy services, was mainly for services rendered on investigations relating to the Passenger Rail Agency of South Africa (Prasa) and initiatives such as the Top 100 Corporate Performance Improvement Services (CPIS), the eProcurement (Intenda) project and Learning and Teaching Support Materials (LTSM), Cool Ideas and Y-Africa. She said that most of these projects were ad hoc in nature.

R11.4 million in overspending was related to investigations on the extent and abuse of Emolument Attachment Orders (EAOs) in the public service and implementing an on-going process for their management to ensure that no illegally issued EAOs were enforced against public servants in future. It was agreed that the service provider would be paid a monthly administration fee equal to 5% of the value of each garnishee order successfully deducted from the payroll.

Ms Kubheka highlighted savings realised during the third quarter. R235 million had been saved through an earlier payment on financial assets for the second capital instalment to the New Development Bank due to strengthening of the Rand against the US Dollar in August 2016. The money had been used to cover various departmental shortfalls.

R18.8 million initially allocated for compensation of employees had been saved subsequent to the executive committee’s decision to freeze certain vacant positions within the Department in order to remain within the current expenditure ceiling for compensation of employees.

R61.4 million under-spending had been recorded on various programmes. R32.8 million on the Infrastructure Delivery Improvement Programme (IDIP) was cumulative from previous months due to delays experienced with the legal section of the Development Bank of Southern Africa (DBSA) in ceding of the contract to National Treasury.

Ms Laura Mseme, Chief Director: Monitoring & Evaluation, National Treasury took the Committee through the NT’s performance report. She said that out of 143 targets due for reporting in the quarter, 101 had been achieved, 30 were partly achieved and 12 were not achieved. Of the total 164 targets that National Treasury had to report on annually, 21 were not due for reporting in the third quarter.

Quarterly performance had accelerated in terms of the number of targets achieved between quarters two and three. Non-achievement had decreased between quarters two and three as well. The Department expected to achieve the outstanding targets in the fourth quarter, subject to budgetary constraints and liaison with external stakeholders. Measures had been put in place to accelerate delivery and to address underperformance in underachieved areas.

She said that much of the work focus was around strengthening and accelerating systems of governance and financial management processes in municipalities and national and provincial departments. Performance emphasis in the third quarter had been around this area. Also, vacancy rates had been quite low owing to the strengthening of internal systems within National Treasury.

Discussion

Ms D Mahlangu (ANC) commented that spending on financial accounting and supply chain management (SCM) systems had been 160% for the third quarter. She asked if such overspending was going to be addressed in the fourth quarter. National Treasury had to lead by example in financial prudence. It had identified investigations on public service as one reason for overspending -- was there value for money in carrying out such investigations?
She asked if the fourth quarter report was going to address the targets not achieved in the third quarter, and if there was a plan to meet the targets not achieved.

Ms P Kekana (ANC) commented on the significant variances in projected and actual expenditure outcomes. She asked if National Treasury, as a cost-saving measure, had the internal capacity to do investigations. Outsourcing of investigations was straining finances. Under-spending on infrastructure development programmes was a cause for concern. The was a need for forward planning by National Treasury, as service delivery was of paramount importance to Members.
 
Mr D Maynier (DA) said that the investigations into Prasa had been identified by National Treasury as an expenditure item in the third quarter. He also referred to investigations into certain contracts concluded by Eskom, and asked about the current status of these investigations.
 
The Acting Chairperson remarked that mitigating risks and the enforcement of internal capacity were critical in reducing overspending. Non-compliance by departments, especially on SCM, led to unnecessary over-expenditure. He advised that Mr Maynier should wait for 9 May to have questions around Eskom investigations answered comprehensively, as a report on this was due on that date. It was important to limit questions and discussions within the context of the quarterly report.

Mr Stadi Mngomezulu, Deputy Director-General: Corporate Services, National Treasury, replied that the NT did have the internal capacity to carry out investigations. He pointed out that Special Audit Services was an investigative unit that looked into most of the high profile investigations, but sometimes it engaged specialist skills from external units if need be.

He emphasised that the Department did balance its budget at the end of each financial year through virements and cost-saving measures. He did not see a situation whereby National Treasury would spend more than what Parliament voted for in the budget.
 
On Prasa and Eskom investigations, he said the Department had been in correspondence with Mr Maynier’s office and was going to provide feedback as well as ensure that the issues were addressed.

Ms Kubheka said IFMS related to licences, and spending on financial accounting and supply chain management systems was incorporated into a portion of the investigations. It had been adjusted, and additional funds had been requested, and all over-spending had been closed. The Department would submit a duly comprehensive report on expenditure that would clarify issues on whether there was value for money.

Ms Mseme pointed out that National Treasury had mitigation plans for targets where it had underperformed. It had a two-stream monitoring process -- one stream monitored quarter-specific plans and the second stream monitored mitigation to ensure that there was no slippage from one quarter to the next. They were confident that most of the outstanding targets would be met in quarter four.    

She said capacity constraints had seen some targets being suspended and deferred to the next quarter. The placement of directors as a target had been suspended due to financial constraints as well.

Mr S Buthelezi (ANC) asked how much, in value terms, outsourcing was costing the Treasury. He also asked if a competent replacement for Mr Kenneth Brown, former Chief Procurement Officer, had been found. He asked how the central procurement office dealt with the varied requirements from various departments. He asked if it was feasible to have the entire range of skills within the Department, and if Treasury had procurement specialists, or they were outsourced.

Mr Mngomezulu replied that the procurement office had special sector-specific skills. Although it was not yet fully structured, the Department was in the process of strengthening it with sector-specific expertise. On Mr Brown’s replacement, he said an internal person occupied the office in an acting capacity, and the Department would fill the position permanently soon.

On how much National Treasury spent on outsourcing, he said there was a need for context and it would come back with a comprehensive response.

South African Revenue Service (SARS): Third Quarter Performance

Mr Tom Moyane, Commissioner: South African Revenue Service, indicated that the timing of their appearance before the Committee was of concern to SARS because the current period (month of March) was the most critical in the SARS calendar. Being in Parliament at that time placed a huge burden, as it was defocusing them from their current collation work. SARS had written to the Chairperson asking for a postponement of the appearance to a later date.

He remarked that there had been much said about SARS in the media and within political circles. SARS found such negative comments damaging and distracting. They impacted negatively on the reputation of SARS and the morale of its staff. People peddling unsubstantiated allegations must be made aware that they might be sabotaging the South African economy, as SARS had an important role to play in the economy.

Mr Moyane emphasized that negativity had led to an exodus of highly skilled personnel who could not tolerate their reputations being tarnished. He expressed concern about the current onslaught that perpetuated a false narrative, to the effect that SARS was falling apart. He identified a worrying trend whereby the media chose to articulate the opinions of former SARS officials -- long departed from the organisation -- and not seek clarity from SARS within a reasonable time. The current onslaught was affecting tax compliance levels across the spectrum. Compliance was beginning to deteriorate, and he warned that SARS’ revenue collection ability would be affected and would lead to a failure to meet revenue collection targets. A drop in confidence in SARS was clearly noticeable from engagements with taxpayers.

He explained that revenue collection estimates and a target of R1.1 trillion announced in February constituted a forecasted nominal 9.8% revenue growth year-on-year. At that stage a 1.02% GDP growth was anticipated. The economy is currently growing at 0.3%. Therefore, the significant downward revision of the estimates by R30 billion for the 2016/17 financial year was not about SARS’ ability to collect revenue but attributable to slow GDP growth among other factors. He remarked that 2008/9 saw a deficit of R60 billion and thus it was not the first time that SARS was experiencing a shortfall in revenue collection estimates.
 
He pointed out that under his stewardship, SARS had surpassed the levels of actual tax to gross domestic product (GDP) ratios experienced in 2009/10, and believed that the positive trajectory would be maintained.  SARS had outperformed the economy in the current economic conditions of slow GDP growth and high unemployment levels. SARS was committed to meeting revenue targets and was fully aware of the responsibilities bestowed on it by the constitution.
 
Mr Marius Papenfus, Group Executive: Strategy Development, SARS, acknowledged questions forwarded to SARS in a report from a previous meeting. He explained how SARS sets revenue collection targets. Revenue collection targets were estimates set by the Minister of Finance, based on recommendations from a revenue analysis working committee comprising representatives from various entities such as the Reserve Bank, SARS and National Treasury, and was also based on the obtaining macroeconomic dynamics.

The revenue analysis working committee did research about best practices worldwide in setting revenue collection targets, and applied unique local dynamics as well. It sought to balance legislative and economic dynamics, an example being the target set in paying Value Added Tax refunds. SARS also sought to avoid unnecessary interest accumulation on refund payments. It looked at international practices that incentivised and rewarded good compliance, and minimised risks in critical points of interaction, such as ports of entry.
 
On concerns pertaining to internal controls and technology, raised in the previous engagement, he pointed out that a follow-up audit was currently under way to ascertain progress in terms of implementing improved internal controls in the technology domain. 

Mr Papenfus said SARS embraced the feedback from the taxpaying community, and encouraged taxpayers and traders to be very specific in their feedback.

He highlighted the revenue collection figures for the third quarter and the risks that might affect the final quarter of the year. As at 31 December 2016, R818.764 billion in revenue had been collected (year-to-date), representing a surplus of R456 million against the Medium Term Budget Policy Statement (MTBPS).  

Value Added Tax (VAT) had been lower than the MTBPS expectations by R4 bn (9.3%), mainly due to the rising cost of imports combined with weak domestic activity, constraining growth levels of key contributing commodities -- namely machinery, electrical machinery and vehicles.

Lower dividends tax/secondary tax on companies against MTBPS expectations, by R0.4 billion (4.8%), had been collected, driven mainly by the wholesale and retail trade sector.

Domestic VAT collections had been boosted by R3.2 billion (4.1%) owing to stronger growth in household consumption.

On revenue risks, he identified import taxes as posing the largest significant risk to revenue collections due to subdued levels of growth.

Despite positive corporate income tax collection experienced in December, boosted by collections from the mining and quarrying sector, the trend may not be sustained. Downside risks existed currently, as corporate income tax provisional payments were expected mainly from state-owned enterprises, telecoms and manufacturing sectors, whose profits were under strain.

Backlog refunds were expected to revert the revenue surplus into deficit. Despite risks, SARS had paid refunds within 32.14 days on average during the third quarter reporting period. The majority of refunds were still paid within 48 hours. 

He affirmed SARS’ commitment to inclusive fiscal citizenship, to ultimately enable success of the National Development Plan.

In concluding, Mr Papenfus said SARS was containing expenses and operating well within budget, cognisant of the tight fiscal framework within which it had to operate. 

Discussion
Mr Maynier said the Commissioner was correct in noting the diminishing public trust in SARS. He said it had arisen due to the “civil war” between SARS and the Ministry of Finance, symbolized by a recent press conference held by SARS. He pointed out that the Commissioner, during the press conference, had said that he had approached the President to appoint a referee to adjudicate over the differences between the Commissioner and the Minister of Finance. He asked if the President had reverted to the Commissioner, and if there had been any developments or due process in this regard.

He said “ground zero”, in the Minister’s view, was on issues around accountability. He asked if the Commissioner recognised that he was accountable to the Finance Minister. He asked for an update on the controversies surrounding investigations into the Jonas Makwakwa matter.
 
Mr Maynier noted that the Commissioner, in a different forum, had said SARS’ relationship with the Davis Tax Committee had irrevocably broken down. He asked if the Commissioner at any time had attempted to get Judge Dennis Davis’ speech or transcript. Also, had he sought to get the judge’s response to the Commissioner’s concerns before issuing a statement in this respect on 13 March?
 
He pointed out that the real reason why the relationship between SARS and the Davis Tax Committee had broken down was because SARS was resisting the Davis Tax Committee’s efforts to investigate the state of tax administration at SARS. He asked for the Commissioner’s comment on that.

He asked if SARS had lodged a complaint with the Judicial Service Commission, as threatened. Was the Commissioner not in contravention of internal prescripts which prevented officials from attacking government in their personal capacity, and had he taken any action?

He asked if it was true that the newly-appointed Mr Kgabo Hlahla had allegedly been dismissed due to misconduct from the Department of Health in Limpopo in 2015.

Mr A Lees (DA) commended the personnel at SARS for doing a great job, as there was no question that SARS was a rotten organisation. It was not about the individuals at SARS as a whole.

He remarked that taxpayers were unhappy with how refunds were being handled, and that had to be addressed.
SARS was to be partly blamed for what was not going well. He identified refund claims that had gone unpaid for ten months, and said that it had a huge impact on cash flow, especially for small businesses. The perception was that the good story about revenue collection was manipulated by SARS by playing with refunds – that delays were deliberate. He did not believe that all delayed refunds were related to fraud. He asked if SARS would support a change in legislation that stated that refunds be paid within 14 days, and that the audits take place afterwards.

He pointed out issues of perception about SARS. He asked the Commissioner to confirm that his bodyguard was indeed involved in the case reported at Brooklyn Police Station. He asked the Commissioner to shed more light on the whole saga.

He asked how many senior members and skilled staff, particularly in the SARS information technology (IT) department, had left since the Commissioner’s appointment, and how many vacancies had been filled.

Ms Mahlangu asked to what extent illicit flows, tax evasion and related crimes constituted matters under criminal investigations, and were identified as expenditure items in the presentation. She asked for a comparison with the previous quarter.

She commented on SARS achieving R1 trillion in revenue collection. She asked how the operating model had contributed to reaching the revenue collection milestone. How had this model contributed to the third quarter report, given the low tax revenue on the key tax bases? She asked if it was working and efficient.

She asked about the contribution of small, medium and micro enterprises (SMMEs) to revenue collected and the extent of the public response after SARS had rolled out a small business desk.

It was encouraging that three transfer pricing specialists had been employed, as it suggested that SARS was taking action on transfer pricing. She asked about the extent to which misunderstandings between SARS and the Treasury had had an effect on SARS’ capacity to deliver.

Ms Mahlangu made reference to a previous meeting with the Commissioner, where a commitment to fill vacant posts had been made. She asked if this had been done.

She noted perceptions in certain quarters that there was a tax revolt in the country. She asked for the Commissioner’s comment on this.

An EFF Member remarked that there was warfare between SARS and National Treasury, as evidenced by SARS holding a press conference to discuss issues around its relationship with the Treasury. She said such matters were meant to be discussed internally. She asked if SARS had sought intervention from the President, prior to the press conference.
She asked if SARS was doing anything to restore public confidence, and when the issue of refunds was to be addressed.  She asked if there were any new developments pertaining to the 2016 report that touched on the illicit flow of funds.

She asked about the cost of the nine baggage scanners recently procured by SARS, and if they had been procured in South Africa.

Ms Kekana commented that it was important for Members to commend SARS for doing a good job, despite all the negative energy around them. She pointed out that SARS had been able to collect revenue to the tune of R1 trillion. Members, as well as the Department of the National Treasury, had to commend SARS efforts.

Public comments on SARS were reckless and aspersions were being cast on SARS employees, even by the government itself. She pointed out that under the current Commissioner’s stewardship, SARS had broken the record in revenue collection. SARS had to soldier on despite talks that dampened morale.

She pointed out that female representation at the executive level at SARS had to improve.

She expressed concern that NT was reporting selectively on critical issues, such as the recurring budget shortfall.

SARS had to upgrade its baggage scanners, as smuggling was becoming more sophisticated.

She asked if the Davis Tax Committee had a timeframe, and when its evaluation was due.

Ms Kekana said it seemed as if SARS was withholding tax refunds to make sure its books looked good. She emphasised the importance of awareness campaigns to educate ordinary South Africans on SARS. She asked the impact of business collusion and fraud on revenue collection, including the possibility of such businesses under-reporting.

Mr Buthelezi said SARS’ achievements should be celebrated and appreciated. SARS played a pivotal role and Members were there to help, not to criticise unduly. He asked about the credentials of SARS executives, as there were narratives that there was brain drain at SARS. He noted that SARS’ skills were largely appreciated after departure.

He asked why SARS was failing to collect R30 billion. Was it related to the much talked about skills flight from SARS? He asked how revenue target setting was done, and if SARS was part of the revenue target setting process, why then cry foul at the end of the process.

He asked SARS to share its views about the broad terms of reference of the Davis Tax Committee.

Mr B Topham (DA) asked SARS to give an insight into outstanding debt and its credit balance so as to enable some understanding on refunds. He made reference to complaints about SARS’ fortnight systems backups, and asked if it was possible to do maintenance after hours to avoid service provision disruptions.

He asked if the rumour that Mr Hlengani Mathebula, Chief Officer: Strategy and Communications & Enforcement, had been suspended was true.

Mr Topham commented that concerns were not so much about under-collection, but on unrealistic revenue targeting.

The EFF Member asked if it was not better for SARS to acquire its own property, rather than rent office space, as a cost cutting measure. She pointed out that SARS had moved its offices to an upmarket area in George, and asked what had influenced its decision to move from the town centre to the upmarket area.

Mr Maynier said there had been much celebration around the 13 additional highly qualified personnel to be appointed to the transfer pricing unit. He asked if the appointments had been made to date.
  
Mr Buthelezi commented that the Commissioner had decried the fact that SARS had been called to appear before the Committee at this time. Going forward, there was a need for the Committee to bear with SARS and be time sensitive.

The Acting Chairperson agreed that the issue of credentials had to be addressed during presentations, as it spoke to accountability and public perception. 

SARS’ Response

Mr Moyane commented that some of the questions were going to be responded to in writing in the near future. He remarked that terminology used to describe SARS’ relationship with the Ministry should be constructive. He said terms such as “civil war” were to be avoided, as they painted a wrong picture and could find expression in the media space. Civil war was not an expression that needed to be maintained and sustained in this context. In his mind, “civil war” referred to attritions that involved the spillage of blood, and could not respond to Mr Maynier’s question as he had not seen blood on the floor.

Mr Maynier interjected on a point of order, and said he had used the term “civil war” metaphorically. The term reflected the obtaining situation between the SARS Commissioner and the Finance Minister, especially given the fact that the Commissioner had held a press conference allegedly because the Minister did not shake his hand, and the Commissioner had been strident during the press conference.

Mr Moyane clarified that the SARS Commissioner was not a Director General. He had certain powers which were higher than those of a Director General. The lines of accountability had to be clear, as he was appointed by the President. 

On the controversies around Mr Jonas Makwakwa, Mr Moyane acknowledged that investigations were under way and was going to get a sense of the situation when they were completed.

About SARS’ irrevocably broken relationship with the Davis Committee, Mr Moyane pointed out that Judge Davis’s statements during a press conference had been an attack and affront to the organisation, and he had not sought permission from him. He said SARS had had to respond, as the judge’s statements had had the effect of damaging SARS’ reputation. On why he had tried to get hold of the judge’s transcript, he said it was the duty of an individual or official to get hold of reporters and clarify issues if published statements were factually incorrect. SARS had raised the matter four days after statements were uttered, and had given the judge time to put the record straight. SARS was not in any way saying the Davis Tax Committee should not carry out investigations. None of the interventions recommended by the judge during his correspondence with SARS had been refused.

Mr Moyane said it was not true that SARS was resisting the Davis Tax Committee investigations. SARS had never resisted any lawful investigation, and was collaborating and exchanging notes with the Committee and had requested that terms of reference be furnished. On whether SARS had lodged a complaint with the Judicial Service Commission, he said this was under consideration, given the legal opinions being received by SARS.

On SARS executives’ credentials, he indicated that the timeframe requested by the Committee meant that SARS had to de-scale. He clarified that de-scaling did not mean that the SARS entourage brought before the Committee was mediocre -- the team he led was ably qualified. SARS was a victim of its own circumstances by not socialising the depth and breadth the organisation had. The team he led was capable of responding and fully qualified in the absence of chief officers, who were currently dealing with revenue reporting.

On the issue of Mr Luther Lebelo, he said the fact that Mr Lebelo was a SARS employee did not take away his right to express personal opinions. He said Mr Lebelo was expressing his own personal opinions, not pronouncing on SARS’ position.

On Mr Kgabo Hlahla’s appointment at SARS, Mr Moyane said he was hearing for the first time that Mr Hlahla had been dismissed in his previous role. He was taking the allegations seriously and would investigate. SARS followed due processes, such as engagements with recruitment agencies and human capital development channels during its recruitments.

On whether SARS had made appointments for its transfer pricing unit, Mr Moyane said they had recruited specialists in the transfer pricing unit. Although they were competing with the private sector for the skills, they had an internal training programme and pipeline for the skills.

Mr Moyane appreciated the commendation and words of encouragement from Members on the work done at SARS. Despite the hovering dark cloud, there was light at the end of the tunnel. It pained his heart to hear people say SARS had lost skills. It was like a spit in the face, as current personnel at SARS were working hard and had to be appreciated. There was no skills dearth, and SARS was up-scaling its capabilities.

He remarked that there was no warfare between SARS and the Ministry. There could be differences in opinions as part of their development and relationship building, but not warfare.

He said the cost of baggage scanners would be provided. In most cases, they were not locally procured as the country did not have the requisite capabilities and technology. He said SARS tried to support local content.

SARS was looking into a real estate strategy. It was important to look into a long term cost-benefit analysis. Real estate strategy was being taken seriously, and he acknowledged that relocating to up-market areas may scale up costs and reduce SARS’ interaction with people from rural areas. He acknowledged the need to balance all considerations.
 
Mr Moyane remarked that he did not run SARS based on sentiments from the media. The Mathebula suspension narrative was “fake news” meant to destabilise SARS. It was meant to break the collegiality that existed within the senior leadership of the organisation and create an impression that there was a kangaroo court that was taking place. Mr Mathebula was on vacation leave, and it was not true that he had been suspended.

He said as a tax administration authority, SARS was always worried by issues around business collusion. SARS was gathering information and would get back to the Committee after seeking legal opinion on whether SARS had recourse to this.

On female representation at SARS, he said three executive committee positions about to be filled would be occupied by women, as all the interviewees had been women. The complexion of the SARS executive was going to change dramatically.

Dr Randall Carolissen, Head: Research, SARS, acknowledged the R30 billion revenue collection shortfall. He said blaming SARS for the deficit was hugely unfortunate, as it created a wrong impression. He explained that the variance between forecast and actual revenue estimates were on the basis of a comparison between biased estimates and actual performance. The initial revenue collection target presupposed economic growth margins which had been higher than what had actually prevailed. It was totally incorrect that there was a R30 billion deficit, and it cast a bad light on SARS. Revenue collection estimates and resultant variances had to be viewed mindful of economic contexts and circumstances.

Dr Carolissen said it was untrue that SARS withheld refunds to balance its books. It was important for SARS to go out to the public and seek to correct those wrong perceptions.

He pointed out that over the last two years, SARS had managed to grow revenue collection by 8.5% year-on-year, despite a dampening economic growth outlook. Exceeding economic performance reflected the good performance of SARS. Under very difficult economic conditions, SARS had managed to maintain a 26% revenue to GDP ratio, which was simply extraordinary.

On perceptions that there was a tax revolt, he said SARS was not at a stage where it could emphatically pronounce about it, although it was worried. Corporate income tax had grown by 2% instead of the anticipated 8% in February. The shift from 8% to 2% was worrying, and SARS was going to carry out an investigation into this issue.

Ms Firdous Sallie, Acting Chief Officer: Business and Individual Tax (BAIT), SARS, said SARS was currently training a sizeable staff complement on transfer pricing, and skills building was under way. SARS was becoming a poaching ground for the unique skills being produced. Nine individuals had been recruited and were already on board, and five were in the process of being recruited.

On whether SARS withheld refunds, she said under no circumstances would SARS withhold people’s money when due for payment. There were due processes and all assessments went through rigid processes to ensure that refunds were not fraudulent. 

The Acting Chairperson, in his closing remarks said it was important that SARS engaged the public so as to regain credibility. SARS was expected to appear before the Committee again on 9 May.

The meeting was adjourned.



 

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