The new Minister of Finance and his Deputy appeared before the Committee. The Minister remarked that the acceleration of inclusive growth was an urgent priority for the country and National Treasury had a part to play in offering support for structural reforms within the economy. Numerous efforts were being made to expand the revenue base, transform and diversify ownership, patterns, as well as grow the national fiscus in the coming years.
Treasury had to work conscientiously with members of the Cabinet in order to boost business and investor confidence so that more investors could be brought in. He noted that Treasury’s annual performance plan (APP) was aligned to the National Development Plan (NDP). The APP reinforced the department’s objectives which included growing the economy, transforming the economy in an inclusive manner, creating jobs for more South Africans and reducing poverty and inequality.
Members of Parliament congratulated the Minister and his Deputy on their appointment. Issues that resonated throughout the meeting included matters relating to the Minister’s support for the policy of radical economic transformation set out by the South African President; the link between Cabinet reshuffling and downgrade of ratings, currency depreciation and increase in bond yields; the conflicting views expressed by the Minister’s economic advisor and the Minister’s standpoint on reining in his economic advisor; maintenance of the fiscal line in the event that the growth projection of 2.2% stated in the 2017 budget became impossible to achieve; the Minister’s views on whether the country required 9.6 gigawatts of electricity generated through a nuclear programme; the Minister’s opinion on the proposals made by Prof Malikane on what should constitute a radical economic transformation programme; the alignment of the monetary and fiscal policy with the industrialization objective; consideration of a deeper transformation of the financial sector in a manner that would represent South African demographics; the Minister’s standpoint on the stratification of revenue collection in South Africa; clarification on advisory services offered to the Minister by his wife and her involvement if any, in his carrying out his official duties; the need for Treasury to reappear before the Committee to outline the pointers to the programme around accelerating inclusive growth; the need for intensification of sectoral outreaches as means of enhancing financial literacy amongst ordinary citizens; definition of the relationship between inclusive growth and radical economic transformation; monitoring of decisions reached by the Committee for the department to implement; the appointment of a chief financial officer (CFO) for South African Airways (SAA) within three months; timeframe within which the Chief Procurement Officer would be appointed; rotation of auditors and the involvement of the Minister in managing the process; as well as the Sugar Beverage Tax.
In his response, the Minister noted that the debate around radical economic transformation was still ongoing. It was therefore, expected that different perspectives and views on the issues should arise. However, there were no contradicting views held about the programme. Discussions were based on implementation of programmes for accelerated inclusive growth. According to him, the main issue to be focused on was not the debate around radical economic transformation and inclusive growth. The main issue to be addressed was the unsustainable levels of inequality in the society. He responded to other issues raised by MPs, together with other members of his delegation.
The presentation on Treasury’s strategic plan 2015/19 and 2017/18 APP was made by the Director General. It was reiterated that the growth of the economy was very important to the department. Plans to execute each of the departmental programmes were outlined. The department would be undertaking expenditure reviews in the current financial year. A key issue that would be dealt with was the incentive programme. The department would ensure that various incentives achieved the desired impact. Treasury provided support for other spheres of government on matters relating to budgets. Extensive oversight on budget preparation and budget execution processes was done by the department in provinces and local government. The budget of provinces was checked against policy objectives to ensure alignment with the government policy objectives. Investor relations were maintained by the department through its fourth programme that focused on asset and liability. The department has continued to offer support to municipalities and provinces in relation to infrastructure, as well as providing incentives through fiscal instruments in order to provide integrated urban spaces. The department provided broader technical capacity support in finance, financial management, and grants.
Questions and comments raised by MPs on the presentation focused on the fundamental difference between the APP that was presented and the previous APPs prior to the appointment of the new Minister and Deputy Minister, in terms of fundamental political and ideological changes; whether growth targets were alive to the current economic situation of the country; whether or not BRICS Development Bank was operational and where it was located; the plans in place to assist municipalities in paying their debts; whether there were budgetary implications for the delay in implementing the Sugar Beverage Tax; the granting of further guarantees to SAA and the impact of this on the country’s ratings; proffered solutions to the issue of employees without work visas in aviation; whether the appointment of the SAA CFO was done by Treasury; the need for contingent liabilities to be carefully monitored; who was responsible for monitoring guarantees within Treasury, the process through which decisions were made on whether guarantees should be recommended or not, as well as the institutional and disclosure arrangement around government guarantees; possibility of implementing the twin peaks project; and progress reports on SAA guarantees. The Chairperson said that the issues around guarantees could be presented in greater detail to the Committee in the next quarter.
The SARS Commissioner presented the South African Revenue Service (SARS) APP. He noted that the operating environment of SARS was one that was faced with a changing global and local economy. This environment posed a continuous threat to revenue collection and achievement of compliance goals. The proliferation of sophisticated avoidance and evasion schemes has continued to rob the country of the revenue required to fulfill critical government programmes. SARS participated in exchange of information platforms and programmes with about 50 other countries to address the scourge of base erosion and profit shifting. The framework of the agency was anchored on five overarching strategic outcomes that sought to look into increased customs and excise compliance; increased tax compliance; increased ease and fairness of doing business with SARS; increased cost effectiveness and internal efficiencies; and increased public trust and credibility. Details of each strategic outcome and the strategies to achieve them were outlined.
SARS long term strategic objective and key strategies can be found on pages 30 to 35 of SARS 2016/17 - 2020/21 Strategic Plan. The 2017/18 APP initiatives were linked to the five strategic outcomes. SARS outlined projects and plans put in place to implement these initiatives. SARS noted that the funding to carry out the activities linked to the APP initiatives is provided in detail in the APP, and were sufficient to meet the baseline needs of the medium term framework period. SARS projected expenditure over the medium term was R11.55 billion for 2017/18; R11.12 billion for 2018/19; and R11.39 billion for 2019/20. SARS anticipated a stable workforce throughout the medium term. However, this was subject to changes in the economy and format for what needs to be done. In terms of the key performance indicators, SARS continued to strengthen the alignment of its performance management approach to that of government’s planning, performance monitoring and evaluation approach. It held itself accountable against measurable targets for each of the five outcomes as per the annual and quarterly targets on pages 22 and 23 of the APP.
Discussions on the presentation raised the lessons learnt and outcomes from the pilot project launched by SARS in 2015 with Swaziland and Mozambique, towards the establishment of international relations; plans to implement inter-agency strategy with the Financial Intelligence Centre (FIC) as a means of strengthening investigations into serious tax crimes; quantification of the actual value of 5% reduction in its real estate expenditure; plans to implement the proposed strategy; the movement of SARS offices to an up-market area and how that aligned with the 5% reduction in real estate; not resolving an allegation made against senior SAR official Jonas Makwakwa since May 2016 was disturbing; the number of SARS staff that have been suspended, convicted and dismissed in the previous year; the transfer pricing unit and efforts to resolve the issues around it; the role of SARS in curbing illicit financial flows and progress report on addressing the 5 000 cases of illicit financial flows; the need for the debate on Border Management Authority Bill to be delayed till all pending issues arising from the Bill have been dealt with by the Committee; SARS’ efforts in curbing tax evasion; the non-conviction of any of the 1 700 people whose names were published in the Panama Paper report; implementation of the GRAP and SAP-based system; issues affecting the Easyfile system and efforts to resolve these; the Commissioner’s role in sponsoring IT projects; reasons behind numerous resignations in SARS since the appointment of the Commissioner; as well as the need for an advisory board to be set up within SARS in conformity with the SARS Act.
The Chairperson congratulated the Minister on his appointment. He also extended congratulations to Mr Shivambu on his marriage.
Opening Remarks by the Minister of Finance
Mr Malusi Gigaba, Minister of Finance, began by noting that the acceleration of inclusive growth was an urgent priority for the country. National Treasury had to play its part in this regard by supporting structural reforms in the economy that would help with the diversification and growth of the economy, as efforts were being made to expand the country’s revenue base, as well as transform and diversify ownership, patterns and grow the national fiscus over the coming years.
The French elections served an important purpose in calming the global market by rejecting nationalists’ policies that would have leaned heavily towards lesser international trade and more protectionism. This would have had a negative influence in Africa, where trade must continue to rise both within the continent as well as with emerging markets.
Amidst the enormous challenges, which included downgrades by two rating agencies, the Ministry of Finance remained positive about South Africa’s growth prospect. It was comforted by the fact that South Africa would continue on its growth trajectory in the current year albeit slowly. The priority was therefore, to maintain focus on inclusive growth, drive the growth story, avoid yet another downgrade, and ensure a restoration of South Africa’s investment grade with other rating agencies. The Ministry was engaging with various social partners and discussions would continue till these objectives were achieved.
National Treasury was aware of the need to work conscientiously with members of the Cabinet to boost business and investor confidence in order to bring in more investments, as well as manage public finances in a prudent manner, ensure that the fiscus plays its redistributive role and maintain macroeconomic and financial sector stability. Treasury had to be strong as an institution so as to meet its broad socioeconomic mandate.
The Annual Performance Plan (APP) to be presented to the Committee was aligned to the National Development Plan (NDP). It reinforces the Treasury’s objective to grow the economy, transform the economy in an inclusive manner that is less dependent on debt finance consumption, create jobs for more South Africans, as well as reduce and eliminate poverty and inequality. Treasury would try to achieve more with fewer resources. It would continue to serve as government’s enforcer in the implementation of fiscal consolidation. The Director General of Treasury and his team would make an extensive presentation on the department’s strategic focus, current and medium-term resource plan, and the nine programmes of Treasury.
Treasury would continue to try to raise more revenue within the current environment. This would assist in financing its fiscal plans for the coming year. The presentation would therefore focus on these goals, which are centered on efforts to stimulate economic growth through support for economic growth programmes; while ensuring that the fiscus is managed in a prudent manner.
Mr D Maynier (DA) began by congratulating the Minister on his appointment. He asked the Minister if he was in support of the policy of radical economic transformation set out by President Zuma in his State of the Nation Address (SONA) on 9 February 2017. He asked if the Minister was prepared to concede that President Zuma’s decision to reshuffle the Cabinet caused the downgrade of the ratings, depreciation of the currency and an increase in bond yields.
He noted that the message being passed across by the Ministry of Finance was confusing in the sense that it was no longer possible to distinguish between the message being passed across by the Ministry of Finance and ANN7 due to the Minister’s new economic advisor; Prof Chris Malikane. He therefore wanted to know if Minister Gigaba was of the opinion that the views expressed by his economic advisor, which included the nationalization of banks, and the support for the suggestion to take up arms to achieve radical economic transformation, were contributing to policy uncertainty and harm to the South African economy.
He pointed out that Minister Gigaba had instructed his economic advisor to keep quiet about these views. However, Prof Malikane has stated that the Minister had no right to tell him “to shut up”. Minister Gigaba was asked if he regarded Prof Malikane’s response as a form of insubordination, and what the Minister was doing to handle the situation.
He noted that Minister Gigaba distanced himself from a particular policy proposed by his economic advisor, on the nationalization of banks in a statement on 18 April 2017. Minister Gigaba was asked if he was prepared to publicly state that it was not a government policy to nationalize mines and nationalize the Reserve Bank, and that taking up arms was not an option for achieving radical economic transformation.
The Minister was asked if he still held the view that Treasury belonged primarily and exclusively to orthodox economists, big business, powerful interests and international investors or if his views have changed.
He was asked to explain how the fiscal line would be maintained, in the event that the prospect of the growth projection of 2.2% stated in the 2017 budget became impossible and economic growth begins to depreciate.
There was a public perception that the Minister was essentially appointed to sign the nuclear deal. Minister Gigaba was asked if he believed that the country required 9.6 gigawatts of electricity generated through a nuclear programme. His personal view on this issue was requested.
Mr F Shivambu (EFF) said the EFF had not expressed any view about the issues raised around Prof Malikane’s proposals, which has dominated the media. This was because the EFF agreed with Prof Malikane’s proposals on what should constitute a radical economic transformation programme, as this was contained in the seven non-negotiable cardinal pillars for economic freedom, which were in the founding manifesto of the EFF. Strategic control of key sectors of the economy was essential. This was because their continued control by instruments of white monopoly capital and by those that controlled it prior 1994 exacerbates the high levels of inequality, poverty, starvation and underemployment of South Africans.
Although the EFF agreed with Prof Malikane’s proposal, it was uncertain that Treasury and the ANC agreed with these proposals or will ever agree on some of the transformative issues that need to be dealt with. The Minister was asked if he agreed with the transformative issues that have been proposed by Prof Malikane.
Mr Shivambu asked what the new Minister and Deputy Minister would do differently in terms of the economic transformation programme; whether the Minister would move towards state-ownership and control of strategic sectors of the economy or if he would leave the economy as it was without implementing thorough changes; if the Minister would align the monetary and fiscal policy to the industrialization objective; and if the Minister would consider the deeper transformation of the financial sector in a manner that would represent the demographics of South Africa.
He noted that Parliament would be having a second reading debate on the Border Management Authority Bill on 11 May 2017. The former Minister of Finance, Mr Pravin Gordhan, had mentioned in the Budget Speech, that stratifying the revenue collection was not advisable, and that the collection of revenue by the Border Management Agency (BMA) would lead to the stratification of the revenue collection mechanisms and could undermine the massive contributions from exiles, import and export duties. Minister Gigaba tabled this issue during his tenure as Minister of Home Affairs. He was asked if he still held the view that revenue collection should be stratified in South Africa.
Mr Shivambu asked Minister Gigaba to clarify the statement made by his wife in an interview with eNCA, in terms of giving the Minister advisory services on information technology (IT) during his tenure as the Minister of Home Affairs; as well as dealing with passports and other related issues. Is the Minister’s wife going to continue provide advisory services on ministerial issues like she did while he was in Home Affairs, provided the statement she made was true? Did she attend meetings with him and participate in such meetings during the recent trips he made to the USA?
Ms P Kekana (ANC) congratulated the Minister and Deputy Minister on their appointment. She said that the Committee agreed and supported Treasury on the programme for accelerating inclusive growth but the Minister would have to reappear before the Committee to outline the pointers to this programme. This would help to achieve a common ground in understanding the means by which Treasury would deal with this matter. Based on the current situation the country has found itself in, the cost of borrowing would be very high and would bring about other unintended consequences, such as low investment levels and threats to some of the objectives the Minister seeks to achieve on the expansion of the revenue base.
Supply chain reform was one of the priorities of the Treasury, and the Committee was of the view that this would assist small businesses in thriving despite the current economic issues. She commended the Minister on the number of outreaches that has been carried out after the downgrades arose. She urged the Minister to intensify sectoral outreaches, in a bid to enhance financial literacy amongst ordinary South Africans. She noted that the exercise conducted by the Committee on transformation of the financial sector was a good one. It was necessary for the Committee to continually engage with the Minister on this issue.
The Chairperson asked the Minister how he would define the relationship between inclusive growth and radical economic transformation. The Committee has participated in more than 25 hours of public hearings on the transformation of the financial sector, and received over 70 submissions out of which 58 were presented orally. The country was experiencing a parallel economic and political climate, and this implied a reduction in the prospects for radical economic transformation. If no sustainable, effective and efficient solution was implemented soon enough, there would be a social explosion. Finding the balance was a difficult task for the Minister, the Director General, Parliament, civil society and the government generally. The Committee was however, concerned about the fact that nothing has been done after such lengthy discussion on an issue. The credibility of Parliament was at stake; and the weaker Parliament became, the weaker the executive would be. The Committee was very serious about monitoring the recommendations that emerged from the public hearings within the next four to six weeks. The monitoring of these recommendations would be inserted into the Committee’s programme as part of its engagements with the Director General and Treasury senior staff in a bid to get a progress report on the status of transformation of the financial sector.
The Chairperson asked the researchers to summarise the decisions taken by the Committee on the executive in the last 18 months. Monitoring of some of these decisions was important to ensure implementation. For instance, the standing position of the Committee on South African Airways (SAA) was that a chief executive officer (CEO) had to be appointed by the end of January 2017 or reasonably soon thereafter. The initial suggestion was for the appointment of the CEO and then a chief financial officer (CFO), but the former Minister of Public Enterprise then pointed out that the norm was to appoint a CEO first because the CEO should have a say on who becomes the CFO. However, the appointment of the CEO was yet to take place even in May. The Committee was of the opinion that there should be a timeline for such appointment in the interest of the country. A two-month timeframe was recommended to the Minister to ensure an appointment of a CEO in SAA, while a CFO should be appointed within three months.
The Committee requested the department to present a timeline within which a new Chief Procurement Officer (CPO) would be appointed at the next quarterly report.
The Chairperson stressed that the Committee was yet to receive an easy answer on the rotation of auditors. A situation where four big companies occupied over 90% of the market had to be phased out. The Committee was unsure of how the rotation of auditors assisted this situation. It was interesting that this domination was supported by African colleagues who viewed it as a natural occurrence. However, the new insiders were not sensitive to the need to open the space for outsiders to come in. It was now common place to find a situation of African versus African as opposed to the usual White and African. The Committee was interested in the involvement of the Minister in terms of managing the process. The Committee’s report on this was to be tabled soon.
In terms of border management, the Chairperson noted that a former Deputy Minister once argued against a certain policy option in an ANC study group. The President at the time took the Deputy Minister to one side, and the same Deputy Minister who had argued against the said policy changed his stand once taken aside. The essence of the reference made by the Chairperson was to implore the Deputy Minister of Finance not to forget the positions he has taken in this regard, as he was being monitored by the Committee.
On the issues raised by Mr Shivambu, the Chairperson said that one of his duties was to interpret the points made by members of the Committee. The Chairperson noted that he has always believed the argument was that the Treasury was captured by white monopoly capital by the international forces of reaction and imperialism. However, Mr Shivambu has admitted in an open Committee meeting that Treasury is being captured by the EFF, based on his claims that the seven proposals made by Prof Malikane were sourced from the EFF constitution. The question Mr Shivambu was trying to ask was whether the Minister would implement the EFF seven-point programme.
Ms Kekana said that while Deputy Minister Buthelezi was recently part of this Committee, he agreed that proper consultation should be held on the sugar beverages tax. The Deputy Minister would have issues should he decide to change his stance on this before the Committee consults with the farmers.
The Chairperson said there was nothing to hide since there was no divided ANC. A careful look at the both Portfolio Committees on Health and Finance would show that study groups were divided on whether or not the sugar beverages tax should be implemented. The core issues included striking a balance between health issues, emerging African sugarcane farmers, and the loss of jobs. There was a degree of consensus that this might lead to the loss of 5 000 jobs. It was therefore important for the right balances to be found. This was another issue that the Committee would process further when the Rates and Monetary Bill is circulated for public hearing in the next three weeks.
Minister Gigaba replied that when Minister Gordhan presented the sugar beverages tax proposal during the Budget Speech, an Minister sitting next to Minister Gigaba seemed confused as to the proposal. He noted that the debate around radical economic transformation was an ongoing discussion in South Africa that should not be suppressed. The essential background of South Africa already placed a lot of people outside the margin of the economy, making them unemployed, without assets, without opportunities for economic participation, and without skills. In the early years of South Africa’s democracy, the debate framed by President Mbeki during his two nations speech addressed those in the second economy (that is, black, and mostly women) without a bridge with which they could join the first economy. The first economy was linked to international trade and international economy with advantages and privileges of formal economic engagement. Those in the second economy had no capacity, infrastructure, nor relationship with the formal economy and international trade. It has been argued that this had to be addressed. Over the course of the years, these people have remained marginalized from formal economic participation and were without assets nor had access to land and the financial sector. They were without skills and constituted a large proportion of the unemployed.
It did not matter what terminology is used for the intervention being proposed for these people. The core issue was the need to address the plight of these people, which was not confined to unemployment. The plight of the people encapsulated the desire to own land assets, have access to the financial sector, to be bankable, to become entrepreneurs, and to have the possibility to own economic assets in order to become self-sustaining and independent.
Since the issue was still an ongoing discussion, different perspectives and views were bound to arise. Attempts should not be made to close the discussion in any way. The ruling party has a debate leading to its national policy conference in July 2017 and in December 2017. The ruling party was yet to resolve its meaning. In the discussion document of the ruling party, references were made to a plan for inclusive growth and guidance was provided on land, small and medium micro enterprises (SMMEs), access to the financial sector and other matters affecting marginalized South Africans. Conclusions should not be made to the effect that there were contradictions in the ongoing debate, since discussions were still ongoing. What should be done instead is to separate the existing policies from the ruling party’s national conference in 2012 from the policies that were currently being discussed and would lead to the national conference in December.
The Minister said that no contradictions existed. Rather, there were common, genuine concerns on the policies that have been agreed to. Discussions were therefore based on the implementation of programmes for accelerated inclusive growth. Although the debate around the meaning radical economic transformation was still ongoing, the Minister noted that the debate would be concluded in a manner that puts into consideration the interest of all South Africans. The discussions should not cause any discomfort from any quarter, instead, everyone should be eager to participate in the discussions.
Oxfam released a report to the effect that only about eight men in the world owned the amount of wealth which exceeded what was owned by 3.8 million of the poorest people in the world. In South Africa, about 10% of the population owned an average of 42% of the country’s wealth. This should be a cause of worry for the country and should be centre focus of the debate. The debate about radical economic transformation and inclusive growth was not the main issue. The main issue that needed to be addressed was the unsustainable levels of inequality in the society, particularly because 17 million South Africans lived on social grants. Most of the people living on social grants could actually work if there were sustainable jobs and SMMEs, as well as rollout of infrastructure that could create more jobs.
The focus area for the debate should be on the proposed elements for inclusive growth and radical economic transformation. It was evident that one of the priorities of government should be the industrialization of the South African economy that would lead to the creation of a manufacturing sector through beneficiation, creation and support of the black industrialist programme, rolling out infrastructure programme, as well as leveraging such infrastructure rollout plan to create supplier sectors in the economy. This would result in the emergence of new local suppliers that were South African based; ownership of assets by South Africans; provision of components and inputs to infrastructure and to State-owned companies; and creation of sustainable jobs. In the end, it would be impossible to sustain an economy that was supported by debt consumption. Attention must be given to the creation of SMMEs; implementation of the infrastructure rollout; capacity of State-owned companies to implement the infrastructure rollout programme; inclusion of private sector investments; and implementation of private sector participation programmes to ensure a balance in the implementation of the infrastructure rollout by State-owned companies. Continuous support of interventions in the township economies and rural areas was necessary. This would help to create productive economic activity in such areas. It would help with the transfer of land assets and title deeds to those in the townships and rural areas. Such title deeds could then be used as collateral for starting up SMMEs and other initiatives.
It was therefore, important to promote the industrial programme in South Africa in a different manner. These issues have been included in the structural reform programme agreed upon. In the discussions surrounding the acceleration of radical economic transformation, the department may consider the need for additional programmes based on what the fiscus allows. It was important to strike a balance between what the department sought to achieve and what the fiscus allows to be achieved. Nevertheless, the department had a duty to ensure continuous economic growth and expansion of the country’s revenue base. The main way to expand the tax base was through the growth of more businesses, expansion of existing businesses, profit making for all businesses, and employment of people. To achieve this, the fiscus had to intervene alongside developmental coalitions between government and the private sector. The programmes that have been agreed with the private sector in supporting the growth of SMMEs and employment of 1 million young people into the youth employment service over the next three years needs to be supported. Strategic partnerships with businesses have to be continually strengthened to the point where such partnerships were based on actual interventions in support business growth that would contribute to the expansion of the revenue base.
One of the key focus areas the South African Revenue Service (SARS) would be addressing was the improvement of SARS’ ability to collect revenue, and implementation of the voluntary disclosure programme, which would assist in getting more people to pay taxes that can be used to redistribute incomes and acquire social and economic investments.
On the links between Cabinet reshuffling and the downgrade of ratings, Minister Gigaba said that the reshuffling had an impact at a narrow level. However, on a broad level, the South African economy has been in a position of slow growth for some years now, especially since 2008. The appreciation and depreciation of the foreign exchange was caused by a number of variables. In essence, various issues were responsible for the downgrades. It was therefore, unnecessary to ‘seek scapegoats’.
Minister Gigaba pointed out that the first downgrade happened before the reshuffling of Cabinet. The current focus should be finding ways of restoring the investment grade, avoid any further downgrade, ensure economic growth, and focus on inclusive growth.
Minister Gigaba refuted any links to the passing of mixed messages from the Ministry of Finance. He noted that South Africa had only one Finance Minister, who did not speak with a forked tongue, and who has been consistent on government policies and perspective. The opinions of the Minister’s economic advisor outside his functions towards the Minister were not the opinions of the Minister. The Minister has one voice and has remained consistent. The Deputy Minister and the Minister have been consistent on the position of the Ministry on a number of issues. The opinions of the advisor to the Minister were his and those opinions have been reined in. Advisors only make their opinions known to the principal, who may decide whether or not to take such opinions into consideration. He reiterated the point that the plurality of views should not lead to panic. Rather, the public should be worried about the existence and expression of only one view on a matter, as this would mean that not all factors have been considered in the decision making process. Advisors do not impose their views on their principals. The job of advisors was to research issues and present views. Such views were not imposed on the department. Even though most of the staff members were sound economists, no one could dominate his or her opinions on the department. It was only well-canvassed views that were taken into consideration after discussions have been held on the different opinions. Even though the financial advisors are aware of the open space for good discussion, policies that underpinned the operation of the department to the NDP had to be considered. Every decision taken by the department was informed by the NDP and sought to advance the economy. In essence, other views existed on the taking up of arms, nationalization of banks, nationalization of the Reserve Bank and nationalization of the mines.
Minister Gigaba quoted a statement he made on 1 April 2017, which was follows:
“For too long, there has been a narrative or perception around Treasury that it belongs primarily and exclusively to orthodox economists, big business, powerful interests and international investors. With respect, this is a people’s government. Treasury like all the institutions of our democratic State belongs to the people of South Africa, black and white, rich and poor, young and old, male and female, urban and rural. Its policies, its management, its communication must be accessible to all South Africans. Like the nation as a whole and government itself, the National Treasury does not exist for the exclusive use and benefit of some with power and vested interests.”
There was a need to strike a balance between pursuing inclusive growth and maintaining the fiscal line. It was therefore, important to support economic growth and ensure the expansion of revenue base through aforementioned methods. Nonetheless, the department was of the view that supporting inclusive growth was not the sole responsibility of the fiscus. The private sector had a part to play, hence, the reason for pursuing partnerships with the private sector.
On the nuclear programme, Minister Gigaba said that the nuclear programme was the decision of government as far as the Integrated Resource Plan (IRP) for Electricity 2010 was concerned. Minister Gigaba said he could not give a proclamation on whether there would be a need for either more or fewer gigawatts of electricity until the IRP was reviewed. He had to respect the Ministers that have been mandated to lead the process. His job was to ensure that whatever decision was taken on the required volume of nuclear capacity was implemented at a pace and scale that both the economy and fiscus could afford.
On Mr Shivambu and the EFF seven-point plan, Minister Gigaba said that it was necessary for industrialization programmes to be supported. The department had to ensure continuous engagement with its colleagues on the existing programmes, especially those responsible for infrastructure-related state owned companies (SOCs), in a bid to ensure that the infrastructure rollout supports the industrialization programme, supplier development programmes and building of a manufacturing sector for the country. Continuous support for financial transformation was necessary.
On the Border Management Authority (BMA), Minister Gigaba said he was guided by Cabinet decisions. There should be no expectation that the Minister of Finance can be a part of Cabinet and at the same time, have an opposing view to that of the Cabinet. However, the Minister of Home Affairs and Minister of Finance would continue to discuss this. He maintained the view that the two departments and the two agencies (SARS and BMA after its establishment) had to come up with the best means of implementing the BMA without creating unnecessary fragmentation in terms of revenue collection. In a situation where the Bill did not address the fragmentation of revenue collection sufficiently, it would be expected that the final outcome of the Bill would address this.
On the involvement of his wife in ministerial issues, Minister Gigaba said that it was normal for his wife to give suggestions on the way things should be done. However, she has never sought to influence his work in any way. The issue of bringing passports to him while he was Minister of Home Affairs was because people sent messages to her requesting for referrals of their passport issues to the Minister. She only reverted such messages and referrals to him, without suggesting the means by which any such had to be resolved, nor imposing any decision on him. The sole responsibility of making decisions was still vested in the Minister based on the advice received from the department.
Minister Gigaba said that Mr Shivambu would realize during his marital life that opinions expressed by his wife would not be based on a desire to influence the way he plays his role as either the EFF deputy president or as a member of this Portfolio Committee. It was unnecessary to accord importance to a non-important issue. Ms Gigaba actually stated that she would become very sensitive to the new roles of the Minister due to her understanding of the responsibilities saddled upon him. It was not necessary to bring families, spouses and children into political issues.
Still on the matter of accelerating inclusive growth in a tough environment, Minister Gigaba reiterated the need for supply chain reforms to be pursued. A number of things had to be done to address the plight of the black majority in the economy. Attention should be given to supply chain reforms, the use of government procurement expenditure, as well as the means by which the Chief Procurement Officer’s role would be strengthened. This would ensure that focus was placed not only on the fight against corruption and ensuring transparency and compliance with supply chain procedures, but also it would be useful for offering support to the transformation required for black people to create assets, as well as own part of the economy. It would assist in supporting SMMEs and ensuring that the drive for transformation in the South African economy was achieved through procurement processes.
Minister Gigaba admitted that a Chief Procurement Officer and Director General should be appointed as quickly as possible.
There was a need for the Treasury to intensify sectoral outreaches as a means of promoting a sense of belonging for all South Africans. Every South African must feel like they have a stake in Treasury and can be reached. The Deputy Minister was on Ukhozi FM for an hour, explaining these difficult financial concepts in Zulu. Minister Gigaba has done same with other local radio stations. This was done as an attempt to reach out to as many South Africans as possible, and simplify these financial concepts for better understanding.
Treasury was looking forward to receiving the decisions made by the Committee vis a vis the executive over the last six months. Treasury would revert back to the Committee on the method by which the challenges around SAA were being dealt with. Minister Gigaba expressed hope that SAA could and would be turned around in terms of its financial position, root networks, maintenance, fleets, as well as the leadership of SAA, which has remained unstable for quite some time.
Minister Gigaba noted that he had read the Independent Regulatory Board for Auditors (IRBA) report on the rotation of audit work. One of the striking issues that emanated from the report was that one company controlled 48% of the market; four companies together controlled 96% of the market; and some companies had a 102-year contract. This was a striking issue that needed to be addressed, especially since strong arguments would always exist for maintaining the status quo. However, stronger reasons existed for the change of the status quo. The decisions taken by Treasury spoke to some of the changes in supply chain management (SCM) that would assist in expanding the possibility of introducing black professional services in terms of audit, engineering, and legal services in state owned companies. This would serve as a leverage for black companies to secure businesses in the private sector. It was important to look into these issues, especially since the changes that were done at Transnet in 2011 were ground breaking. Treasury would engage with the audit firms, the big four and other companies on this matter. It would be in the interest of business to support transformation. Transformation should not be seen as being only a political and moral imperative, as it was more of a business imperative than the former.
Treasury would engage with the relevant stakeholders on the sugar beverages tax. It was normal for decisions of this nature to come with an argument that it would lead to a loss of jobs, as was the case with tobacco, smoking, cigarettes and other related issues. However, it was possible for decisions to be made both in the interest of health and the economy.
Mr Sfiso Buthelezi, Deputy Minister of Finance stressed that advice had no greater implication than being advice. People were still entitled to hold their views on matters arising. The department was saddled with the responsibility of implementing government policy and not individuals’ policy. Policies were bound to be discussed and deliberated upon. In discussing these, both the department and Parliament had to be careful in ensuring that a repeat of the pre-1994 situation where some opinions were not allowed to be heard, did not occur. The department believed in the robustness of debates.
He said that care had to be taken in discussing radical economic transformation and inclusive growth in order to avoid confusion. Overall, these were in relation to a singular objective, which was to have a growing economy that would be sensitive to the history of South Africa; a history that has created margins such as the black majority, the women, the young people, and so on. South Africa was in need of an economy that would be sensitive to the fact that it was primarily a commodity economy and was therefore susceptible to the movement of primary products. Exportation of higher value products was necessary for the growth of the economy.
The biggest threat facing the country was high levels of inequality. Its Gini coefficient makes South Africa the highest unequal society in the world. This was a reality that needed urgent attention. It was an established fact that unequal societies were the most unstable societies in the world. An unstable society has a negative impact and/or linkage to unstable economic investment attraction. Another myth that should be corrected was the fact that economic growth can solve the problems of the country. Economic growth alone was insufficient. Prior to 2008, the country had an economic growth of about 5.2%, but there were records of job losses, and the majority of the citizens were not included. In other words, economic growth was a necessary condition, but not a sufficient condition to deal with the inequality that abounds in the country. It was therefore necessary to ensure that strategies were more inclusive. Prior to 2008, South Africa had a healthy economic growth but the global economic crisis affected the country. This led to the spending of the country’s surplus and increase of debt. However, this was a well calculated strategy from the government at that time. Most of the spending was done on infrastructure for a number of reasons including continuous jobs for people in business, as well as the great input infrastructure provided for the private sector. In essence, the current poor state of the economy was due to exogenous factors that were inherited.
The department’s budget showed that the country was reaching levels of indebtedness that was undesirable. It was for this reason that a proposal was made on fiscal consolidation as a means of dealing with this situation. The Minister could not make a decision different from what has been agreed upon with regard to fiscal consolidation, since he was part of the Parliament where the decision was taken. It was impossible for the Minister to change a policy that has been made and has gone through the required process of Parliament.
With the current budget policies, government in general must ‘walk the talk’. In the current financial year, the government would be using about R500 billion in buying goods and services. The government would be in charge of distributing such budget. It was important for the government and SOCs to put into consideration small and medium enterprises, black companies, women companies, youth companies, as well as companies belonging to people in the rural areas. The department was looking into ensuring proper monitoring of government departments and SOCs in their implementation of black economic empowerment (BEE) and progressive procurement.
The paying of small and big businesses within 30 days was another very important issue in connection with cash flow management. It has been discovered that some departments and SOCs make use of small businesses as their cash flow management mechanism. Therefore, these small businesses were not paid while big businesses were paid. The department was looking to ensuring that small businesses get paid, as this was important for the survival of BEEEs and SMMEs.
As important as Treasury was, it was unable to change the economy on its own. Each department had a role to play. Treasury was ready to work as a team with the other departments in implementing government policies. Deputy Minister Buthelezi urged the Committee to avoid “megaphone diplomacy”. Treasury would like the Committee to view it as its partner. There would always be different views on issues but that did not mean discussions could not be held on such issues.
The Chairperson reminded the Committee of the agenda for the meeting, and urged that follow-up questions and answers had to be brief, so that the Committee could consider the matters for the day.
Mr Maynier said that the economy was not growing because of insufficient private sector investment which was as a result of policy uncertainty. He asked if the Minister was of the view that the continuous somersaulting between radical economic transformation, inclusive economic growth with a dash of nationalization of the banks, nationalization of mines, taking up arms, and so on was causing uncertainty and doing harm to the South African economy; and if so what was being done about this policy uncertainty.
He noted that although the Minister made a statement on 19 April to the effect that his economic advisor had been reined in and told to keep quiet, the actual facts was that his economic advisor was yet to be reined in, mainly because he was still found addressing public meetings and making mad statements on the economy. He asked the Minister why he has chosen to employ an economic advisor he would not listen to.
Although Deputy Minister Buthelezi has said all ideas should be heard, and the right to freedom of speech had to be respected, there were some ideas that should not be supported. One such was the economic advisor’s seeming suggestion that individuals take up arms in South Africa to achieve radical economic transformation. He asked the Minister to make a clear statement on this.
Mr Shivambu sought clarity on what the Minister meant by saying the department was in pursuit of radical economic transformation, after saying that deliberations were still ongoing for the definition of radical economic transformation. He noted that the ANC President gave a definition that had one meaning of the concept while the ANC Deputy President gave a completely different meaning to the concept. Even though it was true that there was no single coherent conceptualization of what radical economic transformation meant, the Minister had contributed to the confusion by referring to first and second economy, without realizing that these two sides of the economy constituted a basic reality of a capitalist economy. It was inherent under capitalism to have a section that was integrated with global economy and a section for ordinary people.
In his attempt to define radical economic transformation, Prof Malikane identified seven points which were different from the seven cardinal pillars of the EFF. There was a need to expose the ideological poverty on which this concept is said to be existent. The reality of the matter was that the new liberal agenda and programme premised on the NDP continues to be the foundation of Treasury.
He refuted the Minister’s view on not inviting wives and family members into political discussions by noting that it was the Minister’s wife that made the invitation to political discussions by speaking about offering IT solutions for Home Affairs. He however wanted to know if she would still offer solutions to the Minister and whether she attended official meetings with the Minister.
Mr B Topham (DA) said that most of the issues he would like to comment on were on the strategic plan.
The Chairperson urged the Minister to be brief in his response, noting that another opportunity would be set aside to engage further with the Minister.
Minister Gigaba said that the excuse of policy uncertainty being the cause of stagnancy in economic growth was a new one. There have been many reasons in the past on why the economy was not growing. The department was currently engaging with various businesses in a bid to attract investments.
He reiterated the point made earlier about his economic advisor, that he was the Minister and not his economic advisor. It was therefore his views and policies drawn from Cabinet that would prevail over and above that of the economic advisor. The advisor has been taken through government induction and would continue his role as an advisor to the Minister.
In responding to Mr Shivambu, he said that ANC’s economic policy was different from that of the EFF, and the confusion may be coming from Mr Shivambu’s side. The ANC’s economic policy was premised on a mixed economy, and it acknowledges the role of both the public and private sectors. The extent to which either of the sectors would increase or reduce their role was dependent on the balance of evidence at each given time.
Minister Gigaba pointed out that his wife has not attended any official meeting with him. She was invited to the eNCA interview where she responded to questions that were posed to her and made the statement being referred to. He noted that Mr Shivambu’s statements were fundamentally untrue about his wife recommending IT solutions to him as the Minister of Home Affairs at the time.
The Chairperson spoke on illicit financial flows. According to the Global Financial Integrity (GFI) Report for the period between 2003 and 2012, the country recorded R122 billion outflows; while the Financial Intelligence Center states our country has lost over R600 billion in illicit financial flows over the past 10 years. The GFI notes that these outflows sapped 5.7% of the GDP from Sub-Saharan Africa over the last decade more than any other region in the developing world. The outflows from Sub-Saharan Africa were found to be growing at an average inflation adjusted rate of 20%. The need to tackle this has become more urgent than ever before due to the shrinking of revenues. Government has been putting pressure on a number of stakeholders and three Committees (Portfolio Committees on Trade and Industry; Minerals and Finance). The three Ministers of these departments need to come up with some form of structure. Although SARS was trying its best, there was a need for more effort to be put into resolving this.
In terms of legislative programme, the Chairperson said that an Insurance Bill was brought before the Committee in 2015. The Committee had already urged the DG, DDG and former Minister to behave [when drafting legislation], as this would help the Committee to focus on oversight instead of focusing on legislation. A right balance had to be found on legislation and oversight. The Committee was currently focusing on the Rates and Monetary Bill, Money Bills Amendment Act, and the budget. The Chairperson urged the Minister and Treasury to engage in further consultations with stakeholders before submitting legislation to Parliament.
National Treasury Strategic Plan 2015/19 and Annual Performance Plan 2017/18
Mr Lungisa Fuzile, Director General: National Treasury, began by highlighting the department’s mandate and the overarching political and policy framework. Some legislation, policies and activities yet to be tabled before the Committee were highlighted. The Public Procurement Bill was at an advanced stage of development. The revised Preferential Procurement Regulations were gazetted on 20 January 2017 although they were yet to be implemented.
The strategic focus areas of the department were highlighted. Growing the economy was very important. It should be understood however that fiscal policy was limited in resolving issues of economic growth. Policy certainty and execution was needed. Taxes would continue to be looked into in accordance with fiscal objectives. Other strategic focus areas of the department were outlined (see page 5 of document).
The structure and composition of departmental programmes, the financial resource plan for those programmes, and the classification of the financial resource plan were highlighted. The Administration programme ensured that the institution functioned well internally; had the needed ICT; had a cost-effective machinery; could attract and retain good talents; as well as build talents through its internship programme. The retention rate of the internship was about 71%. Programme 2 dealt with economic policy, tax, financial regulation and research. Programme 3 would be undertaking targeted expenditure reviews in the current financial year. One of the issues that would be dealt with was the incentive programme to check if various incentives were achieving the desired impact. The department provided support to other spheres of government on matters of budgeting. Extensive oversight on budget preparation and budget execution processes was done by the department in provinces and local government. The budgets of provinces were checked against policy objectives in a bid to find out if there was a degree of alignment between government policy objectives and the budget. A category of undelegated municipalities existed, and this meant that such municipalities were overseen directly by the department. These municipalities were thoroughly checked to ensure that the budget was aligned to the strategic objectives of government. Interventions and directives in accordance to Sections 100 and 139 were given where necessary.
Programme 4: Asset and Liability Management developed initiatives to attract new investors whilst maintaining sound relations with current investors. Treasury ensured it was able to raise money when needed; could manage cash in the system; as well as finance its borrowing in a way that synchronizes the inflow of tax revenues collected by SARS.
Programme 5 that focused on financial systems and supply chain management system could be summarized into a movement towards a new integrated financial management system; modernization of supply chain management (SCM), since the delivery of services in government was dependent on a working SCM; and ensuring proper monitoring as well as transparent reporting on all programmes. [See document for details of all programmes].
Treasury has continued to offer support to municipalities and provinces in relation to infrastructure, as well as providing incentives through fiscal instruments in order to provide integrated urban spaces. It provided broader technical capacity support in finance, financial management, and grants.
Statistics that summarised Treasury’s human capital were highlighted.
Mr Shivambu asked if there was a fundamental difference in the APP just presented and the previous APPs presented before the appointment of the new Minister and Deputy Minister of Finance. In other words, were there fundamental political and ideological changes made or budget expenditures that have been shifted due to a different guidance given by the new political leadership of Treasury?
Ms Kekana asked if the growth targets were alive to the current economic situation of the country. It was important for Treasury to begin to consider ways of handling the impact of the downgrades on the economy, including how state-owned entities (SOEs) and SOCs were exposed to guarantees that have been given and the implications of such guarantees.
She referred to an instance where the Committee discussed and appropriated money to BRICS Bank. She asked the DG if this bank was operating with hired personnel, was accessible, and has begun to carry out the functions that were intended for it.
She sought clarity on whether SMMEs were included in the SCM issues under Programme 5 and what plans had been put in place to sustain local businesses and SMMEs.
The programme that focused on support for municipalities was appreciated. It was noted that the department has alluded to being highly indebted in terms of implementing this programme for municipalities. The implication of this was that municipalities would face difficulties in paying back the interests on such debts, especially because of the low level of income in local municipalities. She wanted to know if plans had been put in place to assist municipalities in paying their debts.
Mr A Lees (DA) asked if there were budgetary implications for the delay in implementing the Sugar Beverage Tax; if Treasury would be giving SAA another guarantee to extend its borrowings and if so, what the impact would be on the country’s ratings; what has been done about the nonconformance or violation of the Companies Act by the CIPC chairperson; and if the internal memo written to the board on lack of work visas for aviation employees was brought to the attention of Treasury, and if so, what has been done about it.
In reply to the Chairperson asking how he got access to the memo, Mr Lees said that the memo was on the internet.
Mr Lees continued that the Minister replied to his question the previous day to say that the CFO for SAA had been approved by the board. He wanted to know if the appointment of SAA’s CFO was done by Treasury, when the appointed CFO would resume, and what progress has been made with regard to the recommendations on the merger.
Mr Maynier said there was a need for the Committee to monitor contingent liabilities carefully, and government guarantees were a component of this. However, he asked for a detailed description on who was responsible for monitoring guarantees within Treasury; the process through which Treasury made decisions on whether to recommend such guarantees or not; as well as the institutional and disclosure arrangement around government guarantees.
Ms Kekana said that Treasury may need to make adjustments to some of its implementation plans, one of which was the implementation of the twin peaks model. She wanted to know if the department would still be able to implement twin peaks.
The Chairperson said that the three provisions that were lost in the Bill were non-negotiable.
Mr Lees asked if Treasury received regular reports on SAA guarantees. If so, could progress report be given to the Committee?
The Chairperson noted that the Committee researcher draws up views and issues to be raised on behalf of the Committee.
Ms Antonia Manamela, Committee Researcher, said that the Auditor General has raised issues in the past about Treasury not conforming to the APP but improvement has been noticed in this regard.
She noted that Treasury indicated under programme 1 that it took four to five weeks to fill vacancies. However, the Chief Procurement Officer position was yet to be filled even after the turnaround time the department has committed itself to. She asked for details on the additional four entities that would be reporting to the Minister apart from the previous 40 entities; and outcomes of the vetting process carried out by the State Security and actions that have been taken in this regard. She asked Treasury to uphold its commitment on the submission of quarterly reports on the guarantees to the Committee. With regard to Programme 8, the department was reminded of the need to submit the 2015 audited financial reports on the government technical advisory centre (GTAC).
The Chairperson said Treasury could send in fuller responses in writing by Friday, 12 May 2017.
Mr Lungisa Fuzile, Director General: National Treasury, noted that no changes have been made to the APP due to the appointment of a new Minister and Deputy Minister. Most of the documents had been printed before the appointment of the Minister and Deputy Minister.
On the growth target, the Minister has tried to communicate a consistent message to the effect that the fiscal objectives of government have not changed. Investors have been informed that they would be carried along should the need arise for policies to be adjusted in line with the slow growth. Policies were not developed and implemented to suit rating agents. Rather, they were crafted for the benefit of South Africans.
Cutting expenditure and raising taxes were not the methods through which the economy can be restored. Growth was the only thing that could assist South African in attaining a strong fiscal position. Sectoral reforms of various kinds would have to be embarked on. The most important role Treasury could play in this regard was to lobby the rest of government to carry out functions and implement policies that would grow the economy.
On the guarantees, the guarantee exposures would not explode anytime soon, especially since the biggest guarantee given by government to Eskom to the tune of R350 billion was yet to get called. Nevertheless, the guarantees remained a concern for rating agencies. The businesses that government has guaranteed must be run well. The guaranteed amount for SAA was below R20 billion, out of which about R16.7 billion had been drawn. The CFO has been appointed. The appointment process is such that the board appoints a panel that makes recommendations to the Minister. The new Minister agreed with the recommended candidate and signed the appointment.
On whether SAA may request more guarantees, the former Minister of Finance has made a pronouncement to the effect that SAA was one of the entities in need of capital injection, and this had to be attended to soon. In terms of ongoing processes to fix the business of SAA operations, Treasury engaged with SAA on a weekly basis, and participated in SAA’s conversations with lenders. It held monitoring meetings with SAA on a weekly basis. Treasury could not give a definite answer on whether there would be a need for more guarantees after the cash injection.
As for the reporting on guarantees, Treasury noted that it was required by law to report on guarantees. Mr Fuzile said he was unsure about the commitment to submit quarterly reports, as it was unusual for the situation of things to change drastically.
With regard to the institutional arrangement of guarantees, it was noted that the Minister as authorized to issue guarantees, and this power could be delegated. However, the department had a solid institutional mechanism to deal with guarantees. The department would look into making a detailed presentation on guarantees to the Committee. The norm was for entities to apply for guarantees through the shareholder department they fall under. The relevant department would then investigate the need for the application for guarantees, after which the application would be forwarded to the Minister of Finance for concurrence. However, the guarantee would not be approved until the Minister agrees to it.
Treasury had a fiscal liability committee that comprised of five deputy director generals (DDGs) headed by the DDG for asset and liability management. This committee was responsible for investigating the need for guarantees, as well as conduct risk assessment on entities applying for guarantees.
Mr Dondo Mogajane, DDG: Public Finance, Treasury, said that a robust process was undertaken for guarantees. The officials in the asset and liability management unit were financial analysts that considered the numbers strictly. They worked together with experts in various sector units. They made cases for or against approval and presented their findings to the DDGs. The DDGs would then exclude themselves during the consideration of such findings before reaching a decision on the recommendation to be made to the Minister on such guarantees. Some of the factors considered before guarantees were recommended was whether the application made economic sense; the entity’s ability to pay back; the financial arrangement; governance issues in place, and so on.
Mr Fuzile added that there would be conditions depending on what gave rise to the precarious financial position of the entity. The intensity of monitoring was dependent on the gravity of the situation of an entity. Nonetheless, there were instances where the procedure for giving out guarantees contributed to a difficulty for the entity. In such instances, the department may grant the guarantee before the completion of the required processes, after careful consideration has been given to the situation of the entity.
The Chairperson said that the issues around guarantees could be presented in greater detail to the Committee in the next quarter.
Mr Fuzile continued by noting that the NDB (Brics Bank) had an office in Sandton but the formalities were yet to be completed. The delays were largely from the South African side. The bank was operational in Shanghai. Eskom applied for and got a loan from the bank in the first round of applications. Invitations have been sent out for the second round of applications.
The post of the CPO has been advertised. The Minister was in the process of setting up the panel to speed up the process.
GTAC had its own accounting officer and questions relating to GTAC could be directed to him.
The issue of SAA employees without work visas has been drawn to the attention of the department.
On municipal debts, Ms Maligeng Ngqaleni, DDG: Intergovernmental Relations (IGR), Treasury said that it was a major issue that escalated in 2016 when Eskom began to cut off some municipalities. Since then, there has been a lot of initiatives from various stakeholders. The department only needed to coordinate itself better. A support programme has been drawn up and was based on four key ‘game changers’, which were searching out the root of the problem; ensuring that municipalities tabled funded budgets; reflecting payment plans agreed with Eskom in the budget; and ensuring cost containment. The department would focus on revenue management, as well as asset management. Governance challenges existed due to the revision of the financial management improvement programme. The challenge was how to ensure commitment at the leadership and at the political level. The department was making attempts to collaborate with COGTA in this regard. The department would however, try to link this with possible interventions in the form of Section 216 or Section 139.
Mr Ismail Momoniat, DDG: Tax and Financial Sector Policy, Treasury responded to the sugar beverage tax. He noted that Treasury was waiting for the Bill before including numbers for revenue. While waiting for the implementation for the Sugar Beverage Tax Bill, a simple Money Bill would have to be introduced. The cost of implementing Bills was essentially paid through licence fees that the financial sector pays to be regulated. In essence, the cost implication of implementing the Bill was very little on the budget.
The Chairperson thanked the Director General, Mr Fuzile, for the excellent work he has done over the years.
Mr Lees, on behalf of the DA, appreciated the hard work put in by the DG into his job over the years.
The Chairperson said that despite the EFF’s fundamental disagreement on the DG’s ideological perspective, the EFF held the view that the DG has performed well.
Mr Shivambu said that the EFF appreciated the contributions made by the DG. It was hoped that there would be no discontinuation of the principles and consistency applied during his tenure in terms of how Treasury should be managed.
The Chairperson said that the Committee had agreed that the SARS Commissioner could not report to the Committee only 48 hours before the end of the tax year on what was projected by the Parliamentary Budget Office (PBO), the Department and the Minister to be a shortfall of about R30.4 billion. However, the Commissioner reported the target as one of the achieved targets of SARS. The Committee decided to defer discussion on this target until the current meeting. One of the pending issues to be dealt with was a policy decision of the Committee on the Makwakwa matter to which the Committee would like a status report.
Presentation of South African Revenue Service (SARS) Annual Performance Plan
Mr Tom Moyane, SARS Commissioner, said SARS has refined its metrics based on continuous learning in the organisation, with a focus on e-filing uptake for personal income taxes (PIT), compliance, employment equity and governance. The situational analysis has been carried out and showed that the enablement of the NDP was still a key focus for the organisation; the revenue base in a constrained economy had to be sustained; the theme of the tight fiscal framework had to be considered; and the global dynamics were relevant and should be paid attention to.
Projects to be dealt with for the financial year under review included the implementation of the New Customs Acts Programme (NCAP), the GRAP, as well as installation of scanners at the various country borders.
The operating environment of SARS was such that was faced with a changing global and local economic environment, which was indicated earlier by the Minister. The Minister indicated the obstacles that continued to hamper domestic economic development, including the immense transformation and challenges of high poverty levels, growing inequalities, and unacceptably high unemployment levels in the country.
SARS was aware of the recent downgrades by rating agencies, which has been envisaged to put further strain on the country’s economic growth and would have a concomitant impact on the country’s ability to extract as much revenue as possible.
This environment posed a continuous threat to SARS revenue collection and compliance goals as businesses and individuals tried to manage their cash flows in order to stay afloat. Some businesses made it more difficult to collect revenues that were due to the state by falsifying declarations or failing to pay the amounts due. The proliferation of sophisticated avoidance and evasion schemes has continued to rob the country of the revenue required to fulfill critical government programmes.
SARS participated in exchange of information platforms and programmes with about 50 other countries to address the scourge of base erosion and profit shifting. It continued to strengthen its efforts to secure the required revenue for government without putting much strain on businesses and individuals in hampering its efforts.
While SARS may be limited in its ability to directly change the cause of the current economic trajectory, the agency held the view that its plans were robust and resilient in ensuring continuous and efficient implementation of its mandate. The framework of the agency was anchored on five overarching strategic outcomes that sought to look into increased customs and excise compliance; increased tax compliance; increased ease and fairness of doing business with SARS; increased cost effectiveness and internal efficiencies; and increased public trust and credibility (see page 8 of document). The strategies adopted for achieving these outcomes were outline.
Plans were in place to identify new taxpayers and those that continued to remain outside the tax net; increase SARS collaboration with sister government entities in order to assist with overall effectiveness and chances of success of the government; encourage tax and customs compliance from the start through education and engagement of citizens before they become liable for tax; advance tax morality in all spheres; as well as increase the presence of mobile offices and shared locations for better access to and communication with SARS. Branch footprints would be revealed to enhance a better reach to taxpayers and traders, with a plan to ensure that no SARS location would be more than 50 kilometres away from taxpayers.
Enforcement mechanisms would be used where necessary to address deliberate noncompliance in cases where every effort has been made to make it easy and cost-effective for taxpayers to meet their obligations.
SARS long term strategic objective and key strategies were provided (see Strategic Plan).
With regard to the 2017/18 APP initiatives, it was pointed out that one of the key ways SARS supported government’s aim to grow the economy was by ensuring customs compliance. Facilitating speedy access to global markets for South African products was a critical economic enabler. However, an effective border control was required to protect local industries from unfair competition and unwanted goods.
To increase customs and excise compliance, SARS would be focusing on increasing non-intrusive inspections through deployment of additional cargo, container and body scanners at key ports of entry, which would enable faster processing, and would strengthen the agency’s risk management capabilities at key ports of entry.
The implementation process of the new customs legislation would continue. Accreditation of qualifying traders would be increased through the preferred trader programme; and SARS would continue to support the government through the implementation of the one-stop border post with Mozambique and Zimbabwe.
SARS has highlighted tobacco smuggling, and clothing and textile industry as areas in need of interventions for the next five years. With regard to tobacco, SARS was working on a project that would look into the tax stamp, since the diamond stamp that was currently used was not effective due to the difficulty in blocking the leakages into the tobacco industry.
Increased tax compliance was another APP initiative. SARS was aware of the voluntary compliance base model, which sought to strike a balance between service, education and enforcement. This would continue to guide SARS’ initiatives and programmes for the period ahead to improve tax compliance.
The priority activities for the current financial year include conducting targeted compliance interventions in high risk areas including large businesses and small and micro enterprises (SMEs); working with other tax jurisdictions and countries on global tax compliance and enforcement issues in order to curb the erosion of the South African tax base; implementation of automatic exchange of information platforms with other countries in line with the Organisation for Economic Cooperation and Development (OECD) standard; improving filing and payment compliance of all taxpayers, particularly in relation to company income tax (CIT), value added tax (VAT) and pay as you earn (PAYE); implementing a new debt strategy to reduce the level of tax owed by taxpayers; conducting criminal investigations into serious tax offences; as well as identification and prevention of revenue leakage from high-risk funds.
The third APP initiative of increased ease and fairness of doing business with SARS would be achieved through the continuous delivery of tailored education and engagement campaigns till all South Africans understand the importance of paying tax, and understand the required process for fulfilling their obligations. Tax education would be introduced in schools. SARS would need to engage with the Department of Education on the need to introduce tax as part of the curriculum. A Service Charter would be implemented. SARS would continue to expand its footprints to ensure wider taxpayer base, and ensure more engagements from its mobile tax units. A long term objective of the agency was to bring SARS services, processes and products to locations where taxpayers conduct their businesses. This would be achieved through a combination of physical branches and increased accessibility via online electronic channels. SARS would partner with the Department of Home Affairs (DHA) through the Border Management Authority countrywide for core locations.
SARS aimed to improve first contact resolution at contact centres. In a bid to ensure that taxpayers’ issues were resolved timeously, SARS would place knowledgeable and skilled employees at the centres and equip them with the right tools for the job. SARS would deliver an improved complaints management process, which would be audited for taxpayers and reduce resolution turnaround times.
To increase cost effectiveness and internal efficiency, SARS would enroll its senior management employees in a leadership development training programme. Over 90 senior management employees have already been enrolled in this programme. Other plans in place to execute this initiative were outlined.
In terms of public trust and credibility, SARS would continue its public opinion service, which was used to gauge taxpayers’ attitude towards compliance, as well as the impact of SARS’ services to people. Valuable insights drawn from such public opinions would be used to improve the quality of service to taxpayers. A safe and anonymous platform would be provided to the public for reporting of suspicious and fraudulent activities. This would be done through the continued operation of SARS 24-hours fraud and anticorruption hotline. SARS would ensure 100% declaration by employees, contractors and suppliers of services to manage conflict of interest. SARS would ensure that a clean audit was maintained.
The funding to carry out SARS activities were sufficient to meet the baseline needs of the MTF period. SARS’ projected expenditure over the medium term was R11.55 billion for 2017/18; R11.12 billion for 2018/19; and R11.39 billion for 2019/20 financial year. The expenditure for projects and initiatives reduces to nil in the outer years.
In terms of human resource plan, SARS anticipated a stable workforce throughout the medium term. Although, it may be subject to changes in the economy and format for what needs to be done.
On its key performance measures and targets, SARS continued to strengthen the alignment of its performance management approach to that of government’s planning, performance monitoring and evaluation approach. It held itself accountable against measurable targets for each of the five outcomes as per the annual and quarterly targets contained in pages 22 and 23 of the APP.
Some changes have been made to the 2016/17 to 2020/21 Strategic Plan and these were noted.
Ms D Mahlangu (ANC) asked if SARS had responded in writing to the questions raised at the previous meeting as she had not seen them.
The Commissioner admitted that Ms Mahlangu’s observation was correct. The agency received 64 questions from its last engagement with the Committee. 90% of the questions have been responded to in writing but were yet to be sent to the Committee.
The Chairperson said that the written responses should be submitted to the Committee within seven days.
Ms Mahlangu asked for the lessons learnt or outcomes from the pilot project launched by SARS in 2015 with Swaziland and Mozambique, towards the establishment of international relations. She referred to page 13 of the SARS document and asked if VAT refunds were deliberately being withheld to meet the target, since this information was in the public domain.
She wanted to know if SARS had plans to implement the inter-agency strategy with the Financial Intelligence Centre (FIC) as a means of strengthening investigations into serious tax crimes; if SARS could quantify the actual value of 5% reduction in real estate; whether SARS could convince the Committee about its plans to implement the proposed strategy; explanation on how the movement of SARS offices to up-market area of George aligned with the 5% reduction in real estate; and how many of SARS internal members of staff have been suspended, convicted and dismissed in the previous calendar year and previous quarters.
The Chairperson proposed that the Commissioner should respond to Ms Mahlangu’s questions as the replies may touch on other issues that other MPs may want to raise. He proposed that a Committee meeting should be held to discuss all issues raised in previous meetings and at the current meeting.
Mr Maynier supported the Chairperson’s proposal. Such an opportunity would be welcomed.
The Chairperson said that a sitting would be set up and the Committee would meet for one and half hours to discuss the issues at hand with SARS more extensively.
Mr Moyane replied that a one-stop border post was established in the 90s by South Africa and Mozambique. The border post was established to solve the huge [inaudible] happening between the two countries. The border post needed a high level of investment. Some of the projects were however, implemented over a period of time. In terms of what has been done to enhance international relations with regard to Customs, SARS and Mozambique revenue services, SARS has conducted training for the Mozambique dog detector unit; and has looked into IT connectivity for the facilitation of trade.
Nevertheless, the one-stop border post would only become a reality after the involvement of the Department of Public Works (DPW). This was because the lanes that should enhance effective control of goods and services were yet to be completed. The same applied to Zimbabwe. Zimbabwe’s Beit Bridge was the largest land locked point of entry in the continent. There was a need to address the issues around the Zimbabwean borders in order to enhance movement of goods and people across the border. Mozambique has requested that a new border post should be opened between Northern Natal and Southern Mozambique. This was a tourist area, but SARS was only moving into areas with volumes of trade.
The questions raised on the R30 shortfall billion and VAT refunds would be responded to in writing.
In terms of trust, accountability and credibility, SARS emphasized that it had a zero tolerance strategy. All SARS employees were obliged to declare their assets and interests at the end of every year as a means of collating a personal inventory of staff.
Mr Hlengani Mathebula, SARS Chief Officer for Strategy and Communications, said that the issue of the VAT refunds was currently being investigated by the Office of the Tax Ombuds. Substantial progress has been made on that investigation. SARS welcomed the investigation with an expectation that its cooperation with the Tax Ombuds would yield a positive result and that the report of the Tax Ombuds would confirm the robustness of its system and credibility of the agency in general. SARS was open to suggestions on areas to be improved upon. The Committee and public were urged to anticipate the report of the Tax Ombuds.
On inter-agency cooperation with FIC, it was pointed out that SARS had already made a commitment to implement an inter-agency agreement and strategy with various agencies, including FIC, by the end of June 2017. Dealing with unlawful behaviour in respect of tax was something that could be attended to jointly with the various inter-agencies.
Comprehensive details of the precise number of SARS employees that have been suspended, dismissed or resigned would be presented to the Committee at a later date. Declaration of private interests was taken seriously within SARS, and should be authorised.
Mr Matsobane Matlwa, SARS CFO, responded to the question on quantification of the 5% reduction on its real estate expenditure. SARS spent R533 million on leases of buildings in 2016/17. The budget for the current year is R603 million. If SARS was able to get 5% reduction, it would save an average of R30 million. This would be achieved through negotiations with landlords to reduce rental fees for leases coming to an end in the current financial year. SARS owned only two of the 140 buildings it made use of in the country. This reflected the amount spent on leases.
SARS considered the location of taxpayers in terms of where the majority of taxpayers were based; accessibility of taxpayers; and e-Filing before opening a branch in an area. With regard to the new branch located in George, an RFP process was followed and specifications were provided by the landlord. Positive feedbacks have been received from the municipality since the opening of this new branch. The branch was an ideal one, and SARS was using it as a model for other branches in terms of accessibility.
Mr Jed Michaletos, Chief Officer for Customs and Excise: SARS, spoke on the IT connectivity project with Swaziland and Mozambique, a Customs to Customs (C2C) Connect Project, which was in conjunction with the World Customs Organisation (WCO). The project would be completed in December 2018 and plans were already underway for the handover of the project at the expiration of the donor and WCO’s involvement in 2018. However, the programme of IT connectivity and exchange of data amongst members in the SACU region extends beyond data connectivity only. Other aspects of the programme include risk management; the preferred trader and mutual recognition thereof; and enforcement stakeholder engagement.
SARS confirmed that IT connectivity for Swaziland and Mozambique has been piloted successfully. In both countries, a framework has been developed around IT connectivity, and the WCO’s global networks, standards and protocols. SARS could therefore, capitalize on this going forward when it begins to connect with other authorities outside of the SACU region on a global scale.
Mr Michaletos replied that on lessons learnt, one of the factors which impacted the speed of the process was the implementation of necessary legal instruments. However, that implementation process took long. A lesson learnt was that projects such as this were only as successful as the slowest participant moved. At the end of March 2017, the legal instrument required by SARS was ratified by Namibia. SARS now had the legal instrument that would enable the transfer of data and information. SARS was engaging with Swaziland and Mozambique to figure out what legal instruments would be required. Another lesson learnt was that the guidance and support from WCO was critical in ensuring that the developed IT connectivity was ready from a global perspective.
Mr Shivambu asked for a detailed response on the transfer pricing unit and its efforts to resolve these issues.
He noted that in the joint engagement with the Portfolio Committee on Trade and Industry around illicit financial flows, there was a very scary reality when the Special Crimes Unit (SCU) was called to report on cases that were referred by FIC to them. In the first place, the SCU was not aware of the more than 5 000 cases of illicit money movement that were supposedly referred to it by the FIC. The implication of this was that illegal money movement in South Africa seemed not to be illegal anymore. He asked for the role of SARS on this matter.
Mr Shivambu pointed out that the second reading debate on the Border Management Authority Bill, which had direct impact on revenue collection, would take place on Thursday. It was likely that the Bill would move from the National Assembly to the NCOP and might be signed into law. The implication of this was that some of the important functions performed by SARS would be taken out and performed by a new agency that would need billions of Rands to become operational, have its own commissioner and carry out all other arrangements on a separate level. It was proposed a request should be made to Parliament to delay the debate on the BMA Bill until the Committee has dealt with some important issues. He proposed that this should be discussed at the level of the ANC study group and Chief Whips Forum. This issue was an important one that should not underestimated. The new legislation basically reduces the capacity of SARS and creates an unknown entity that may not be capable of dealing with revenue collection might be the end result if issues were not properly addressed. A border management agency might be an ideal agency in terms of many other functions but revenue collection should be insulated under one institution.
In terms of the Border Management Authority, the Chairperson said some internal processes worked. The Committee decided and actually met with the Chairperson of Home Affairs Portfolio Committee. The other Chairpersons have said that after a jointly processed Bill by the relevant ministers, Ministers should not dump their internal Cabinet fights on Parliamentary Committees and in particular, the parliamentary study groups. The Committee had recommended to the Chairperson of Home Affairs Portfolio Committee that the Bill be returned to the Home Affairs department and the Ministers concerned should negotiate. Initially, the Home Affairs Chairperson agreed that the Bill would not be processed. The Chairperson spoke to the Home Affairs Chairperson and it was agreed that this matter should be dealt with by the Leader of Government Business, the two Ministers concerned and any other relevant Minister, and if necessary, the Finance Standing Committee Chairperson would come on board. It was suggested that some ANC structures should deal with the issue. However, several other issues came up needing attention and the Home Affairs Chairperson contacted the Chairperson of the Transport Portfolio Committee on the eve of the decision to go ahead. The Chairperson delegated members of the Committee to attend the meeting on behalf of the Committee but the members could not attend due to the workload of the Committee.
The Chairperson said that he knew SARS was unhappy about the situation, having made its position clear on the BMA. He was surprised that the Bill was to be debated on Thursday. It was reasonable to assume that the Committee had reservations.
Ms Kekana said she once volunteered to serve in the inter-parliamentary committee on BMA. She agreed with Mr Shivambu’s position that there was still time to engage on this matter before Thursday, and proposed that the Chairperson be mandated to engage the Chief Whip’s Office to make him aware of the need to put the debate on hold so that certain other engagements and deliberations could take place. Having the Bill returned to the National Assembly after being sent to the NCOP would reflect that the NA did not apply its mind to the processes in the first place. The primary focus of the discussion previously held with SARS was to ensure that revenue collection was properly aligned; and that issues of illicit flows received the necessary attention. If these preliminary issues could not be dealt with, it would be difficult to implement and follow up the Panama Paper report.
The Chairperson said that he had previously told the Commissioner that the issue of illicit financial flows (IFF) would be raised every time SARS appeared before the Committee. He noted that even though there was a racial myth that black Africans were corrupt, the largest flows out of South Africa were taking place through white monopoly capital, especially in mining. The Committee asked that a progress report on this issue should be submitted in the next quarter on those involved; what is being done to resolve the 5 000 cases on illicit flows; the number of people that have been employed to handle the cases and the experience they have in this regard; the expertise still needed by SARS; how updated SARS was with respect to the global occurrences; and the targets that have been set in this regard. The Chairperson accepted Ms Kekana’s proposal to approach the Chief Whip to delay the debate on BMA.
Mr Moyane replied that transfer pricing was a big issue for not just South Africa but for all tax administrations. SARS would like to present to the Committee a detailed report on the number of people employed in that unit, the levels of experience, and the matters being dealt with.
SARS appreciated the Committee’s position to engage on the BMA. SARS position was very clear that the fragmentation of SARS not be implemented. In the previous financial years, Customs contributed over 30% of the revenue. The amount would have been higher if the economy had expanded, and if trade patterns had increased. SARS would revert back to the Committee with detailed responses on the topics raised.
Ms Mahlangu sought clarity on the whether the issue published in the media by the Minister of Defence on borders and the roles to be played by DPW would impact on the revenue.
Mr Moyane replied that each department had a clear definition of its roles and responsibilities. The Ministry of Defence was responsible for the border line while SARS focused on the border posts. SARS only got involved in border line activities after contraband has been found and reported to it.
Mr Topham said that the perception of billions of dollars or rands stolen and saved in other countries constituted an indirect indictment on the image of SARS. He said he did not share that perception, seeing that it was difficult to evaluate illegal transactions. The Commissioner was asked to respond on whether there was a need for more legislation to strengthen SARS in dealing with illicit financial flows and transfer pricing; whether SARS required the employment of more specialized people to resolve this issue; if SARS was doing its best to curb tax evasion; and whether the unit was still referred to as the ‘transfer pricing unit or the name has been changed.
The Chairperson said that there were over 1 700 South African names in the Panama Paper and it was difficult for the Committee to believe that none of the over 1 700 people has committed a legally prosecutable crime. SARS would be expected to respond to this issue in the next quarter.
Mr Lees asked if GRAP was a SAP- based system and if SARS had the required skill and staff in place to implement it. He noted that the Johannesburg metro spent about R200 million on SAP and SAP walked away from it because the system was new and the needed skills was unavailable. Johannesburg metro had to start all over again. SARS had spent about R120 million on SAP and the project was still incomplete. He asked how this project fit into GRAP and whether the project was stopped because of restructuring.
He alluded to the difficulty experienced by taxpayers in using the easy file system and asked for an explanation on why the system was not working and what was being done about it. The difficulty in using the easy file system fed into the narrative that needed skills were not in place for its development. He asked if was using consultants all over the country to help taxpayers. This issue was linked to VAT refunds and the accompanying delays in terms of refunds. SARS had to look into this issue.
He asked for the Commissioner’s role in sponsoring IT projects; if George Frost has withdrawn his resignation from SARS after being asked by two senior managers to reconsider his resignation; and if James Matthews has resigned from SARS.
He cited an example of a taxpayer whose tax deduction for maintenance and repairs in his company was repudiated by SARS in 2013. On 4 May 2015, a meeting was held in terms of an ADR process. Other meetings were held on 10 October 2015 and 17 November 2015. Eventually on 22 February 2016, SARS informed the taxpayer that the ADR process had been terminated and he had to appeal to the tax board. The tax board however, postponed his appeal on 24 June 2016, 25 June 2016, 26 October 2016, 14 March 2017, and 5 May 2017. This did not reflect SARS’ commitment to improve service delivery to taxpayers.
He said that although SARS could not publicize individual taxpayer’s affairs, it should be possible for SARS to confirm to the Committee and the general public whether it has picked up his assertions about tax on the fringe benefits earned by the President and whether such assertions have been investigated.
Mr Matlwa said that transfer pricing duties have been converted into SAP requirements and GRAP requirements. Conversions have been made to customs and excise duties, and withholding tax. A GRAP project chaired and sponsored by Mr Moyane was currently underway. The Chief Officers were the core sponsors for each respective stream. The response to whether SARS had the skill for SAPS or not was yes and no, based on the ground that no company could have the entire skills. Consultants were recruited for areas where SARS was lacking in terms of skills. SARS has applied for and gotten an extension from Treasury to meet the GRAP compliance by 2023 as opposed to the original date of 2018. SARS has engaged with AG and ASB on the difficulties. Converting the current information from manual to IT would take a long time. SARS had to ensure that the transfer of information from a historical manual system to a computerized system was balanced and accurate. However, about five taxes have been done and the agency was hopeful that the others would be completed soon.
Mr Mathebula said that SARS could not breach the Tax Administration Act by divulging information on an individual, notwithstanding such individual’s position in the country. Once a matter has been reported to SARS, the responsibility shifts to SARS to deal with the matter and finalise this with the taxpayer involved. SARS could therefore not respond to that matter.
On the resignations, it was pointed out that George Frost indicated verbally that he would like to leave SARS but SARS persuaded him to stay back because of the skills he possessed. The publication of this in the newspapers was rather unfortunate, and SARS considered it inappropriate. A similar item was published in the newspaper on the resignation of James Matthews who got a job as a chief operating officer in another country and he intended to take up the position, since his position at SARS was lower compared to the new one. SARS could not counter his intention to resign having found a better opportunity elsewhere.
On the list of taxpayers that Mr Lees alluded to, it was pointed out that since Mr Lees used to be tax practitioner, the possibility of privileged information from taxpayers being reported to him could not be disputed. However, SARS would like the complaints to be made to it, especially since its system was not foolproof and mistakes were bound to happen. Also, mechanisms such as the Tax Ombuds have been designed to handle such complaints. It was unfortunate that some of these complaints have been alluded to in the Committee before SARS was opportuned to receive such complaints, deal with and respond to them. It was therefore difficult for SARS to respond to the issues raised.
Mr Mathebula said the Chairperson’s concern on the non-conviction of any of the 1 700 South African names in the Panama Paper report was a valid one. Often times, SARS played its part in busting drug activities, arrests on diamonds, recovering illegal cash at airports, and other enforcement activities but none of the culprits ended up in jail. This issue has to be raised because SARS was carrying out its responsibility in curbing illicit flows but other agencies involved seemed not to be helping matters.
He noted that 30 SARS employees have been dismissed, and six of them were dismissed for cases relating to fraud. By the end of March, 53 employees have been suspended; 29 of them were currently in the hearing stage while investigations were pending for the remaining 24.
Ms Kekana commented that she was not aware that instances like that of James Mathews was another form of "base erosion" because the base of SARS was being eroded by employees who have secured jobs in other places.
Mr Lees repeated his question on the resignation of Leon Weider.
Mr Moyane said he could not respond on that since he was an employee at a lower level while Mr Moyane’s duties were at the executive level. He asked Mr Lees for the position held by the said Leon Weider.
Mr Lees said that he did not expect the type of response given by the Commissioner. Saying that he could not respond to a question posed by an MP because it was below his rank was totally unacceptable.
Ms Kekana said that it would not be out of place for MPs to write formally to the Commissioner to inform him of matters brought to their attention, and to request a follow up on such matters.
Mr Moyane refused to respond.
Mr Mathebula said that Leon was the senior manager in innovation projects, who was appointed into the position late last year. His role was not unique in any way, and the skills he possessed were not scarce. He opined that tendering a resignation after being appointed for less than a year did not seem fair to the other 14 500 employees in the organisation. SARS may be setting a bad precedence if it continued to propose a counter-offer for a better position after every resignation brought before it. There were instances where resignations tendered had to be honoured and people allowed to leave.
The Chairperson said it seemed inappropriate to raise individual names in public discussions such as this. He reiterated the suggestion made by Ms Kekana for MPs to write formally to the Commissioner on matters brought to their attention. MPs were reminded to forward names of taxpayers that approached them on issues to SARS.
He observed that there seemed to be a racial subtext to the issue at hand in the public domain. This was often noticed in the uncertainty expressed about the replacement of a non-African person who exits SARS; and through the public perception that the quality of SARS drops after the exit of any such non-African.
He observed that there has been an onslaught on the Commissioner to some extent, because the Commissioner emerged from a different sector other than tax. It was necessary to find the right balance instead of using race and gender as excuses for poor performance. He asked for the reason behind the numerous resignations at SARS. There was a sense of people resigning for several reasons not linked to the fact that the Commissioner was African; especially since some Africans have tendered their resignations. The Commissioner was told to look into these numerous resignations at SARS.
Mr Shivambu remarked that the relationship of the SARS Commissioner with Treasury was overwhelmed by subjective issues. The SARS Act provides for an advisory board. Treasury and other entities needed an advisory board, where none existed. This would help in dealing with subjective issues as they arose.
Mr Lees apologised to the Commissioner. He said that he always referred queries brought to him to SARS and at no point did he say that the service received from SARS was far from excellent. He said that he did not raise the issues at the Committee meeting for them to be dealt with, as those issues raised have already been dealt within the last 24 hours. None of the issues brought to him have been referred based on his professional status. Two of the issues were drawn to his attention through the DA website, while the third one was referred to him by a fellow MP. He sought guidance from the legal officers on the appropriateness of mentioning specific names in Committee meetings. He reiterated the point made about the ability of SARS to retain its status as a world leader in revenue collection.
Mr Topham said it was important for MPs to ask the right questions about the FIC. It was obvious that SARS had no idea of the stage of the prosecutions. SARS was asked to disclose the number of matters handed over to prosecuting authorities.
Mr Maynier said the tabling of SARS APP was delayed by the former Minister of Finance. He asked for the areas of disagreement between the former Minister of Finance and SARS; and how those areas of disagreement were resolved either between the former Minister of Finance and SARS or between the current Minister of Finance and SARS. He asked who eventually signed off the APP: was it the former Minister or the current Minister of Finance? He asked for an update on the Jonas Makwakwa case.
Mr Moyane said he could not reply on the cause of delay in tabling the APP by the former Minister of Finance. SARS submitted the document on time, as and when required. SARS submitted additional information when the Minister requested this and within the specified time.
Mr Maynier asked for the additional information requested by the former Minister on the strategic plan and APP.
Mr Moyane replied that he cannot recall the information off the top of his head since the request was made some 15 months ago. However, the information can be provided in writing.
The Chairperson said that Treasury alluded to the existence of a board within SARS to which the Commissioner was accountable, apart from being answerable to the Minister. The Chairperson said he liked the idea of this board, and it was unclear why the advisory board was dispensed with. He noted that Judge Dennis Davies has been asked to look into the governance structures and this was one of the issues. Although the Chairperson felt the advisory board was a good idea, the Committee took no decision on the matter. He asked for the status of this process.
Mr Shivambu said that the advisory board was not just a court decision, but was required by a legislation in SARS. The legislation establishes both the Commissioner’s office and a board. Parliament had to see to it that SARS and other entities belonging to Treasury should constitute an advisory board. All governance institutions required by the legislation of an entity should be established to avoid instances where subjective issues created an impact on the relationship of institutions.
Mr Mathebula confirmed that the SARS Act provided for the establishment of specialist committees namely human resource (HR) committee, advisory committee, and audit and risk committee. The advisory committee was responsible for advising both the Minister and the Commissioner. It was not concerned with the operational aspect of the institution’s business. The advisory committee was established for a period of three years, and the period has since lapsed, alongside that of the HR committee. No other advisory committee and HR committee has been formed since the lapse of the former committees. The prerogative of establishing another committee lay with the Minister.
The Chairperson said that the Committee recommends the establishment of the advisory committee in accordance to the law.
Mr Matlwa responded to a previous issue raised on debt collection and outsourcing. The debt book that was outsourced was about R6.6 billion. R889 million was collected, translating to about 30.4%, which subsequently reduced the debt book by about R1.2 billion. The companies were paid 4% of whatever was collected, and this translated into R37 million. The project would come to an end at the end of May 2017. The aging of the debt was four years and above, which was about 256 000 files.
The Chairperson said that the Parliamentary Budget Office (PBO) predicted that SARS would run a shortfall of its target by R30.4 billion, and the same thing was said by Treasury and Minister of Finance. It has been noted in the public domain that one of the reasons why SARS met its target was because of the tax dividend windfall, which was effected immediately after the Minister announced the budget. SARS was asked to verify this position.
Dr Randall Carolissen, SARS Head of Research, said the R30 billion was unfair to SARS. The prediction made by PBO, Treasury and the Minister was not based on facts nor on statistics. It was not the first time that a target would be reduced from the original target set. In 2008, the target was reduced by R60 billion. SARS performed well in the period following that crisis. If tax to GDP ratio was used as the international measure of tax efficiency, it would be seen that at the point of the financial crisis, the GDP ratio was at 23.5%. The GDP ratio has been pushed to over 26% in the past three years.
On the R30 billion, Dr Carolissen, noted that at the time the 2016/17 budget was announced, an outlook of 0.9% GDP growth was assumed. The target was set at R1.175 trillion and this assumed a growth of 9.8% over the previous year. It could therefore, be seen that having to grow tax by 9.8% with a GDP growth of only 0.9% was an achievement on its own. The target assumed a tax buoyancy of 1.4%. The tax buoyancy throughout that period reported a strong growth in personal income tax (PIT). When the budget was announced, there was a R30 billion downward revision from the original estimate but at the same time, the GDP outlook was halved from 0.9% to 0.5%. Already there was a large downward revision in the outlook of the GDP. It was later discovered that the actual GDP growth was only 0.3%, which was a third of the initial assumption. It was therefore, important to understand that the R30 billion was directly linked to the downward revision in the GDP. The tax buoyancy was driven down because a decrease in growth of the PIT from 12% to under 9%. Ascribing the R30 billion to SARS’ inefficiency to collect taxes was not true. It in fact, cast aspersions on SARS. The R30 billion was based on solid statistics, solid economic reasons, and solid interpretation of macro-economic indicators. The R30 billion could be ascribed to the significant drop in growth of PIT and a contraction in import taxes.
Mr Maynier asked who SARS believed was behind the mischievous claims around the R30 billion.
Ms Kekana asked if SARS, Treasury and the Reserve Bank ever sat to discuss and arrive at a consensus; and whether the Minister can decide to act outside the decisions reached from such consensus.
Mr Carolissen replied that several meetings were held because of the different perspectives on issues and statistics used. With respect to the case at hand, the consensus position was R1.142 trillion, which was recommended to the Minister who then refers this figure to the Budget Office. The DDG for Budget Office would then consider the fiscal framework before deciding on the appropriateness of the figure. In most cases, the recommended amounts gets accepted from the technical committee. In this particular case, the amount was raised by R2 billion because of reasons including fiscal stability and palpable budget deficits. In a case like this, it was expected of the Minister, DG and SARS Commissioner to engage.
Mr Moyane added that the revenue analysis committee that comprised of the Reserve Bank, Treasury and SARS, engaged in a robust macro-economic discussion where different figures are brought to the fore. Often times, no single number was agreed to, and this led to the arrival at a consensus. In this particular case, the Reserve Bank and SARS upheld the same position of R1.142 trillion, while Treasury and economic policy had a different number. The consensus reached in that meeting was R1.142 trillion, and this meant that the revenue analysis committee had to refer the information to the Commissioner and the Minister. In the event that the Minister differed on the consensus, an engagement would be held between the Minister, Commissioner and the DG to revise the number. In the case at hand, although R1.142 trillion was the consensus reached, the announced budget was R1.144 trillion. This meant that the Minister had taken a decision to raise the number to R1.144 trillion.
Mr Topham said that from the information given, the collection was roughly 10% under what was to be collected in totality.
The Chairperson said that the Parliamentary Budget Office (PBO) needed to explain how the announced figure was reached - for better understanding of the matter. In terms of the APP a space of three weeks should be given between the time the Minister, DG and Treasury appear before the Committee and present the APP, and the debate in the House. The Committee researchers were asked to get the Committee Report done latest by 16 May. The report would be sent out and the Committee would vote on Wednesday, 17 May 2017. MPs were asked to submit their observations and recommendations.
The Chairperson asked for an update on the Makwakwa case. The Committee would like to know when the process would be concluded.
Mr Moyane replied that the Makwakwa case was a complex one and, as the Commissioner, he would not like to be burdened by a matter that would not come to an end. This investigation which was kick started by FIC and the police, had its own timeframe. He would like to see the matter concluded as soon as possible. The matter was being dealt by Hogan Lovells, which was a private entity; and by the Hawks unit. The status of the investigation of the matter by Hawks could not be given, as it was being investigated separately. The same applied to the internal process carried out by the legal team, which may require interactions with the employee involved on various matters relating to his case. The Commissioner was hopeful that the matter would be sorted soon considering the position occupied by Mr Makwakwa, and that a report would be given by Hogan Lovells on the progress of the matter. SARS would revert back to the Committee on the status of the matter once completed. The outcomes would be dependent on the result of the investigation.
Mr Maynier asked for the amount Hogan Lovells has charged SARS for the investigations so far.
Mr Shivambu said that since the legal firm contracted to pursue the matter was contracted by SARS, SARS should be able to legitimately inquire about the status of the case instead of leaving the timeframe for investigation open. Hogan Lovells should be able to give an indication of when investigations would be completed and the case concluded. It should not be an open-ended process. No leads could be gotten from the Hawks. According to him, the existence of the Hawks to fight crime, particularly financial crime, was a myth and an imagination of people. SARS was urged to find out the exact dates when the case would be finalised.
The Chairperson said the Committee did not expect SARS to instruct the Hawks, as this would be illegal. But law firm appointed by SARS, and SARS should be able to specify a timeframe within which the matter should be settled. If Hogan Lovells felt the timeframe was not feasible, it had to justify such claim with reasons. The Commissioner’s response was not compelling. Not resolving an allegation made against a senior official of SARS since May 2016 was quite disturbing. He said he would verify the issues around the investigation carried out by the Hawks Unit.
Mr Moyane replied that SARS would revert back to the Committee on this.
Mr Mathebula said that Commissioner was cited in the complaints and the matter was referred to him as the person responsible for internal investigations. Given the seniority of the people involved and the public interest into the matter, he instructed HR to contract an independent law firm to investigate the matter. The report was finalised on 30 March 2017 and was handed over to SARS in the middle of April. A meeting would be held next week to consider the report before the distribution of the report would be made to the relevant people involved for their comments, after which the necessary steps would be taken according to the recommendations contained in the report.
The Chairperson said that SARS had to address the country once the matter has been finalised, and not just Parliament. He asked for the deadline for finalising the matter.
Mr Mathebula replied that the matter should be finalised by 15 June 2017, depending on the comments of the various parties.
Mr Lees sought clarity on whether the report would be released through the Minister.
The Chairperson said that the Minister could not change the report, notwithstanding the protocol for releasing the report. Once a report is finalised, they have taken an independent decision without any political interference, and then it is given to the Minister as the political oversight authority. According to protocol, they do not have to come back to the Committee. If there is an issue that the Committee felt was relevant, the Committee would pursue it when the Commissioner appears before the Committee to present SARS quarterly report.
Mr Lees asked if he could have a personal copy of the report after its release.
The Chairperson said the report would be published online and therefore would be accessible.
Mr Mathebula voiced out SARS’ request for the Committee to consider a visit to SARS and honour the invitation to visit Beit Bridge and observe the scanners.
The Chairperson said that the Committee has agreed to visit on three different occasions but has been unable to visit because of genuine issues that sprang up on each of those three occasions. The Chairperson said he and a few other members of the Committee would honour the invitation to Beit Bridge.
The meeting was adjourned.
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