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FINANCE PORTFOLIO COMMITTEE
16 May 2000
STATISTICS SA AND SARS: ANNUAL BUDGET REPORT
Documents handed out
Presentation by Statistics SA
Annual report - Statistics SA
Presentation by SARS
SARS Special investigations - criminal cases
CGT - integrated with income tax system
Annual report - SARS
Website: Stats SA
Statistics SA noted that in the drive to present more current labour force statistics, they have secured the budget for a half-yearly labour force survey. They are working towards quarterly reporting of such information.
This survey will be broader than other employment surveys in that it includes sectors such as the agricultural sector. New technology provides for greater accuracy in respect of their statistics and their sampling techniques are now more representative. One major challenge facing them is the project roll-out for the 2001 Census. Statistics SA guarantee the autonomy and the integrity of statistics.
The Commissioner of SARS stated that the institution needs radical restructuring particularly in terms of Information Technology. In view of this they are embarking on a business architecture project to improve the efficiency of SARS revenue collection and customs control. There is still a substantial tax gap which causes loss to the Treasury. Organised tax crime syndicates are also a serious problem causing great losses. Capital Gains Tax implementation was touched on.
In addition to the delegates from the two institutions the Minister and the Deputy Minister were present at the meeting.
Statistics South Africa
Dr Mark Orkin, Head of Stats SA, said that they are now a much more user driven agency and they are reaching out to the needs of the consumer. Their statistics are of use to all sectors of society and cover various types of statistics. These include economic statistics from enterprise surveys, to demographic statistics from the census, to social statistics from household surveys (such as administrative records of births and deaths). Statistics SA guarantees the autonomy and the integrity of statistics. The Statistics Act contains the standards for official statistics.
Representivity - Over the past five years there has been a rising number of black with a commensurate falling number of white staff. Nearly two thirds of Stats SA staff are black, but these employees are mostly at the clerical level. Thus they are slightly behind representivity requirements in the public sector. In the upper levels however, they are on the public service average. Compared to the rest of the public service, Statistics SA is more women-dominated as an organisation than government at large.
Strategic achievements - They have had their share of problems but they have learnt from them. They conducted the first nationwide census since 1970 in 1996. They are bringing key economic indicators in line with IMF standards. South Africa is the only developing country that signed up for this. They have done much work for Safety and Security, Labour and are now involved in a five-year program for Agriculture. Their achievements have been attained partly through technology but mainly through imaginative management.
Challenges - These include measuring structural changes in the economy (for example, changes in unemployment, increase or decrease of jobs in the formal and informal sector) and information on social issues (for example, rural development). Providing statistics on the provincial GDP is a challenge.
They are collaborating with SADC on issues such as poverty monitoring and are building a national statistical system across departments (for example, the Geographic Information System (GIS), tourism statistics and a business register). They can use the data collected in order see where to target certain aid or development. Another challenge is the project roll-out for Census 2001. There is new technology such as scanning and coding which will ensure greater accuracy.
Ms Annette Myburgh, Chief Director: Economic Statistics and Surveys and National Accounts, presented on how they design and develop questionnaires to extract quality statistics.
They are also improving their technology. An example of this is that they are using the latest economic data to re-weight the product price index (PPI).
Economic statistics and surveys - There is an income and expenditure survey. They are also dealing with the completion of labour statistics in a new labour survey. This is an enormous responsibility burden.
Mr Patrick Naidoo, Director: Government Accounts, noted that an achievement was that they are revising and rebasing the GDP according to the new UN system of national accounts. They are compiling the first supply and use tables for South Africa. The tables show an interrelationship between industries. There is a demand for local government data. There has been an improvement of time within which the data is made available to the consumer.
Challenges - They are developing a social accounting matrix. This social accounting matrix relates to the supply and use tables. They highlight special interests and concerns. Successful implementation and use of the data are important.
In his overall conclusion, Dr Orkin said that surveys done on skilled and unskilled occupations show that there has been an eating away of discrimination against women and blacks. A problem experienced in developing countries is that many people have no street address. The less developed the country, the harder the survey is to do. This is especially so because they cannot revisit the persons to track developments, as they are not always going to be in the same place.
Dr Orkin said that they had to make innovations in the area where users said that statistics were needed. Shaping data for unemployment is a strategic challenge.
Dr Davies (ANC) asked about their capacity to conduct surveys in respect of the measurement of the quality of jobs. Dr Davies explained his point by saying that if someone changes jobs, how do they know if that person became a flower seller or is now working in the EU. He said that they have not been able to differentiate whether there has been structural changes for the individual or not. What he was asking was whether their surveys could catch these changes.
Ms Myburgh said that the new labour force survey could detect this. They are including questions in their questionnaire to pick this up. Dr Orkin said that it was hard to follow up the same household 4 - 5 times due to address change and so on. In September they will see what proportion of households they have managed to revisit. Then they will know if they can.
Dr Koornhof (UDM) asked several questions:
- Why is the Auditor General's report not included in your annual report?
- Regarding your unemployment rate measurement, are you working toward reliable figures made available on a more current basis rather than yearly?
- Do you think that the budget for the 2001 Census is sufficient based on your experience of the previous census?
Dr Orkin replied that the inclusion of the Auditor General's report was optional this year. They had asked the AG if it should be included and that office had indicated that they would prefer to keep it separate.
To the second question he said that ideally the labour force survey should be done quarterly. If this is conducted by way of a face-to-face visit as opposed to using the telephone then it will be costlier. They have secured the budget for a half-yearly survey. They also intend to speed up the turnaround time for reporting on the data collected. If it shows it can be reliably done then that will be motivation to do it quarterly. If they do it quarterly then this will cost an additional R15 million.
He said that the budget they have is sufficient. They were given more money this time than during the 1996 Census. The reason for this is that they need to collect data for election planning. The output of the census is reflected in the Geographic Information System (GIS) which is a powerful new tool.
Mr Chiba (ANC) said that the information they present is very important to the public. In light of the fact that someone might want to tamper with the information he asked what security measures are taken to ensure the integrity of the data.
Are there standards and procedures for handling the data (and are these approved by management)?
Dr Orkin said that they have set up an Internal Security Council (ISC) to ensure the integrity of the data. Recently they had an Internal Security audit for the first time. Ms Myburgh said that the data is saved on a database and only the capturers have access to it. Thus, no-one can change the information. The ISC has drafted a security policy which was approved by a management team. To get access to the information one must know the password. There are also standards in place for handling the data.
Dr Orkin admitted that during the 1996 Census that they had a ''slightly loose procedure'' but now they were trying to improve it. Then they had been limited in terms of staff. There was a lot of pressure on them to put the information on databases and they only had two database administrators.
In reply to a question by Ms van der Merwe (ANC) as to what plans were in place to get more accurate figures, it was noted that an advisory group has been set up. They have also been receiving assistance from specialists at Pennsylvania University who have a modern technique on data accuracy. Statistics are about having a margin of error around them therefore they usually publish graphs which show a high/low scenario. These are more realistic.
Ms Taljaard (DP) asked whether their labour force survey included skills development. Referring to their collaboration with SADC, she asked if there were indicators in terms of monitoring poverty.
Dr Orkin said that they have been in meetings with labour and that he would follow this up and get back to the committee. On the SADC issue he said that SADC has identified included 21 factors as part of their work programme and there is a paper on the extent to which these 21 factors could be met. He said that he would keep the committee posted.
Ms Jumat (ANC) asked if the information in the data included the TBVC areas.
Dr Orkin said this has been the case since 1995.
In response to a question by Professor Turok (ANC) and Mr Andrew (DP) Dr Orkin said that Stats SA would get together with the IEC to supply maps on to which constituencies (clusters of voting districts) will be drawn. They will then add population groupings and gender to these maps.
Mr Andrew asked if one could get GIS information off the website. Dr Orkin said not currently. In the year 2003 this might be in place because by then the internet would be expanded enough for that.
Mr Leeuw (ANC) asked about their access to previously black areas and to squatter camps. Dr Orkin said that they used a master sample. In terms of this they go into about 3000 areas which span every kind of community. They then map these and revisit them with great care. The strength of the GIS is that it lets them cope with informal settlements. Between the computerised GIS and the master sample (these things were brought in for the new labour survey) they can ensure that the sample is representative. One year ago they could not say this.
[He commented that people in the commercial sector tended to under-sample the rural areas because they are difficult to get to and over-sample the urban areas because there is commercial interest in them.]
The Minister made the following introductory comments:
There is an enormous challenge before SARS for delivery of a better quality service. Parliament must take comfort in the fact that SARS is doing what it can to collect the revenue due to it. The question before the Auditor General was whether SARS was collecting all that it should be collecting.
South African Revenue Services
Mr Pravin Gordhan, Commissioner of SARS, presented on the following:
Core business areas - They administer tax law and want to build a better relationship with the public in respect of making them compliant with tax law. The majority of the taxes come from personal income tax. There has been an improvement in collections because the efficiency of SARS has improved. Government has collected R25 billion in added collections - for this reason they believe that SARS has delivered.
Customs - They were collecting VAT on import products at border posts. This was now paying off. They were also able to detect drug and cigarette smuggling.
SARS is committed to providing good service to the taxpayer. They want to make the public aware of how they benefit from tax before taking measures against non-payers. This method is slowly working.
Enforcement - Auditing is a minor activity of SARS which they wish to make a major activity. On debt recovery there are several prosecuting courts in operation. He named one in Johannesburg and one in Bellville. They are bringing to book people who have not submitted returns as far back as seven years. This is only the tip of the iceberg in terms of tax evasion and criminality. Debt recovery has led to the liquidation of certain businesses therefore they are careful about using this option.
Mr Kosie Louw (General Manager: Law Administration, SARS) clarified that there are some special income tax courts who dealt with civil cases (issues such as disputing the amount taxable). Other courts are criminal courts which hear offences. Offences will be one of two kinds. They are either statutory or they are run of the mill cases (such as not submitting relevant information, or failing to submit a form). These courts operate within the magisterial framework.
He mentioned they have also closed off some tax loopholes.
Service - They are simplifying forms. They are also reviewing and revising the appeals and review process. Currently these things can get stuck on someone's desk for up to five years without being dealt with. They want something that is fair, transparent and faster.
Education - Mr Gordhan said that they would like additional funds for their tax awareness campaign as they are trying to widen the tax base.
They want to initiate debate around the issue of a taxpayer charter and the idea of an alternative dispute resolution mechanism for non-taxpayers.
Human resources - The incentive bonus scheme has been discontinued as it had served its purpose. On labour relations they have their own bargaining forum and most conflicts are resolved in a reasonably happy way.
Systems - With the passing of the Public Finance Management Act, SARS has had to undergo various changes, including a change from a cash to an accrual accounting system. The question of systems became a crucial issue as they cannot undertake overnight systems integration. Many of the problems they experienced at this level are not accounting but are systematic. Management is committed to addressing these issues. They are upgrading current systems and interfaces. They hope to have single ID numbers for individual taxpayers sometime in the future.
Key challenges - There is still the problem of bureaucracy. For example, a file which only needs 3 - 4 hours to deal with, takes up to 7 months to get to from desk A - desk Z. They must understand what skills are needed to operate a proper infrastructure. They are changing from having an administrative approach to a compliance approach. Between now and 1 April they must implement the Minister's tax changes. They are trying to stabilise their own expenditure accounts and are implementing new information technology for South Africa.
Business architecture project - They are going to embark upon a redesign exercise with consultants as SARS needs radical restructuring. Information technology plays a role in the changes which they want to undertake. It will include developing a high level taxpayer and business strategy and also to design appropriate metrics to track efficiency and productivity. The objective of these changes is to substantially improve the efficiency of SARS revenue collection and customs control.
Does SARS have the capacity to implement Capital Gains Tax? Head office wants to create a centre of excellence in respect of service delivery for this new tax. Experts are available online so that CGT problems and issues may be dealt with. This will be implemented within the new IT system. In designing CGT implementation in South Africa, they will examine the United Kingdom and Australian systems and use these as guides.
In conclusion Mr Gordhan said that in order to develop democracy one must develop good citizenship. Good citizenship encompasses the notion that people must be tax compliant. This will result in a better life for all South Africans.
Dr Woods (IFP) commented that there were possibilities to collect more taxes but SARS was prevented from doing this because they were too under-resourced. He asked if their budget was adequate.
Mr Gordhon replied that their budget is not adequate. They have been delivering on their mandate by squeezing their budget. He said that it was ''unsustainable''. However, the business architecture process that they are going to embark upon has measurement aspects in it to indicate what they can do. This will enable them to see what they need and in turn they will be able to say to government what they need for efficient administration. It will provide a benchmark so that they can see what they need.
Responding to the first question on adequate tax collection, Mr Gordhan said that they have a total debt of R22 billion outstanding. He asked that this specific issue be discussed at another time, but did make the following comments: Some debt is very old and is not recoverable anymore. They do not have the technology to see which specific debts these are (some of these debts run back a long time from before the new administration). Writing off a debt in the public sector is not the same thing as writing off a debt in the private sector. In the public sector the process is much more complicated.
They have taken measures to reduce debt. These include the operation of prosecuting courts for tax criminals. They are trying to control the problem of tax evasion. The result has been fundamental changes in the debt pattern.
Professor Turok (ANC) referred to their reference in their annual report of organised crime syndicates in a tax context. He asked them to elaborate as he had never heard about this concept in the context of tax. He also said that he had heard that lawyers must disclose suspicious transactions. He asked if there were any similar requirements related to the tax profession.
Mr Gordhan said that tax criminality was a very serious matter. There was a serious connection between syndicates, bank fraud and tax fraud. The fact was that these syndicates, at some point down the line had to touch legitimate business. This means that many respectable business names are connected to syndicated crime, either wittingly or unwittingly.
Many such cases have been handled such as the Metro Cash and Carry case and they have learnt lessons from these. There was one particular report where a popular brand name complained that their goods were coming into the country from a source outside of their overseas branches. This causes the under-valuation of the product. They need a synergy between the agencies in tackling this problem. Mr Gordhan admitted that they were not on top of the matter but said that they did have a better understanding of it than they had before, and in a few months they will have an even better understanding of it. He added that losses due to this problem amounted to hundreds of millions of rands.
Mr Louw from SARS answered the second question on suspicious transactions. He said that there has not been proper regulation of the issue yet. The Money Laundering Bill will provide better regulation. The Deputy Minister pointed out that Section 7 of the Prevention of Organised Crime Act requires all to report suspicious transactions. Further, a new bill will come before this committee during the second half of the year which will deal with this problem.
Dr Koornhof (UDM) asked what the annual value of the criminal cases was because he wanted to get an idea of what the fiscus was losing.
Mr Pillay (from SARS) answered that the tax gap is difficult to estimate. They are a young unit and only know of the cases that they have come across. He did say that they set a target this year to save the fiscus R1 billion. That should give one an idea of what the fiscus loses through illegal operations. The special investigators intend to place less emphasis getting the money back because they were not yielding good results. They were now placing more emphasis on taking criminal action against these people.
Dr Rabie (NNP) asked how many taxpayers there would be if all the systems (as envisioned) were put into place.
Mr Gordhan said that there is approximately 40 million potentially economically active people and currently between 6 - 6.5 million pay tax. There is no automatic one step formula to get them to register. The process is gradual and can take place by means of tax awareness. With the new system, there would be a fairly significant difference to the kind of collections brought in. He said that he did not have a figure at this stage, but it would be a substantial amount.
Mr Gordhan added that the tax gap existed not only in developing countries such as South Africa but even developed countries had to deal with this problem. For example, in the United Kingdom, there was a 5 - 10% tax gap.
Mr Andrew (DP) noted the comment on the aim of an improved tax collection. This was good but they should not create a situation where they want to collect at all cost. He asked for a comment as to whether the measurable performance targets were being achieved. He also questioned the apparent reduction in personnel versus an increase in the budget. Finally he asked if there would be any way to prove that an electronic submission of a tax form (a method envisioned for the future) had been sent if they claimed they had not received it.
Mr Gordhan said that many countries have already allowed electronic submissions and South Africa would simply learn from them. Three aspects will be very important: to ensure security, confidentiality and legal legitimacy.
Regarding personnel, there had been a pattern of reduction for a while. However, in some cases, lower grade staff had left and were not replaced. However persons in higher positions were hired (whose salary was twice the amount of the first). This meant that the staff was reduced but the budget needed more.
The approach of SARS is not to collect at all costs. Previously SARS had to use an incentive bonus mechanism amongst their staff to collect more. This concept played its role in terms of directing the energies of the staff. However it is not enough. They needed a fundamental restructuring of the organisation. One can also do things incrementally. They are moving toward a more service-oriented approach. SARS is committed to developing that capacity and that approach.
Responding to a question on e-commerce, Mr Louw said that special attention is given to this and South Africa is tracking international trends in this field. The general perception seems to be that there is no need for specific tax legislation needed to deal with the e-commerce issue. The matter can be dealt with in the framework of current tax legislation. Another issue in the context of e-commerce is the shift from source to residence taxation. This is significant within the framework of double taxation. If someone is dealing in e-commerce from abroad, does this amount to permanent establishment? These are issues which must be grappled with.
Mr Nele (ANC) noted that their document reflected that many cases against SARS were withdrawn. He asked about the cost implications of this. Mr Gordhan said that there were many of these. Sometimes they were withdrawn only toward the end of the cases which does waste time. The concept of alternative settlement forums could deal with this problem.
The meeting was adjourned.
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