Statistics SA and SA Revenue Services Annual Reports: briefing

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Finance Standing Committee

05 October 2004
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Meeting Summary

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Meeting report

FINANCE PORTFOLIO COMMITTEE
6 October 2004
STATISTICS SA AND SA REVENUE SERVICES ANNUAL REPORTS: BRIEFING

Chairperson:

Dr R Davies (ANC)

Documents handed out

Statistics SA PowerPoint presentation
Statistics SA Annual Report 2003/04
Statistics SA Press release
SARS PowerPoint Presentation on Annual Report 2004
SARS Strategic Plan with Estimates of National Expenditure (email: info@pmg.org.za)
SARS Employment Equity Document (email:
info@pmg.org.za)
SARS Annual Report 2004

SUMMARY
Statistics SA and the Statistics Council addressed the Committee on its work over the last year. Tensions in the relationship between the two institutions became clear during their presentations. Members felt that this had to be addressed urgently. The uncertainty around Census 2006 was also an issue which Members felt had to be sorted out as soon as possible.

South African Revenue Services (SARS) Commissioner, Mr P Gordhan, highlighted the organisation's challenges in relation to the government's policy that included the encouragement of economic growth and development and the creation of a poverty net to alleviate poverty. SARS' mandate was to collect all national revenue, to ensure that there was optimal compliance with regard to the country's tax legislation, to provide customs services, to protect borders and to secure them, to ensure the appropriate facilitation of inward and outward trade and to advise the Ministers of Finance and Trade and Industry. The Committee was highly appreciative of the annual report and SARS' success. However, some questions were raised relating to increasing the tax base, the Tax Gap and the value in rands in areas where there were shortfalls. Improved tax collection, customs inefficiencies, staff turnover and the tax incentives that have been introduced with regard to urban renewal projects were discussed. There were also questions about debt collection and the Intelligence Unit within SARS.

MINUTES

Statistics SA briefing
Mr P Lehohla, the Statistician - General, addressed the Committee on the PowerPoint presentation attached. He began by saying that Stats SA was very resilient and had undergone rapid change. There had been an increase in visitors to the Stats SA website. He added that democracy and statistics work together. In a democracy there was an increase in the use of statistics that lead to greater accountability and transparency. Statistics also helped government to achieve its aims. Statistics were always controversial because some people would have vested interests in this. South Africa was the only country in the world that had detailed mortality statistics. This was useful in dealing with especially the problem of AIDS. Addressing the issue of quality, he said that the Executive Committee was recruiting people to improve quality. This was as a result of requests by users of the statistics that was given by Stats SA. He highlighted the fact that universities were not taking up the challenge to train more statisticians. He concluded by saying that that which was promised has been achieved. They had a committed group of people that were resilient and as a result the quality of statistics had improved.

Statistics Council briefing
Dr H Southall, the Chair of the Statistics Council addressed the Committee and said that there had been reports in the press concerning her report in Stats SA's annual report. The Council had told the Minister of Finance what he needed to know. The deficiencies pointed out were structural and not related to staff. She expressed her faith in the staff of Stats SA. She emphasised however that training was important. She stressed that the Council and Stats SA agreed on this.

In 1994 few people in South Africa knew how difficult and complex it would be to run a statistics agency. There had however been a great improvement over the last ten years despite the fact that there was a lack of skills. She said that the Statistician-General encourages criticism. She stressed once again that the Council and Stats SA were in agreement and that there was no division between them. The Council had very strong debates and differed quite often on issues. The Auditor General had noted that deficiencies existed in the Council in the area of organisational and financial control. This comment however did not receive any attention. It was therefore surprising that when she had raised similar concerns in her report, it had drawn comment. In the area of capacity, she said that there were people in Stats SA who were insufficiently trained. The Statistician-General had however initiated training the moment he had been appointed. Training had therefore taken place in East Africa. The 31 people trained here however were not sufficient and much more needed to be done. Numeracy and statistical training however was needed in all government departments. South Africa had been excluded in the past from the UN training that was available in Africa and now had to catch up.

She added that the Council was not responsible for quality control as Stats SA had its own quality control mechanisms and the Council did not have any executive authority. She stressed that even though the Minister had mentioned this as one of the Council's roles, it was not possible for the Council to do this. The role of the Council was to be advisory which could be ambiguous. The Act had been written by Swedish advisors and perhaps needed to be revisited and a South African model developed. One of the points in the Act stated that if the Council gave Stats SA advice, and the advice is not heeded, the Council should report to Parliament concerning this. There had been times when the Council had given advice and it had not been taken. They had not brought it to Parliament as they felt that it would seem harsh. She felt however that she needed to comment on the proposal of the census replacement survey. At a meeting in March 2004, the Council had said that it did not support this and that they would be prepared to work with Stats SA on this in November. It was felt that a census would not give adequate information and that Stats SA was not ready for it yet. She emphasised that they had been highlighting issues over the last three years in their annual reports and in the Audit Committee's report without success. This year, they had mentioned it more strongly, hoping that it would be noted.

Discussion
Ms R Taljaard (DA) said that the relationship between the Council and Stats SA was one that needed to be dealt with since it seemed to be at the core at the problem. This needed to be sorted out, either by the role players or the legislation. If this problem was not addressed, it would affect the economy and social delivery would also be affected. It was imperative that the role players got together and sorted this out. In June, Mr Lehohla had said that the auditor's report would not be qualified; the report had however been a qualified one. The Auditor General had expressed concern at the internal auditing. It would seem that there was a problem between management and the internal audit department. This had been a persistent problem for the last three years and perhaps it was time for Parliament to act more aggressively with regard to this.

Dr P Rabie (DA) asked why the census of 2006 was postponed to 2011 and what the cost implications were.

Mr K Durr (ACDP) asked against which institution Stats SA was benchmarking itself. He also wanted to know if tertiary institutions were giving support to help address the capacity problem and what the staff turnover was.

Ms R Joemat (ANC) pointed out that the Auditor General's report showed the high cost of consultants. She wanted to know what the measurable outputs were to justify the amount of R25 million spent on consultants. The report also showed the cost of consultants used for the IT system. The Auditor General had highlighted the weaknesses of the IT system. She felt that the IT system would be important to achieve the outputs determined at the outset.

Ms J Fubbs (ANC) noted that IT was highlighted as a factor that was important to ensure quality and integration. There was also a high turnover in this area. She wanted to know what Stats SA was doing about this. She asked if the priority matrix that was shown applied to the whole of Stats SA. If this was the case, it was a matter of concern as the skills needed and the areas highlighted by the Auditor General were absent. Referring to the comment made by the Statistics Council about the Swedish advisor, she wanted to know what should be in a South African model. She also wanted to know if there was any plan to fast track people so that the number of statisticians needed could be increased.

The Chair said that the key areas seem to be the training of personnel and the quality of statistics produced. He said that the output targets mentioned did not address this. He asked why the 120 staff members were not trained as stated in their targets. The responsibility for quality also had to be sorted out. He also wanted to know why Stats SA did not take the advice given by the Council.

Mr Lehohla responded by saying that because of the Act, the relationship between the Council and Stats SA was difficult. There was however a need to separate the two institutions. It was important to separate the one that produced information and the other which enforced policy. This does not necessarily create tension. Since 2002, they had been trying to define the roles of each institution. Since there was a lack of skills, it was necessary at times for Council Members to do work for Stats SA that caused some problems. He felt however that the organisations were in transition and that it would be sorted out. The qualified audit report was superseded by supply chain management. He felt that this had informed him that he had acted correctly as expertise was needed. Asset management however needed attention.

Referring to the 2006 census, he said that the Council had decided to advise the Minister. Stats SA had felt they would run a census replacement survey. They were still planning to meet with the Minister regarding this. It was not possible at present to say whether the census would be in 2006 or 2011. Stats SA however had decided to have a census in 2006. Capacity still remained a major issue. Tertiary institutions were not providing the necessary training. This was a serious matter as well as the fact they were losing people. There was high competition in a democracy, and this would remain a challenge for management. They did however try to keep people by means of the contracts which people signed.

He went on to explain that the high cost of consultants was the fact that enumerators used to gather information were also regarded as consultants. The different SETAs were also regarded as consultants. He also felt that the cost was not all that high. He agreed that the relationship between the internal audit department and himself was tense and did not want to elaborate and give details. He did feel however that he needed to work on it. Training in the organisation needed acceleration. The country needed 80 000 people trained in the public service. It was important to train all people in the public service that they were not just handling paper but information. It was important to enter into a debate with the Council concerning the type of model that was needed for a developmental state such as South Africa. It was important to remember that Council Members had full-time employment in their own professions. Referring to the issue of quality, he said that he, as the Statistician-General, was responsible for quality and not the Council.

Dr R Hirschowitz, Deputy Director-General: Quality and Integration, said that they had come an exciting way as far as training was concerned. In the past, training was done in a very ad hoc way. An integrated approach was now being taken. They had done competency profiling and were developing unit standards that were linked to the South African Qualifications Authority. They were working towards becoming a Statistics SETA and then offering training in statistics. They had started already with a Master Maths program that they were sending people through which would give people matric maths qualification. She felt that it might be possible in future for them to provide training for others as well such as journalists, other government departments, local governments and perhaps even parliamentarians. The development of the curriculum however was a long process and they could not rely on outside sources anymore. Universities were mainly producing actuaries, which was not enough. For this reason they had to do their own training. She concluded by saying that quality was everybody's responsibility. Processes were being broken down into its different components and each person responsible had to show they were going to improve their section so that quality could improve.

Mr M Jack, a Member of the Statistics Council, said that the impression that Stats SA was not functioning because of problems with the Council was not correct. Stats SA was providing statistics and faced challenges like all other institutions in South Africa such as skills and capacity shortages. They continued to do a good job despite the problems they faced. The Council faced problems regarding its role. He felt that it was important that the Council stick to its mandate as explained in the Act. He concluded by saying that despite the problems, Stats SA was in a better position now than it was ten years ago.

Prof J May, a Member of the Statistics Council, added that the Council's advice to Stats SA had always been to walk before it could run. Sometimes it had heeded this advice and sometimes not. He said that there were certain things which a developmental state, such as South Africa, needed. The first of these was a register from which they could sample. In the last five years Stats SA had made great strides in this such as the business register. Surveys were needed so that they could model and predict certain trends. Surveys were taking place, but there were certain gaps. In some cases there was too much information. For example the October household survey was being done every year and the labourforce survey was being done twice a year. This needed to be streamlined. There was also a need for a control against which a benchmark could be done. This would help in monitoring different projects done by different departments.

The issue of capacity was linked to the 2006 census. It was the feeling of the Council that Stats SA did not have the capacity and was not prepared to conduct the census which would cost R1 billion over a period of 2 years. The alternative of a census replacement survey was proposed. This had been suggested to Stats SA. He stressed that Stats SA had the capacity to deliver statistics. The issue that was important was how much could be produced and how often it could be delivered. Capacity building was a long and slow process. For example, a demographer took seven years to qualify. He was very concerned about the fact that Stats SA seemed to be over-ambitious. The aim to become another centre for higher education was not good. He also felt that the Council was not responsible for quality. The Council consisted of a number of different people who had different views but who tried to reach consensus.

Dr Southall said that she wanted to speak briefly about the composition of the Council. The Council consisted of representatives from each province. Whether these people were really representing their provinces was not very clear at the moment as some provinces did not even know who there representatives were. The Council had to be independent and had to see as well that Stats SA was independent from the government. She explained further that the model that was in the Act was a Swedish one since South Africa did not have one at the time. Some consultants were challenging this model now. At the moment, the Council was trying to work within the Act. This however was not enough and there was a need for change. She felt that this was possibly at the heart of the matter.

Another point of concern was the fact that the portfolio Committee, the Minister, the Audit Committee and the Council all had oversight responsibility for Stats SA. She was not aware of any links between these four bodies. Referring to the 2006 census, she said that when they had gone to SCOPA in June, SCOPA had said that Census 2006 would be a mistake. The Council agreed with this and was doing this for the good of Stats SA as more time was needed. She agreed that statistics was better that ever before, and people were working very hard. Stats SA should not be over-ambitious.

Mr S Asiya (ANC) noted that the Council's annual report said that some provinces were not represented. He wanted to know which provinces these were. He added that the Statistician-General had only alluded to the successes of Stats SA and had not referred to any challenges and weaknesses. He also said that in June, Stats SA had said that there was a problem to record AIDS figures as doctors were not reporting these correctly. The Statistician-General however had said, in his presentation, that South Africa had very good figures. He asked for clarity around this. He asked when the vacant posts would be filled.

Ms B Hogan (ANC) said that it was clear that Stats SA was delivering but had some constraints and a difference of opinion on what it should be delivering on. There was also a need to build capacity and she hoped that this would receive attention. She expressed concern that there were vacancies for two Deputy Directors-General and that others were carrying this load. It was important that these be attended to. She wanted to know how the Committee should measure Stats SA's achievements and felt that there needed to be a qualitative aspect to this. It was also clear that there were clear governance issues that needed to be addressed. Until this was attended to, the problems that had surfaced would continue and would affect the work. She felt that the Committee should recommend to the Ministry that a task team be appointed to address the issues of governance and even look at a change in legislation that might be needed. She also said that there was no clarity concerning a replacement for Census 2006. It was important that this be clarified. She suggested that the Committee recommend to the Ministry that this matter be resolved within weeks. She also recommended that a small task team be formed between Stats SA and the Council to make recommendations to the Committee on the nature of measurable outputs that could be used to evaluate Stats SA's performance.

Mr T Vezi (IFP) said that it seemed as if the Council chair was disputing the Minister of Finance's position as far as their role was concerned. The Minister had said in one of his speeches that the Council was the filter through which he received information and that the Council monitored the outputs of Stats SA. He wondered if legislation was the correct route to go to address this problem.

Mr M Johnson (ANC) said that he felt that the Act had either to be amended or a new act drafted so that the roles of the different institutions could be clarified. He pointed out that it was important to have statistics, such as population and unemployment figures when Members were doing constituency work. It was his experience that municipalities could not supply these figures. This was important and was probably linked to capacity problems.

Mr B Mnguni (ANC) questioned the representativity of the Council and wanted to know how many previously disadvantaged people there were on the Council and whether there were still people present from the old regime. He asked the same questions about Stats SA.

Ms Taljaard (DA) said that there was still concern around financial management. She stressed that the Auditor General's report was more important than the supply chain management's. She endorsed what Ms Hogan had suggested and also felt that it was particularly worrying that there was a vacancy for the DDG on economics and statistics in the organisation.

The Chair summed up all the comments and asked for a response from the delegations. He said that output targets were important and needed to be qualitative. A decision also needed to be made regarding Census 2006. The internal corporate governance issues also needed to be addressed between the Council and Stats SA. It was also a concern that the audit was qualified. The Committee could not dismiss this. There was R19 million which was unauthorised expenditure, which was a concern.

Mr Jack said that representativity was not a problem. The Council was well balanced and most had a statistical or economics background. There were nine people from a previously disadvantaged background. He did not feel that there were people from the old regime. He felt that the issues around governance were exaggerated.

Dr Southall explained that the four provinces without representatives were those that had stopped attending. The National Treasury normally appointed people to the Council. She said that these provinces were KwaZulu-Natal, North West, Mpumalanga and the Free State. She stressed that there seemed to be very little communication between the provincial representatives and the premiers' offices. This was a big problem. She agreed with the Chair's recommendations. She said that some of these issues had been raised with the Minister the previous week. They had been told that it would be attended to later. She felt that an endorsement of urgency was needed.

Mr Lehohla said that he had rushed through the presentation and therefore did not spend much time on the challenges and weaknesses. Some of these had been delays in releasing statistics such as the manufacturing statistics. He agreed that the indicators of success were important and would try to include them in future. He pointed out that he did not mean that the AIDS statistics were good but that the statistics which they had, for example on birth rates could be used to address the issues linked to AIDS. He asked that they come back to the Committee on the issue of vacancies as there was a program of action. The position of DDG: Economics was a difficult one to fill and was receiving attention. On the issue of representativity, he said that 67% of top management was from a previously disadvantaged background. He also added that he agreed with the recommendations made by Ms Hogan and Ms Taljaard. Regarding Census 2006, he said that they would have a meeting with the Minister at the end of October to decide what would replace the census and resolve the matter.

Ms Fubbs said that she felt that only 40% of the questions were answered. She said she would forego most of her questions but wanted to know when risk management would be rolled out as indicated in the presentation.

A Member of the delegation said that it was a long process but that the aim was to have it rolled out by the end of November. A Steering Committee had been appointed to identify risks and establish processes to deal with it.

The meeting was adjourned for lunch.

SARS briefing
After the lunch break, Mr P Gordhan, Commissioner for the South African Revenue Services, delivered the presentation on the Department's Annual Report for 2004. He highlighted challenges his Department faced in relation to the government's outcomes that included the encouragement of economic growth and development and the creation of a poverty net to alleviate poverty. The SARS collects over 90% of national revenue. The Department's mandate was thus to collect all national revenue, to ensure that there was optimal compliance with regard to the country's tax legislation, to provide customs services, to protect borders and to secure them, to ensure the appropriate facilitation of inward and outward trade and to advise the Ministers of Finance and Trade and Industry.

In terms of its outputs, the SARS could measure its performance by assessment of the following areas: revenue performance, service, accurate and timeous assessments, responsible enforcement, trade facilitation and border security and organisational transformation.

In respect of revenue performance R302.5 billion was collected in tax revenue in the year under review. This was R8.8 billion short of the revised estimate in the medium term budget policy statement of R303.3 billion.
Members all expressed their approval of the succinct report and the successes that the Department have had. Questions raised related to increasing the tax base, the Tax Gap and the value in rands in areas where there were shortfalls. Improved tax collection, customs inefficiencies, staff turnover and the tax incentives that have been introduced with regard to urban renewal projects were discussed. There were also questions about debt collection and the Intelligence Unit within the Department.

Discussion
Ms R Joemat (ANC) said one always heard about developments in KwaZulu-Natal, Gauteng and Western Cape but not about the other provinces. The turnover of staff at SARS was high and she asked for comments on this. She asked whether all the posts at SARS were filled.

Mr Gordhan said that his department was in a planning mode. He said that by mid-2005, the Free State, Eastern Cape and the other provinces would have followed suit in terms of process changes. He referred to the Siyakha initiative that was aimed at streamlining and standardising the operations at the 42 revenue offices in the country. Restructuring was still taking place and staff were being moved around and retrained so that no retrenchments were made.

Mr Gordhan said that staff turnover had increased slightly from 4 - 5% to 6%. He said this was not a high turnover and was quite acceptable in terms of industry norms. He said he would like to see the number of assessors in the department being reduced from 8000 to 4000 and rather to have these staff members assisting with the completion of returns and being used elsewhere such as visiting companies, doing audits and policing. Mr M Mangele, Assistant General Manager: Human Resources, said the staff turnover should also be seen in terms of Siyakha.

Dr P Rabie (DA) asked why the SARS had decided not to make use of outside agencies to do its debt collection and why it was felt that the outside agencies were not providing a good service.

Mr Gordhan said the administrative costs when outside agencies were used were unreasonable and as debt collection was a permanent feature of their business, he would prefer to see the Department developing its own skills and experience. He wanted to develop the confidence of his staff so that they could confront taxpayers in person and in that way to more actively pursue the debt instead of just sending letters and maybe making the odd phone call.

Ms J Fubbs (ANC) referred to the Tax Gap chart in the Annual Report. She asked the Commissioner what the estimates were in rands. She also asked for rand values with regard to outstanding debt and outstanding cases that were being investigated. She asked how serious the cases that were classified as "not serious" were.

Mr Gordhan said the Tax Gap estimate had been about R20-R30 billion. He said it was easy to see this and different people did different things to avoid taxes. He said he did not have revenue figures on hand to answer her question but that he would feed this information back to the Committee to give an indication of what amounts of money are actually involved.

The Chairperson asked whether the large increases in revenue collection over the past ten-year period could continue or whether the end was now being reached and the huge dividends would not be there anymore. He said a sizeable sum of money was not being collected at customs and he asked if this matter was being attended to.

Mr Gordhan said they were definitely reaching an interesting "soft ceiling". If his Department did not develop its risk profiling to a high level of quality, it would not be able to apprehend the people who are involved in the cleverer and more sophisticated schemes. Greater efficiencies would also improve the ability to bring in more money. He felt that there had been a change in the mindset of South Africans in the last three years with regard to their attitude to compliance and the way in which the requirements were being met.

Mr Gordhan referred to the very difficult year that was under review in terms of macro economic issues. He said more than 95% of revenue collected was driven by economic factors. Campaigns, enforcement, compliance and assistance would all bring in more money but these amounts were really insignificant when compared to macroeconomic impacts.

Mr A Fisher, General Manager: Revenue Analysis, confirmed that it had been a very difficult year in terms of world economics and said this volatility impacted on revenue flows.

Mr Gordhan added that two different economic periods were easy to identify in the current year. Since July there has been a surplus but this had not been the case earlier in the year. He said the picture was now looking very positive and the Finance Minister, Mr T Manuel, would be delivering the Medium Term Budget on 26 October.

Mr V Tshabalala, General Manager: Customs, said the control of goods moving from one customs control area to another was a paper-based process and through the Siyakha initiative, more physical controls were being developed but it was a huge challenge to the Department. This paper-based system meant there were huge volumes of paper and it was also very easy to falsify papers. An automated system and inspections would make it easier to track goods and ensure that they did not land up in the local market. He said it was also necessary to record the value of the transit goods and to increase the level of co-operation with other countries.

Mr Gordhan highlighted the two important components that needed to be improved namely, physical controls and an electronic system because a paper or manual system was easy to tamper with.

Ms B Hogan (ANC) said the number of unassessed income tax returns had grown since 2002/2003 and asked what the reasons for this were. She asked if there was capacity to manage this or whether there would be a slow build up of unassessed returns.

Mr Gordhan said the "Filing Season" had been an experiment and it needed to be rethought. His Department was looking at other possibilities such as staggered dates but as yet there were no ready answers. He said the figures given in the report referred to the unassessed returns on one particular date. He said the explanation for the increase in unassessed returns was definitely the big increase in the inflow of returns. Siyakha gives the basis for further process improvements.

Mr K Durr (ACDP) questioned the tax incentive scheme introduced to promote urban renewal. Local Authorities have had to demarcate areas in which development schemes could be undertaken to receive tax benefits. He asked what the scale of appetite for this has been, whether it could be successful and if it got very big whether it could be stopped.

Mr Gordhan said he would address the broad policy question with respect to Mr Durr's question. He said the National Treasury was not in favour of incentives as these might appear to assist the target group but then one also got "uninvited guests". At the same time it was common practice for each government to consider its own priorities at a particular time and to see if the tax system could assist in such an initiative. The government in this instance wanted to re-vitalise inner cities and to meet a particular objective.

Mr Louw, General Manager: Law Administration, felt the appetite for this incentive could be quite high. However, it was very difficult to assess. There were many assumptions involved such as the size of the area, the number of buildings to refurbish, the amount of open land to develop and the costs and type of development undertaken. There was no cut-off date as yet and the process would have to be carefully watched so that the loss could be assessed. Although Local Authorities have demarcated the areas concerned the actual process has not kicked off yet so it was difficult at this stage to assess the impact.

Mr Gordhan said that incentives always meant a tax loss and that it was up to the SARS to monitor and control this. It was still up to the Minister to say what the next steps in the process were.

Mr B Mnguni (ANC) asked for clarity on the Intelligence Unit and whether the tax base in the tertiary sector was being increased.

Mr Gordhan said the Intelligence Unit was set up to intelligently understand the economy. It was useful to have experts in a particular sector, e.g. building construction, so that when an audit is done of a construction company, the SARS staff know what to look for. This capacity building and development of intelligence would enable SARS to intelligently understand patterns of behaviour and areas of risk and enable them to detect certain taxpayers who were avoiding tax.

Mr Gordhan said that vendors in the service sector were being brought into the VAT and Income Tax net. He said more need to be done by going out to businesses and trying to understand their difficulties to make it easier for these businesses to comply and to simplify the administrative requirements for small business.

Mr T Vezi (IFP) asked if the loss from goods in transit is a projected loss in monetary terms. He also asked whether the other loss suffered could be termed a "dumping loss" and whether the unchecked goods could end up in South African markets.

Mr Tshabalala said if people declared goods as "in transit" and did not pay duty until the final destination is reached or the goods were released into the market it was then a projected loss. Using the term "dumping" was using the term in a very broad sense because these goods would be seen as competing unfairly with locally manufactured goods. Because they did not pay any duties they are competing unfairly with goods that have done so.

The meeting was adjourned.

 

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