Budget Vote 8: South Africa Revenue Service

FINANCE PORTFOLIO COMMITTEE
30 MAY 2006
BUDGET VOTE 8: SOUTH AFRICA REVENUE SERVICE

Chairperson: Mr N Nene (ANC)

Document handed out:
South African Revenue Service (SARS): PCOF Presentation
SARS Report Card 2005/06
SARS Response to PCOF
SARS Strategic Plan 2005/08: Part 1, 2, 3, 4 & 5
SARS Programme

SUMMARY
The South African Revenue Service said that the major highlight of the year was the collection of R418 billion in revenue, which was R46 billion more than the original estimate of R372 billion. Other highlights were a 10% growth in the register of taxpayers, 5% more returns received compared to 2004/05 and 24% more taxpayers filed their returns than compared to 2003. Some challenges did remain however. The substantial increases in volumes asked questions of
SARS’ ability and capacity to cope and there were public expectations in improving the quality of service.

MINUTES
Mr P Ghordan, SARS Commissioner, said that the major highlight of the year was the collection of R418 billion in revenue, which was R46 billion more than the original estimate of R372 billion. Value Added Tax (VAT) contributed R8 billion more than was estimated, with corporate tax contributing R15 billion. These increases were a reflection of the growth of the economy and the efforts of SARS to create the correct compliance culture.

Other highlights were a 10% growth in the register of taxpayers, 5% more returns received compared to 2004/05 and 24% more taxpayers had filed their returns compared to 2003. Also, while the amount of revenue was increasing, it was pleasing to note that the costs of collection were going down. With humility, South Africa could celebrate the improved compliance culture, greater tax awareness and better corporate tax compliance.

Some challenges did remain however. The substantial increases in volumes asked questions of
SARS’ ability and capacity to cope and there were public expectations in improving the quality of service. There were also regional demands, with SARS’ expertise being needed by other countries to improve their own systems. SARS also had to improve its own skill levels and technical competence.

To enhance its capability and capacity, SARS had to step-up its resources and engage in continuous improvement and modernisation. In order to deliver, SARS had to be smarter, more visible and more responsive. These outcomes translated into sustained compliance and delivery on revenue targets.

Discussion
Mr K Moloto (ANC) said that SARS was conducting a micro-stability study of corporate income tax rates. He enquired as to what this entailed and what the implications on revenue collection were, and questioned what SARS were trying to achieve with the Regulation of Tax Practitioners Bill.

Mr Ghordan replied that the study was being undertaken by SARS and the Treasury to get a fuller understanding of what was going on in the economy. Over the past 18 months there had been big changes in the economy such as the gross domestic product (GDP) growth and the increase in household consumption. A recent survey of the first quarter showed consumer confidence was at its highest level ever. These factors affected the economy, and would affect aspects of revenue collection so they had to be studied and put into an accurate model. However, it had to be noted that making estimates was not an exact exercise.

Tax practitioners provided advice but it was the taxpayer who was ultimately responsible for any mistakes. Some form of regulation was obviously needed. Tax practitioners acted as vital intermediaries between the tax administration and the public. SARS wanted the Bill to identify the number of practitioners, and they were trying to decide the form the regulation should take. The Bill had to create certainty for practitioners, in a fairly regulated environment, for the protection of the public.

Dr Van Dyk (DA) said that the increase in the collection could not only be attributed to the growth of the economy or an increase. He saw wrong calculations in GDP growth as also having an impact. There were also implications for the economy if R46 billion were taken out of it. For example, it could reduce employment creation opportunities. How could such under-estimations be avoided in future?

Mr Ghordan said that the Minister set the policy for what the tax/GDP ratio had to be. It was not an arbitrary decision. Traditionally this was around 25%. He did concede however, that a better relationship was needed between initial forecasting and what the actual amount collected was; because of the uncertainty of the environment, the process of providing information was purposefully made transparent. The Minister had made pronouncements on these matters in October during his Medium-term Budget Policy Statement, and again in his February speech.

The meeting was adjourned.