ATC120515: Report Strategic Plans & the Budget Vote 10: National Treasury & the South African Revenue Service, dated 15 May 2012

Finance Standing Committee

Draft

REPORT OF THE STANDING COMMITTEE ON FINANCE ON THE STRATEGIC PLANS AND THE BUDGET VOTE 10: NATIONAL TREASURY AND THE SOUTH AFRICAN REVENUE SERVICE, DATED 15 MAY 2012

 

The Standing Committee on Finance, having considered the Budget Vote 10: National Treasury and the strategic plans of the National Treasury and the South African Revenue Service for the 2012/13 – 2016/17 period, reports as follows:

 

1. Introduction

 

The Budget Vote 10: National Treasury (which comprises the National Treasury and the South African Revenue Service) was referred to the Standing Committee on Finance on 02 May 2012. Thereafter, the Deputy Minister of Finance, Mr Nhlanhla Nene; the Director-General of the National Treasury, Mr Lungisa Fuzile (the Director-General); and senior officials at the National Treasury briefed the Standing Committee on Finance (the Committee) on the Budget Vote 10: National Treasury and the updated strategic plan of the National Treasury. In addition, the Deputy Minister of Finance (the Deputy Minister); the Commissioner of the South African Revenue Service (SARS), Mr Oupa Magashula, and senior officials at the SARS briefed the Committee on the Budget Vote 10 and the updated strategic plan of the SARS. This report presents the Committee’s deliberations with the National Treasury and the South African Revenue Service. Both briefings took place in Parliament on 08 May 2012.

 

2. Mandate of the Standing Committee on Finance

 

The Standing Committee on Finance was established in terms of section 4 (1) of the Money Bills Amendment Procedure and Related Matters Act, No 9 of 2009. The mandate of the Committee is conferred to it by the Constitution of the Republic of South Africa, legislation, the standing rules or a resolution of a House, including considering and reporting on-

 

(a) The national macro-economic and fiscal policy.

(b) Amendments to the fiscal framework, revised fiscal framework and revenue proposals and Bills.

(c) Actual revenue published by the National Treasury.

(d) Any other related matter set out in the Money Bills Amendment Procedure and Related Matters Act, Act No 9 of 2009.

 

The mandate also encompasses the Committee’s function to legislate, conduct oversight on the Executive’s actions and its entities. The Money Bills Amendment Procedure and Related Matters Act, No. 9 of 2009 makes provisions for a procedure for this Committee to amend money bills. Furthermore, the Committee must consider and report on any matters that are referred to it for consideration and reporting. In any of its activities, the Committee may confer with any Committee in the National Assembly as provided in Rules 139, 303 and 304 of the National Assembly.

 

3. Mandate of the National Treasury

 

The National Treasury derives its mandate from Chapter 13 of the Constitution of the Republic of South Africa (the Constitution). According to section 216(1) of the Constitution, national legislation must establish a national treasury and prescribe measures to ensure both transparency and expenditure controls in each sphere of government. Provision of the functions and powers of the National Treasury are contained in Chapter 2 of the Public Finance Management Act (PFMA). They are as follows:

 

• Develop fiscal policy framework and coordinate macro-economic policy;
• Prepare a sound and sustainable national budget and equitable division of resources;
• Equitably and efficiently raise fiscal revenue, while enhancing efficiency and competitiveness of the South African economy;
• Sustainably manage and make effective of government’s financial assets and liabilities; and
• Promote transparency to improve financial accountability and enforce effective financial management.

 

In addition to the mandate of the National Treasury summarised above, the National Treasury stated that it directly contributes to three of the 12 national government outcomes, namely:

 

• Decent employment through inclusive economic growth;
• A responsive, accountable, effective and efficient local government system; and
• An efficient, effective and development-oriented public service and an empowered, fair and inclusive citizenship.

 

In order to make this contribution, the National Treasury stated that it fully adopted the outcomes approach in preparing its updated strategic plan.

 

4. The Economic Environment

 

In relation to the existing economic status, the National Treasury reported that g rowth is forecasted at 2.7 per cent for 2012, accelerating to 4.2 per cent by 2014, supported by an environment of stable macro economic conditions with interest rates at a 30-year low. Fixed investment growth increased by 4.3 per cent in 2011 following a contraction of 1.6 per cent in 2010. The projected infrastructure investment is R845 billion over the Medium Term Expenditure Framework (MTEF). Employment is projected to grow by 850 000 jobs by the 2014/15 financial year. According to Statistics South Africa (Stats SA), employment increased by 365 000 (2.8 per cent) in 2011, with the unemployment rate being 23.9 per cent in December 2011. The budget balance improved to 4.5 per cent from an estimate of 5.5 per cent in Medium Term Budget Policy Statement (MTBPS). SARS exceeded the 2012 budget revenue target by R4 billion in the 2011/12 financial year.

 

However, the National Treasury reported that, inflation is at 6 per cent as at May 2012 and it is projected to average 6.2 per cent in 2012 before slowing to 5.3 per cent in 2013. The real threat to the inflation rate is the rising cost of food and fuel prices. Household debt stock remains high, at approximately 75 per cent. Unemployment remains high, particularly for young people and the less skilled. Capital flows remain somewhat volatile, although it is better than a year ago. Global risks include the European sovereign debt and banking crises, rising international oil prices and slower growth in China and India , which could slow demand for exports (particularly mining exports).

 

5. Key Focus Areas

 

The National Treasury identified three focus areas for the period ahead, they are the following:

 

• Maintaining a counter-cyclical fiscal stance

 

Real growth in non-interest expenditure averages 2.6 per cent over the medium-term. An additional allocation of R55.9 billion over the next three years, including R9.5 billion for an economic support package and shifting from consumption to capital spending for new borrowing to support productive investment from the 2014/15 financial year.

 

• Improve value derived from public funds spent

 

This includes conducting expenditure reviews in selected programmes of government, to further inform budget-making for the future and implementing a range of measures to improve supply chain management and combating corruption.

 

• Consider financing options and funding models for large infrastructure programmes of Government

 

This entails supporting the government to build programmes through sustainable funding and planning capacity.

 

6. Strategic Government Initiatives

 

Strategic government initiatives include the following:

 

• Facilitating economic growth

 

The National Treasury macroeconomic analysis aims to contribute to growth, productivity and competitiveness enhancement, taking into account global economic developments.

 

• Savings and retirement reform

 

Discussion papers on next steps in retirement reform have been prepared and consultations with stakeholders are in progress.

 

• Employment creation

 

A R9 billion jobs fund has been established. The first round of allocations have been completed (just under R2 billion allocated), and the second window is now open.

 

• Capacity building

 

Financial management training continues, with special focus on municipalities.

 

• Infrastructure development

 

The Neighbourhood Development Partnership Grant (NDPG) is contributing to improved long term township regeneration strategies. Support for the Presidential Infrastructure Coordinating Commission ( PICC) infrastructure programme is a major focus in the year ahead.

 

• Strengthening intergovernmental financial relations

 

This entails improved budgeting and financial management, with special focus on the municipal finance recovery service. A targeted intervention in provinces is currently under way.

 

• Cost effective procurement

 

The National Treasury leads work of the Multi-Agency Working Group on Procurement. The second phase of reviewing of procurement legislation is to go ahead this year.

 

7. Programmes of the National Treasury

 

The National Treasury comprises 10 programmes, namely:

 

Programme 1 – Administration;

Programme 2 – Economic Policy, Tax, Financial ;

Programme 3 – Public Finance and Budget Management;

Programme 4 – Asset and Liability Management;

Programme 5 – Financial Accounting and Reporting;

Programme 6 – International Financial Relations;

Programme 7 – Civil & Military Pensions, Contributions to;

Programme 8 – Technical Support & Development Finance;

Programme 9 – Revenue Administration; and

Programme 10 – Financial Intelligence and State Security.

 

 

7.1 Administration

 

The Administration Programme is responsible for providing leadership, strategic management and administrative support to the National Treasury. With regard to this programme and over the following three years, the National Treasury intends to perform the following functions:

 

• Implementing, through supply chain management, strategic sourcing initiatives to enhance demand, logistics and contract management, and reducing cost;
• Formalising and implementing Information and Communication Technology (ICT) governance in compliance to KING III, this will ensure the effective management of ICT risks;
• Enhancing the National Treasury’s intellectual capital and institutional memory through effective knowledge management;
• Enhancing organisational integrity by performing value for money audits; and
• Actively promoting the National Treasury’s zero tolerance stance to corruption and strives to preserve its strong ethical culture.

 

7.2 Economic Policy, Tax, Financial Regulation and Research

 

The purpose of this programme is to p rovide specialist policy research, analysis and advisory services in the areas of macro and microeconomics, taxation, the financial sector, and regulatory reform.

 

With respect to this programme and over the following three years, the National Treasury plans to do the following functions:

 

• Develop and maintain economic forecasting models that facilitate sound policy making through in-depth economic analysis, including three year macroeconomic forecasts;
• Monitor the exchange rate and explore policy measures to ensure competitiveness;
• Formulate and implement annual tax proposals;
• Produce policy papers on carbon tax proposals for Cabinet approval and submit proposals for the 2013 Budget;
• Explore policy measures to increase private savings;
• Conduct consultations and implement proposals related to strengthening the financial regulatory system (“A safer financial sector to serve SA better”);
• Publish a policy document with proposals on modernising the framework for inward and outward investment; and
• Explore models for financing the National Health Insurance (NHI), including different tax funding combinations, the co-payments and single versus multiple payer systems.

 

7.3 Public Finance and Budget Management

 

The purpose of this programme is two-fold: to provide analysis and advice on fiscal policy and public finances, intergovernmental financial relations, and expenditure planning and priorities; and to manage the annual budget process and provide public finance management support. It comprises three divisions, namely: Public Finance, Budget Office, and Intergovernmental Relations.

 

With regards to this programme, and over the following three years, the National Treasury aims to do the following:

 

• Further strengthen alignment between budgeting and government’s strategic outcomes and performance management framework;
• Strengthen capital projects assessment and approval process as part of government’s broader infrastructure investment coordination initiative, and in support of the PICC and major infrastructure projects in energy and transport;
• Develop and publish a long-term fiscal sustainability report in order to contribute to public discussion and parliamentary oversight of the fiscus;
• Extend the coverage of the consolidated account to include information on the consolidated accounts and borrowing of the whole of general government;
• Explore options for phased implementation of contributory social security reforms and retirement industry legislative amendments (coordinated effort with Programme 2);
• Undertake expenditure reviews in selected programmes of government, to further inform budget-making going forward;
• Review of provincial and municipal equitable share formulae with a view to improve alignment with government objectives and address funding gaps;
• Develop a programme to support cities in the management of their built environment; and
• Implement key local government budgeting and reporting reforms to improve budget execution and monitoring.

 

7.4 Asset and Liability Management

 

The Asset and Liability Programme aims to ensure prudent management of government’s financial assets and liabilities. It is made of a single division, namely: Asset and Liability Management. Over the following three years, the National Treasury plans to do the following functions:

 

• Arrange finance for government’s gross borrowing requirements of approximately R581 billion;
• Maintain sound investor relations through roadshows and timely dissemination of information;
• Continue to engage with rating agencies;
• Actively manage government’s debt portfolio through buy-back and switch/exchange programmes, with debt set to peak at R1.5 trillion or 38.5 per cent of Gross Domestic Product (GDP) by the 2014/15 financial year;
• Maintain debt service cost as a percentage of GDP at a sustainable level, averaging 2.7 per cent of GDP;
• Optimise the use of public sector cash through broadening the coordination, thereby reducing borrowing cost; and
• Strengthen financial oversight and monitor the performance of Development Finance Institutions like the Development Bank of South Africa (DBSA) and the Land Bank in particular

 

7.5 Financial Accounting and Reporting

 

The purpose of this programme is to facilitate accountability, governance and oversight by promoting transparent, economic, efficient and effective management in respect of revenue, expenditure, assets and liabilities in the public sector. It comprises two divisions, namely: Specialist Functions and Office of the Accountant-General.

 

Over the following three years, the National Treasury intends to do the following functions:

 

• Promote value for money through compliance monitoring in respect of adherence to sourcing principles;
• Monitor implementation of revised preferential procurement regulations;
• Facilitate review of supply chain management legislation in consultation with relevant stakeholders;
• Facilitate and manage transversal term contracts;
• Facilitate institutional reconfiguration for purposes of strengthening oversight of supply chain management in government;
• Review Treasury regulations and issue Treasury instructions as a step to enforce supply chain compliance and to counter fraud and corruption;
• Develop guidelines to strengthen the monitoring and oversight function of Parliamentarians;
• Monitor improvements in financial management in national and provincial institutions and report to the Standing Committee on Public Accounts and the Standing Committee on Finance by August 2012;
• Implement Financial Management Capability Maturity Assessment (FMCMA) in selected municipalities and entities;
• Manage an academic support programme for chartered accountants and other accountants in government; and
• Provide targeted support to priority departments and municipalities to improve financial management.

 

7.6 International Financial Relations

 

The purpose of this programme is to m anage South Africa ’s interests in shaping regional and global policies that advances the economic, financial and development objectives of our country, and that of Africa .

 

With this programme, and over the following three years, the National Treasury plans to do the following functions:

 

• Advance South Africa ’s interests specifically, and those of Africa more generally, through regular strategic analysis, engagement and negotiation at financial and economic forums;
• Increase Africa’s voice and South Africa ’s influence in international institutions;
• Lead the reform of the governance and administration structures of African institutions including reforming the SACU revenue-sharing arrangement and other aspects of the 2002 agreement; and
• Promote integration and strengthen links within Africa by creating an enabling environment for economic activity.

 

7.7 Technical and Management Support and Development Finance

 

This programme, which was previously a part of programme 2, aims to provide specialised infrastructure development, planning and implementation support. It also provides technical assistance to aid capacity building in the public sector.

 

With this programme and over the following three years, the National Treasury plans to do the following:

 

• Renewable Energy Feed-In Tariff (REFIT) programme by providing procurement and technical advisory services;
• Infrastructure skills development grant aimed at strengthening the ability of selected municipalities and entities to effectively and efficiently deliver quality infrastructure;
• Focus on third-party investment leverage with a range of township nodal , linkage and general improvement initiatives;
• Budget support to institutional transformation and improvement processes in the public sector; and
• Focus on the newly established Government Technical Advisory Centre (GTAC) to promote

• operational efficiency and increased learning on effective approaches to technical support and capacity building.

 

7.8 Other Programmes

 

The National Treasury reported that Programmes 7, 9 and 10 accounts directly to Parliament. These programmes were not dealt with during this deliberation.

 

8. Financial Resource Plan of the National Treasury for the 2012

 

Table 1 (below) summarises the budget per programme as follows:

 

Table 1: Budget per programme: the 2011/12 – 2012/13 period

Programme	Budget Allocation
R’000	2011/12 Budget	2011/12 Preliminary Outcome	2012/13 Budget
1. Administration	281,067	254,534	318,324
2. Economic Policy, Tax, Financial Regulation and Research	210,364	140,467	148,958
Operational budget	201,054	131,157	132,958
Transfer	9,310	9,310	16,000
3. Public Finance and Budget Management	209,878	196,429	227,481
Operational budget	176,842	163,393	190,213
Transfer	33,036	33,036	37,268
4. Asset and Liability Management	825,860	821,907	286,557
Operational budget	75,860	71,907	86,557
Land Bank	750,000	750,000	200,000
5.Financial Systems and Accounting	608,020	504,861	686,324
Operational budget	534,759	431,609	614,412
Transfers	73,261	73,252	71,912
6. International Financial Relations	876,839	857,787	1,038,179
Operational budget	34,120	25,930	35,705
Transfers	842,719	831,857	1,002,474
Sub-total	3,012,028	2,775,985	2,705,823
Operational budget	1,482,292	1,247,590	1,536,635
Transfer budget	22,357,179	20,114,458	20,014,483
Percentage of operational to transfer budget	6.6%	6.2%	7.7%
7. Civil and Military Pensions, Contributions to Funds and other Benefits	3,776,909	3,314,173	3,348,310
8. Technical Support and Development Finance	4,641,940	2,863,296	2,404,773
Operational budget	178,590	169,060	158,466
Transfers	4,463,350	2,694,236	2,246,307
9. Revenue Administration	8,653,573	8,653,573	9,194,374
10. Financial Intelligence and State Security	3,755,021	3,755,021	3,897,838
Grand Total	23,839,471	21,362,048	21,551,118

Source: National Treasury (2012)

 

9. Deliberations with the National Treasury

 

9.1 Comments and Questions raised by the Committee

 

Comments and questions of the Committee are summarised in this sub-section as follows.

 

The Committee sought clarity on the equitable share formula, and asked if there were any plans to introduce new models.

 

The Committee wanted to know if there were any specific regulations governing the spending of the R845 billion on infrastructure.

 

The Committee asked why the quarterly target for reduction in security breaches was not 100 per cent.

 

In terms of the inflation rate, the Committee wanted to know what informed the view that it would be down to five per cent by the end of the year.

 

The Committee wanted to know if State-Owned Entities (SOE) would be able to service their debt should the costs increase.

 

The Committee noted that the National Treasury had an oversight role over SOE’s, and needed to ensure that the government’s money was spent efficiently.

 

The Committee wanted to know whether the cost of borrowing for South African National Roads Agency (SANRAL) would impact on the costs of other SOE’s and would this have an impact on infrastructure development.

 

The Committee wanted to know if the National Treasury had oversight over the e-tolling scheme.

 

The Committee wanted to know if government guarantee were applicable to all SOE’s.

 

The Committee sought clarity on the youth employment subsidy, and wanted to know if the National Treasury would have a revised youth employment subsidy policy by the end of June.

 

9.2 Responses by the National Treasury

 

In relation to comments and questions of the Committee, the National Treasury responses are summarised below:

 

The National Treasury reported that t he youth wage subsidy was dealt with at the National Economic Development and Labour Council ( Nedlac), where agreement by all parties involved was required before implementation could happen.

 

With respect to the five per cent cost of living increase, the National Treasury said that the budget was what the fiscus could afford.

 

In response to a question on spending of R845 billion on infrastructure, the National Treasury said that the establishment of the P residential Infrastructure Coordinating Commission (PICC) process was there to address issues raised.

 

The National Treasury reported that the equitable share would increase from 8 to 9 per cent, and that it would grow to 12 per cent for basic services. A large percentage would be for poor and struggling municipalities. The National Treasury hoped to have a new formula by the time of the tabling of the Budget in 2013.

 

In relation to a question on the youth employment subsidy, the National Treasury reported that the jobs created were not sector specific, but were mainly in the private sector. They also reported that the manufacturing sector created the fewest jobs.

 

The National Treasury reported that they always monitor SOE’s and their ability to borrow and repay its debts.

 

In terms of the reduction in security breaches, the National Treasury reported that the target was 100 per cent for the systems in place, but where there was a human element involved, the target was between 60 to 70 per cent.

 

10. Core Outcomes of the South African Revenue Service

 

The South African Revenue Service (SARS) reported that it had identified four enduring core outcomes that will underscore current and all future strategies, they are the following:

 

• Increased customs compliance;
• Increased tax compliance;
• Increased ease and fairness of doing business with the SARS; and
• Increased cost effectiveness, internal efficiency and institutional respectability.

 

The primary approach to achieve their outcomes is to shift resources, particularly human capacity, away from routine low value-adding activities into service, education and enforcement areas with high-value adding activities.

 

SARS’ five-year strategy to achieve their outcomes is to do the following:

 

• To shift from targeting eligible taxpayers to building fiscal citizenship among all South Africans to contribute to nation building and institutional sustainability;
• To move from a gate keeper to a risk manager approach;
• To migrate from an entity and product approach to integrated economic view of the taxpayer and trader;

• To shift from a uniform service offering to a differentiated service offering;
• To migrate from manual processes to an automated, digital and self service environment;

• To move from an isolated departmental view of the SARS efficiency to a whole of government view to enhance the value chain activities before and after they enter the SARS domain;
• To migrate from a high administrative burden legacy to a reduced administrative burden environment; and
• To enable their staff to perform at their peak.

 

11. C urrent environment and risks facing SARS

 

Risks facing the SARS in the current environment include the following:

 

· Fiscal pressures exacerbate revenue collection pressure on the SARS, this include the wide deficit and increasing public debt-to-GDP;

· The illicit economy continues to threaten the local economy and has a negative impact on the fiscus. It is estimated that the government lost between R2 to R4.5 billion to the fiscus, due to activities undertaken in the illicit economy such as smuggling;

· Unfavourable public and media perception of poor state service delivery and corruption pose the largest compliance risk to the SARS;

· Businesses are increasingly using sophisticated and complex financial schemes to evade tax obligations and minimise the impact of slow economic recovery on profitability, this is through the use of cross-border structuring and transfer pricing manipulations;

· Compliance risk posed by high-net worth individuals and the use of trust to conceal their income, there are between 10 000 to 20 000 individuals that meet the high net worth threshold, i.e. either R7 million in annual income or R75 million in assets, with only between 2 000 to 3 000 declaring their income with the SARS;

· Continued growth in the taxpayer debt book, mainly due to poor accounts maintenance and the impact of the slow economic recovery on taxpayer’s ability and willingness to pay, SARS’ debt book continues to grow at an undesirable rate, reaching R79.5 billion in 2010 and R86.1 billion in 2011;

· VAT processes will be under pressure as businesses deal with the impact of the slow economic recovery on their business, this impact is twofold, the increase in chances of VAT fraud and secondly, SARS will need to speedily process legitimate refunds to ensure that vendors have positive cash flow to sustain their businesses;

· Inadequate complaints management; and

· Succession risk, the delivery of the SARS’ strategic objectives is heavily dependent on the continuity and stability of the organisational leadership.

12. Mitigating risks

 

In order to mitigate risks to their core outcomes, the SARS will do the following:

 

12.1 Increase customs compliance

 

The SARS aspires to develop partnerships with all supply chain stakeholders to facilitate legitimate trade, while combating illicit trade. This will be done through the following:

 

· rolling out of the preferred trader programme;

· strengthening border control and inter-governmental coordination at border posts;

· deploying cargo and container scanners; and

· developing customs risk screening tool.

 

12.2 Increasing tax compliance

 

The SARS aspires to consistently increase voluntary compliance across a broader taxpayer base through targeted and informed outreach, education, service and enforcement interventions. This will be done through the following:

 

· Improve risk management through enhanced risk tools, administrative penalties and debt management;

· Continued outreach programmes to build a culture of fiscal citizenship;

· Implementing the Tax Administration Act once enacted later this year; and

· Implementing targeted interventions in high risk areas, such as transfer pricing by large business, wealthy South Africans and their trusts, small business where both registration and submission compliance remains low, tax practitioners with low compliance in their own capacity and helps taxpayers to evade tax, the illicit cigarette industry, the clothing and textile industry and the construction sector.

 

12.3 Increasing the ease and fairness of doing business with SARS

 

SARS aspires to deliver cost-efficient, rapid and reliable service to all taxpayers and traders. This will be achieved by:

 

· Reducing the administrative burden in Company Income Tax (CIT) and other taxes through modernisation;

· Digitising taxpayer and trader records and transactions; and

· Improving the speed of legitimate trade through the customs modernisation programme.

 

12.4 Increasing cost effectiveness, internal efficiency and institutional respectability

 

The SARS aspires to exercise maximum prudence with resources made available to it, and to build service delivery excellence for SARS and its government partners. This will be achieved by:

 

· Creating a dedicated enforcement capability;

· Achieving value chain efficiencies across a range of areas including sharing and verifying data with other government agencies;

· Establishing a single view of the taxpayer and trader; and

· Speeding up decision-making by empowering managers and staff.

 

13. Resource Plan of SARS for the 2012/13 financial year

 

13.1 Expenditure estimates over the medium-term expenditure framework

 

The SARS’s budget allocation amounted to R9.5 billion, which is an increase of 6.5 per cent from the previous figure of R8.9 in 2011/12.

 

Table 1 (below) summarises the budget as follows:

 

Table 1: projected revenue and expenditure for 2012/13 to 2014/15.

Expenditure Estimates (Rm)	2012/13	2013/14	2014/15
National Treasury Grant	9 194	9 682	10 242
Interest Income	60	60	60
Other Income	238	250	250
Total Funds Available	9 492	9 992	10 552
Funding allocation
Baseline Expenditure (BAU)	8 755	9 258	9 831
Initiatives and Projects	737	734	721
Total Allocation (Budget)	9 492	9 992	10 552

Source: SARS (2012)

 

13.2 Resource plan – human resources

 

Based on an unaudited result of the 2011/12 financial year, SARS had 15 510 employees, which is 0.5 per cent projected decrease in the 2012/13 year resulting in an estimated number of 15 435 in the 2012/13 financial year. For the two out-years, SARS estimated that its number of employees will decrease to 15 410 and 115 290 in the 2013/14 and 2014/15 financial years, respectively.

 

Table 2 (below) summarises the human resource plan as follows:

 

Table 2: Human resource plan – the 2012/13 to 2014/15 period

Item	Actual	Targets
	2011/12	2012/13	2013/14	2014/15
Permanent employees	14 990	15 015	15 030	15 040
Temporary employees	520	420	380	250
% net growth excluding temporary employees	0.25%	0.32%	0.42%	0.49%
Total	15 510	15 435	15 410	15 290

Source: SARS (2012)

 

14. Deliberations with the South African Revenue Service

 

14.1 Comments and Questions

 

Following the interaction with the SARS, the Committee noted the following issues:

 

The Committee commended the SARS for reaching revenue targets and for the professional service Members receive at the Parliamentary SARS branch office.

 

The Committee noted that the cost of compliance for Small Medium and Micro Enterprises (SMME) were high and of concern, and tax compliance could burden the poor who wanted to start an SMME, and wanted to know if there were any benchmark studies done in terms of compliance cost.

 

The Committee sought clarity on how the SARS will implement the tax practitioner accreditation scheme, if there was any timeframes for implementation, and how the SARS will decide on who gets accredited.

 

The Committee wanted to know what was being done to improve tax morale amongst the concerned taxpaying public.

 

The Committee sought clarity on the progress of the border management agency establishment.

 

The Committee noted a reduction in the debt book, and wanted to know the target for outstanding debt and the causes of growth of the debt book.

 

The Committee sought clarity on the illicit movement of funds, and wanted to know if the SARS was working with the South African Police Services (SAPS) and the South African Institute of Chartered Accountants (SAICA) to contain this.

 

The Committee wanted to know how the SARS was contributing to job creation, as human capital investment seemed stagnant.

 

The Committee wanted to know why non compliance by local government was not a focus area of the SARS.

 

The Committee sought clarity on the preferred trader programme, and wanted the SARS’ views on this.

 

14.2 Responses by SARS

 

The SARS reported that compliance for SMME’s consisted of three areas, service, enforcement and education. Compliance cost did not specifically refer to tax compliance alone, but also the maintenance of financials. The benchmark for compliance for SMME’s increased from R30 000 to R69 000, resulting in respite for SMME’s complying with tax. There were other initiatives introduced, such as the mobile registration unit, that reached out to people in rural areas, thus not expecting people to travel far in order to get to the SARS branch. Unfortunately, no benchmarks were available in comparing compliance cost.

 

In terms of the tax practitioner accreditation scheme, a possible solution would be for all tax practitioners to belong to a professional body. The scoring of tax practitioners would be in line with current risk scoring activities.

 

By improving tax morale amongst the taxpaying public, the SARS works together with the government on anti-corruption measures, and highlights certain irregularities in procurement.

 

SARS indicated that they are working with other government departments on the border management agency initiative, and that the process of its establishment was at an advanced stage. An agreement for a one stop border post was concluded and signed in 2007, but it needed to be presented to the Standing Committee on Finance for ratification.

 

The SARS noted that through hard work and dedication within, it managed to reduce the growth of the debt book. Administrative penalties imposed by the SARS resulted in growth in revenue, and the debt book generally grows in line with revenue.

 

The tax administration forum, of which South Africa is a member, helps in combating the flow of illicit funds across borders. South Africa , partnering with other countries, concluded and signed double taxation and information exchange agreements, thus also resulting in containing the flow of funds across borders. The flow of funds was also being monitored by the Financial Intelligence Centre (FIC), and the SARS conducts joint audits with other countries.

 

The SARS reported that for the near future, no big recruitment drives were envisaged. This was as a result of the modernisation programme automating routine work, and staff was being upskilled and deployed to positions that required more human capacity.

 

In terms of non compliance at local government level, the SARS indicated that it had identified several key areas, including that of local government, but it was not selected as a key area of focus.

 

The SARS indicated that it aimed to assist high volume firms in reducing the burden of compliance, and was currently considering self assessment by traders. Periodic checks will be performed on the entire process.

 

15. Recommendations

 

Having considered the strategic plans (including budgets) of the National Treasury and the South African Revenue Service, and the Budget Vote 10: National Treasury, the Standing Committee on Finance recommends that the House approves the said strategic plans and the Budget Vote 10.

 

Furthermore, the Standing Committee on Finance makes the following recommendations:

 

The Minister of Finance should ensure the following:

 

• The National Treasury should provide the House with a breakdown of the 6.3 per cent cost of living increase in the compensation of employees, within 90 days after the adoption of this report by the House .
• The National Treasury should provide the House with a detailed framework for the funding of the National Health Insurance, within 90 days after the adoption of this report by the House.
• The National Treasury should ensure that the financial management training to municipalities be a collaborative effort between the South African Local Government Association (SALGA) and itself, and report back to the House on the progress made .
• In terms of the mandate of the National Treasury with respect to municipalities, the National Treasury should ensure that recommendations of the Auditor General of South Africa are put into force and report back to Parliament.
• The National Treasury should provide the House with a progress report of the job creation challenge fund programme, within 90 days after the adoption of this report by the House.
• The National Treasury should provide the House with an assessment of National Treasury’s view of South Africa ’s recent ratings outlook downgrades in terms of debt and liability management, within 90 days after the adoption of this report by the House.
• The National Treasury should provide the House with a plan regarding the introduction of bills pertaining to tax legislation – accreditation and functioning of tax practitioners, within 90 days after the adoption of this report by the House.
• The National Treasury should provide the House with a detailed report on the breakdown of the cost of compliance for Small Medium and Micro Enterprises, within 180 days after the adoption of this report by the House.

 

16. Conclusion

 

The Standing Committee on Finance would like to express its sincere thanks to the Minister of Finance, the Deputy Minister of Finance, and officials of the National Treasury and the South African Revenue Service for their continuous willingness to engage with the Committee on financial and fiscal issues in the spirit of cooperative governance.

 

 

Report to be considered.