ATC130517: Report of the Standing Committee on Finance on the Strategic Plan and Annual Performance Plan On Budget Vote 10: National Treasury and the South African Revenue Service, dated 16 May 2013

Finance Standing Committee



The Standing Committee on Finance, having considered the Budget Vote 10: National Treasury and the Strategic and Annual Performance Plans of the National Treasury and the South African Revenue Service for the 2013/14 – 2017/18 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 24 April 2013. Thereafter, the Minister of Finance, Mr Pravin Gordhan (the Minister); the Deputy Minister of Finance, Mr Nhlanhla Nene; the Director-General of the National Treasury, Mr Lungisa Fuzile ; 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 and Annual Performance Plan of the National Treasury. In addition, the 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 and Annual Performance Plan of the SARS. This report presents the Committee’s deliberations with the National Treasury and the SARS. Both briefings took place in Parliament on 14 May 2013.

2. 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 use 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 four of the national government outcomes, namely:

  • Decent employment through inclusive economic growth;
  • A responsive, accountable, effective and efficient local government system;
  • To create a better South Africa and contribute to a better and safer Africa and world; and
  • An efficient, effective and development-oriented public service and an empowered, fair and inclusive citizenship.

In this regard, National Treasury lists the following strategic objectives:

· Prepare, finance, publish and monitor the execution of the annual national budget to provide accurate and clear financial information and associated indicators of service delivery and performance;

· Improve techniques employed to monitor and analyse public expenditure by further refining applicable financial management frameworks and policies to ensure the appropriate use of available public financial resources for social and economic development, and infrastructure investment;

· Contribute to improved capacity in the areas of financial management and resource planning in government through various skills development programmes tailored for these purposes;

· Contribute to the development of a stable and robust financial sector that leads to continued economic stability and growth by continuing to monitor financial sector performance and developing financial sector policies and regulatory frameworks;

· Support infrastructure and urban development through various programmes including the Infrastructure Development Improvement Programme, the Neighbourhood Development Partnership Programme and the Cities Support Programme, amongst others;

· Promote public private partnerships as a financing alternative for development, where feasible; and

· Enhance supply chain management in government through the establishment of the Chief Procurement Office, which will provide a blueprint for addressing supply chain principles in order to reduce wastage and maximise value in the public sector.

To give effect to its strategic goals, National Treasury has organised itself into the following programmes:

· Administration;

· Economic Policy, Tax, Financial Regulation and Research;

· Public Finance and Budget Management;

· Asset and Liability Management;

· Financial Systems and Accounting;

· International Financial Relations;

· Civil and Military Pensions, Contributions to Funds and Other Benefits;

· Technical Support and Development Finance;

· Revenue Administration; and

· Financial Intelligence and State Security.

3. Policy Priorities for 2013/14

National Treasury is committed to aligning its policy priorities with those delineated in the National Development Plan. In order for the objectives of the National Development Plan (NDP) to be realised, a stable and enabling macroeconomic environment is required.

In his 2013 budget speech, the Minister stressed the importance of the NDP by stating that it “outlines interventions that can put the economy on a better footing. The target for job creation is set at 11 million by 2030 and the economy needs to grow threefold to create the desired jobs”.

A prominent feature of the NDP is it’s prioritisation of the development of infrastructure for economic growth and employment.

National Treasury recognises that public-private partnerships will be imperative in securing the required investment necessary to facilitate the R827 billion infrastructure programme announced by the Minister in this 2013 budget speech.

Several initiatives are to be undertaken in the coming year in this regard. The Neighbourhood Development Partnership Programme is specifically mentioned by the department as an effective tool in ameliorating derelict township infrastructure through partnerships with the private sector.

With regard to job creation, the department has established the Jobs Fund to facilitate sustainable job creation through the co-financing of projects approved by the fund.

Finally, National Treasury intends to focus expenditure on what it describes as a “ multipronged approach” to building State capacity. The establishment of a chief procurement office within Treasury to streamline supply chain management principles and ensure the consistent application of processes to reduce waste and corruption is a critical milestone in this regard.

4. The Economic Outlook

National Treasury’s growth forecast for South Africa was 2.7 per cent for 2013, accelerating to 3.8 per cent by 2015. The forecasts are supported by an environment of stable macro economic conditions with interest rates at 30-year lows, public-sector capital investment, additional electricity-generating capacity and robust growth in Sub-Saharan Africa. Fixed investment growth increased by 5.7 per cent in 2012 following growth of 4.5 per cent in 2011. Public sector investment was expected to average at an annual growth rate of 9 per cent over the next three years, with projected infrastructure investment of R827 billion over the medium term. Employment was projected to grow by 850 000 jobs by 2015 /16, mainly in the private sector. According to Statistics South Africa (Stats SA), employment increased by 199 000 jobs (1.5 per cent) in 2012/13, however, the unemployment rate remains high at 25.2 per cent as at March 2013.

SARS had over-collected revenue by R4 billion in the 2013/13 financial year in comparison to the revised estimate. This was partly attributable to effective and efficient administration but also to a better than expected performance by the small and medium business sector.

Key risks to the South African economy include the European sovereign debt and systemic banking risks, the US fiscal policy uncertainties, rising international oil prices and soft emerging market growth (especially China) slowing demand for exports (mining in particular). The budget balance deteriorated to 5.7 per cent of GDP in 2012/13 from 5.0 per cent of GDP in 2011/12 as a result of weaker than anticipated economic growth and revenue collection. According to Stats SA’s latest reading, inflation is currently 5.9 per cent and is projected to average to 5.6 per cent in 2013 before slowing to 5.4 per cent in 2015. Food and fuel prices have propped up headline inflation. Currency weakness compounded these effects and is expected to place upward pressure on inflation in 2013. Household indebtedness remained high at around 76 per cent of disposable income. Unemployment remained high, particularly for young people and the less skilled. The current account deficit was expected to average 6.2 per cent of GDP over the medium-term, ensuring SA’s continued dependence on large-scale foreign capital inflows.

5. Programme Analysis

Programme 1: Administration

This programme provides leadership, strategic management and administrative support to the department.

Growth in this budget has been fluctuating since 2009. Periods of positive real growth in budget allocations have been followed by periods of negative real growth. The generous budget increase in 2012/13 has been followed by an indifferent real increase in 2013/14.

Whilst the proposed budget for 2013/14 represents only a 0.8 per cent real increase in comparison to the previous year, it will be 23 per cent higher than the 2009 budget after taking inflation into account.

Notably, the negative real budget growth from 2009/10 – 2011/12 was accompanied by a high standard of delivery on planned targets as exemplified by the percentage of planned targets achieved over the period. In this regard, the budget allocation for the programme since the 2009/10 financial year has been sufficient.

The most significant increases in the budget for 2013/14 were in the Office Accommodation sub-programme which increases by R19.4 million, constituting a 20.1 per cent real increase. This is significant given that this sub-programme represents the 2 nd largest expenditure category within the Administration programme. This increase is to provide for the continued commitment for office accommodation as well as the installation of an uninterrupted power supply system, a generator and a public announcement system.

Expenditure on consultants is incurred under the Corporate Services sub-programme and has grown at above inflation rates (average growth of 6.8 per cent) since 2009. National Treasury committed to increasing expenditure on Corporate Services in 2013/14 by only 1.7 per cent.

Programme 2: Economic Policy, Tax, Financial Regulation and Research

This programme provides specialist policy research and analysis in the areas of macroeconomics, microeconomics, taxation, the financial sector, and regulatory reform.

After a 144.3 per cent increase in this budget in the 2011/12 financial year, the budget was sharply reduced the following year following under-expenditure of 33.2 per cent. Despite further under-expenditure of 8.9 per cent on planned Q1 - Q3 expenditure in the 2012/13 financial year, the programme’s budget is set to receive a 13.5 per cent real increase in 2013/14. The increase in expenditure is intended to fund future economic research projects on subjects including youth unemployment, mining tax royalties, the twin peak model and retirement reforms.

The most significant increases in the budget for 2013/14 can be found in the economic policy sub-programme, which increases by R5.9 million, constituting an 18.8 per cent real increase. This is significant given that this sub-programme represents the 2 nd largest expenditure category within the economic policy, tax, financial regulation and research programme.

More than 60 per cent of the programme’s expenditure was dedicated to the financial sector policy, tax policy and economic policy sub programmes. As a result, more than half of the programmes expenditure is on compensation of employees whilst a further 22.9 per cent is on goods and services. Nearly half of spending on goods and services will be on consultants, travel and subsistence; with expenditure on consultants increasing by R4.8 million between 2009/10 and 2012/13.

The programme has a funded establishment of 129 posts and is committed to increasing the capacity of the relevant employees. As at 30 September 2012, the department had 25 vacancies in this programme which it considers to be due to natural attrition as all 25 positions have been vacant for less than a year.

Programme 3: Public Finance and Budget Management

This programme provides analysis and advice on fiscal policy and public finances, intergovernmental financial relations and expenditure planning and priorities. It manages the annual budget process and provides public finance management support.

Subsequent to the modest growth in the budget allocations for this programme, the programme allocation increased significantly, recording a 25.9 per cent and 12.1 per cent real increase for 2011/12 and 2012/13 respectively. In contrast to the above inflation increases in recent years, the budget for 2013/14 represents a 3.6 per cent real reduction in planned expenditure in comparison to the previous year. This reduction can be explained through a severe cut in the budget for the Programme Management for Public Finance and Budget Management sub programme. The proposed budget for 2013/14 is a 42 per cent real increase in comparison to the budget of 2009/10.

Spending over the medium term will focus on building capacity within the programme in order to provide better support to the national, provincial and local spheres of government.

The 2013/14 budget allocation for the Public Finance and Budget Management sub programme has been halved. This sub programme is responsible for the delivery of the programme’s key objectives, including the coordination of the budget and the production of the Division of Revenue Bill for the three spheres of government. Furthermore, there is a reduction in transfers to the Financial and Fiscal Commission by R2.5 million, which represents 6.7 per cent of its 2012/13 budget.

Programme 4: Asset and Liability Management

This programme provides prudent management of government’s financial assets and liabilities

The budget allocations for this programme have been unsteady since 2009, as a result of the intermittent recapitalisation requirements of Eskom, the Land and Agricultural Development Bank of South Africa , Postbank, as well as the Development Bank of Southern Africa (DBSA). These funding requirements fall under the financial investments sub programme.

Expenditure on the remaining five sub programmes was largely inconsequential in comparison to the allocations for financial investments. Nevertheless, these sub programmes have increased modestly since 2009.

The 2011/12 and 2013/14 financial years can be viewed as years in which large scale recapitalisation was or is required, as is the case for the upcoming year.

In 2013/14, R800 million will be transferred to the Land and Agricultural Development Bank as part of the R3.5 billion in capital injections allocated to the entity over the period 2009/10 – 2014/15. The rest of the R2.9 billion in capital transfers budgeted for in this sub programme will be made up of transfers to Postbank and the DBSA. A further R2.8 billion is to be set aside to meet the funding requirements of these entities over the medium term.

Programme 5: Financial Systems and Accounting

This programme facilitates accountability, governance and oversight by promoting transparent, economic, efficient and effective management in respect of revenue, expenditure, assets and liabilities in the public sector.

Following an increase of almost 100 per cent in the budget for this programme in 2009/10, the allocation has remained relatively stable in real terms with the only notable exception being the 7.2 per cent real growth increase in 2012/13. The budget for 2013/14 is similar to the 2012/13 budget in real terms; whilst representing a 9 per cent real increase in comparison to 2009.

The most significant increases in the budget for 2013/14 relates to the Audit Statutory Bodies sub-programme which increased by R10.6 million, resulting in a 29.5 per cent real increase. This is due to an increase in the capacity of the sub-programme as well as the phased implementation of the Integrated Financial Management Systems sub-programme. However, this sub-programme makes up a relatively small proportion (5.6%) of the overall budget for the programme.

The largest portion of the budget goes to the Financial Systems sub-programme which accounts for approximately 60 per cent of the overall budget. Real growth in this sub-programme is -0.2% for 2013/14.

Programme 6: International Financial Relations

This programme manages South Africa ’s multilateral financial relations with various stakeholders through various forums.

Following a minor reduction in the budget for this programme in 2010/11, allocations were increased by 51.9 per cent in real terms in 2011/12 followed by gradually diminishing increases in 2012/13 and 2013/14. The budget allocation for 2013/14 appears to represent the levelling off of the budget for this programme at a level 58 per cent larger than the 2009/10 budget, after accounting for inflation.

The primary financial obligations of the programme in the 2013/14 financial year are the recapitalisation of the African Development Bank and African Development Fund, as well as the proliferation of the circulation of Rands to the common monetary area in accordance with the compensation agreement.

The Common Monetary Area Compensation sub-programme increased by R51.8 million or 3 per cent in real terms to R653.9 million for the upcoming financial year. Transfers to the African Development bank and African Development Fund increase by R26.6 million or 5.4 per cent in real terms to R268.6 million for 2013/14.

Programme 7: Civil and Military Pensions, Contributions to Funds and Other Benefits

This programme provides for non–contributory civil pensions, post retirement medical contribution subsidies and other benefits for pensioners and their beneficiaries, administered on behalf of National Treasury through a Service Level Agreement with the Government Pensions Administration Agency (GPAA) .

In comparison to the budget allocation of 2009/10, which increased by 105.5 per cent from 2008/09 in real terms, the budgets for subsequent years have been modest.

In 2010/11 the budget allocation was halved, followed by a 35 per cent real increase in 2011/12 before another reduction of 17.1 per cent in real terms in 2012/13. The 2013/14 budget allocation represents a significantly smaller decrease in real terms of just 1.1 per cent in relation to the previous year.

Programme 8: Technical Support and Development Finance

This programme provides technical assistance on project and programme management, support for public-private partnerships, local government financial management assistance, funding of neighbourhood development projects and support for employment creation.

Budget allocations for this programme have been volatile due to the funding of various projects over recent years.

The implementation of the jobs fund though the Employment Creation Facilitation Fund sub-programme has also contributed to the volatility. Funding for the jobs fund though the Employment Creation Facilitation Fund sub-programme has increased in 2013/14 by R666.1 million, representing a 107 per cent real increase from 2012/13.

The local government financial management and skills development grant, neighbourhood development partnership grant and Employment Creation Facilitation Fund sub-programmes together account for 87.6 per cent of the total expenditure in the programme.

Programme 10: Financial Intelligence and State Security

This programme provides for the allocation of funds to combat financial crimes, including money laundering and terror financing activities, and to gather intelligence for purposes of national security, defence and combating crime.

This programme is set to have the second largest budget in the department in 2013/14 at R4.2 billion.

In this regard, the programme is comprised of two sub-programmes, namely the Financial Intelligence Centre and the Secret Services. In 2013/14, R3.97 billion, or 91.4 per cent of the budget for this programme will be transferred to the South African Secret Services account.

Table 1 below summarises the financial resource plan per programme.

Table 1: Financial Resource Plan for 2013/14


Budget Allocation





Preliminary Outcome



1. Administration




2. Economic Policy, Tax, Financial Regulation and Research




Operational budget








3. Public Finance and Budget Management




Operational budget








4. Asset and Liability Management




Operational budget








5.Financial Systems and Accounting




Operational budget








6. International Financial Relations




Operational budget












Operational budget




Transfer budget




Percentage of operational to transfer budget




7. Civil and Military Pensions, Contributions to Funds and other Benefits




Operational budget








8. Technical Support and Development Finance




Operational budget








9. Revenue Administration




10. Financial Intelligence and State Security




Grand Total




Source: National Treasury (2013)

6. Programme 9: Revenue Administration

The mandate of SARS is spelled out in the South African Revenue Service Act (1997). The primary objectives of SARS are to collect all revenue due to the State, eliminate illegal trade and tax evasion, as well as to serve as the administrator of trade activity so as to support government’s developmental objectives.

The revenue collected by SARS is crucial in capacitating government to fulfil its policy priorities. The collection of legislated tax revenues can only be realised if SARS implements effective systems whereby it is easy to comply with tax legislation and avoidance and evasion is minimised.

SARS fulfils a crucial role in ensuring that the objectives of the fiscal framework are realised.

In recent years, SARS has improved its revenue collection processes, which have served to broaden the tax base.

Pertinent threats to the continued growth in the tax base have recently been identified in a report by the Organisation for Economic Co-operation and Development (OECD) entitled “Addressing Base Erosion and Profit Shifting: 2013”. The proliferation of sophisticated tax avoidance and evasion schemes continues to present challenges to revenue collecting institutions worldwide. The Global Forum’s Mutual Administrative Assistance Agreement (MAAA) is expected to be ratified this year to improve information exchange for countries without bilateral agreements

The Group of 20 countries (G20 - of which South Africa is a member) has specifically recognised base erosion and profit shifting, achieved through various schemes, as the major areas of concern. The G20 has agreed to adopt the proposals of the OECD report to counter these abusive schemes.

In addition, the significant threat posed to revenue receipts by sub-optimal domestic and global economic growth will continue into the 2013/14 financial year.

In its 2013/14 – 2017/18 Strategic Plan, SARS commits to promoting effective government, strong leadership and active citizenry by:

· Continuing to improve service and raising compliance;

· Continuing to partner with other government units to improve the state’s overall effectiveness and efficiency;

· Engaging with other players in tax and customs administration, regionally and internationally;

· Reducing the cost of compliance and the cost of doing business in South Africa ;

· Raising the competitiveness and export earnings of the country through efficient and effective facilitation of legitimate trade;

· Ensuring that SARS is corruption free and assisting in anti-corruption measures across government, particularly in procurement processes; and

· Drawing all citizens and entities into a relationship with SARS.

To give effect to its strategic goals, SARS has organised itself into the following programmes:

· Operations;

· Large business centre;

· Customs border management;

· African tax administration forum;

· Strategy enablement and enforcement;

· Support services;

· Modernisation and impactful initiatives;

· Tax and customs enforcement investigations; and

· Returns to National Treasury.

7. Policy Priorities for 2013/14

Policy priorities for SARS are broadly determined in accordance with its four enduring core outcomes, which are to increase:

1. Customs compliance;

2. Tax compliance;

3. Ease and fairness of doing business with SARS; and

4. The cost effectiveness, internal efficiency and institutional respectability of its operations.

SARS acknowledges that each of these four outcomes is interdependent and therefore success in one outcome is likely to reinforce other outcomes.

Over the course of the next two years, SARS will conclude its Modernisation Programme which was intended to position the organisation to effectively and cost efficiently meet its mandate.

Policy priorities for the 2013/14 financial year will therefore continue to focus on achieving the objectives of the Modernisation Programme which are to:

· Acquire the relevant human resources with the necessary specialised skills to process complex revenue generating entities as well as ensure customs compliance;

· Increase the ease with which taxpayers and traders are able to pay tax and therefore boost public sentiment and confidence towards SARS;

· Become more cost effective and internally efficient; and

· Automate low value adding activities so as to free-up human resources to increase engagement with the public (particularly low revenue generation taxpayers) and improve customer service.

An overarching threat to the policy priorities for the 2013/14 financial year will be the spread of service delivery protests stemming from a perceived misuse of public funds.

Research and empirical evidence suggest that taxpayer’s attitudes and compliance are contingent on the perceived use of public funds. In other words, where taxpayer’s perceive that services are being adequately delivered in accordance with their expectations, they are more willing to pay tax. In this regard, concerns about corruption in the public sector and its detrimental effect on service delivery remain an issue.

7.1 Increased customs compliance

SARS supports government’s aims of growing the economy and creating jobs, as outlined in the NDP, through customs compliance. Facilitating speedy access to global markets for local products is a critical economic enabler while at the same time effective border control must protect local industries and those who work there from unfair competition and unwanted goods.

To increase Customs Compliance over the next year, SARS will focus on the following key initiatives:

· Continue the rollout of the preferred trader programme which will allow traders, who have met stringent risk mitigation conditions, to more rapidly transport their goods;

· The implementation of a new customs system replacing multiple legacy systems and positioning SARS for decades to come with a cutting edge customs solution;

· A review of the process of customs bond stores to enhance the control and movement of goods into and out of bonded warehouses;

· The implementation in collaboration with various border management agencies of the One Stop Border Post with Mozambique , subject to ratification of the legal framework;

· The roll out of a new improved passenger processing system to all ports of entry; and

· Expanding the deployment of cargo and baggage scanners at border posts.

As part of their compliance programme launched last year, SARS have highlighted tobacco smuggling and the clothing and textiles industry for special attention and intervention over the next five years. The on-going trade in illicit cigarettes in South Africa poses serious health risks to consumers and also results in a considerable loss of revenue to the fiscus . SARS will continue to focus strongly on this area during the year ahead. On clothing and textiles, significant progress has been made in terms of creating an even and fairly competitive playing field between local and international suppliers in the industry.

7.2 Increased t ax compliance

To increase tax Compliance over the next year, SARS will focus on the following key initiatives:

· Targeted compliance interventions in the five high-risk areas identified in the compliance programme which are large business and transfer pricing; high net worth individuals and the trusts they use to minimise tax; small businesses; tax practitioners; and the construction industry;

· Strengthening risk management for all tax types through, amongst others, enhanced use of third party data;

· Enhancing the administrative penalties process including improving mechanisms for interacting with taxpayers who are in default and improving the collection of administrative penalties through the Agent Appointment process;

· Continuing the outreach programmes to build a culture of fiscal citizenship including registering all South African citizens and all businesses – including those operated by foreign national in South Africa - in conjunction with the Companies and Intellectual Property Commission (CIPC), Home Affairs and local government;

· Working with other tax jurisdictions and international groups to collaborate on global threats to compliance including concluding agreements on the exchange of information to help identify and address transfer pricing, base erosion and profit shifting; and

· Improving debt management through the use of credit screening to identify low value, high volume debt.

7.3 Increased E ase and F airness of D oing B usiness with SARS

To increase the ease and fairness of doing business with SARS, it will focus on the following key initiatives:

· Modernising the CIT process, including simplifying the IT14 return and automating the process;

· Introducing a single registration process for corporate taxpayers for all tax and customs types;

· Modernising the VAT process, including the development of a software application based on the popular e@syFile application to help businesses complete and submit VAT returns;

· Transformation of the Tax Clearance Certificate system; and

· Enhancing various electronic interaction channels for taxpayers.

7.4 Increased c ost e ffectiveness, i nternal e fficiency and i nstitutional r espectability

To increase the cost effectiveness, internal efficiency and institutional respectability, SARS will:

· Continue to collaborate with other government departments and agencies to achieve synergies and efficiencies, including supporting Home Affairs on its modernisation and working with the CIPC to develop and implement the single registration process;

· Combating corruption and fraud by implementing a new investigations and prosecutions management system, enhancing their vetting process and raising awareness internally around ethics and integrity; and

· Ensuring employees continue to perform at their peak by optimising the SARS Academy to ensure they have the necessary skills to meet the ever-changing needs of the organisation.

8. Budget Analysis

The overall budget for SARS has increased by 6.19 per cent for the 2013/14 financial year. In real terms, this equates to an increase of 0.56 per cent for the current financial year. Seven out of nine programmes have received modest real increases. The Support Services programme has had its budget cut by 1.04 per cent in real terms. As the second largest funded programme, this reduction amounts to R23.7 million after taking inflation into account.

The only programme to receive a nominal reduction in funds allocated for the 2013/14 financial year is the Modernisation and Impactful Initiatives programme. This programme will receive 20.33 per cent less funding in comparison to the 2012/13 financial year. The significant reduction in funding for this programme is largely responsible for offsetting the real budgetary gains of the other programmes.

9. Programme Analysis

Programme 1: Operations

Following strong growth in the budget allocation in 2010/11, the provisions for programme 1 have fluctuated between 1 per cent and 2 per cent above inflation.

The expenditure on the modernisation initiative results in the increase in provisions for the operations programme. Continued spending on Information Technology (IT) enhancements and the increased spending on compensation of employees have been particularly prevalent in this regard.

Programme 2: Large Business Centre

The budget allocation for programme 2 has grown exponentially since 2009/10, reaching R353 million for the 2012/13 financial year. The allocation for 2013/14 represents a halt to the double digit growth of previous years, with an additional 7.8 per cent to be committed to the programme.

The growth in this programme is a result of the uptake of more skilled tax and audit specialists to deal with Corporate Income Tax (CIT) and customs collection. Inflationary pressure on staff costs are also cited as having boosted expenditure.

Programme 4: African Tax Administration Forum

Programme 4 relates to the funding provided by SARS to the African Tax Administration Forum (ATAF). ATAF is an international organisation that provides a platform for cooperation among African tax authorities. It was launched in November 2009 with the purpose of creating a forum whereby, through mutual cooperation between member states, ATAF is able to work towards increasing the level of voluntary tax compliance whilst combating tax evasion and avoidance.

Programme 5: Strategy Enablement and Enforcement

After a R612 million allocation in 2009/10, programme 5 received no funding for the next two financial years. Funding was reintroduced in the 2013/13 financial year but at a 21 per cent discount in comparison to 2009/10.

Budget projections provided by National Treasury indicate its intention of maintaining funding for the programme over the medium term.

Programme 6: Support Services

The programme received the second largest allocation within the budget of SARS. The budget allocations for this programme increased significantly in 2010/11 and to a lesser extent in 2011/12. Funding was then reduced by nearly 20 per cent in real terms in 2012/13.

The provision for 2013/14 represents a 1.1 per cent reduction in the budget in real terms in comparison to the allocation provided in 2012/13.

Programme 7: Modernisation and Impactful Initiatives

As a result of the savings gained from increased efficiencies in other programmes, additional funds were reallocated to the programme in the 2012/13 financial year. The increased provision in that year was still R55 million less than the funds dedicated to the programme in 2009/10. The projection for the 2013/14 financial year is for the allocation to be drawn down by 21.5 per cent in real terms, with further reductions over the medium term.

The reductions over the next few years are a result of the conclusion of the modernisation initiative spearheaded by SARS since 2007.

Programme 8: Tax and Customs Enforcement Investigations

The budget for programme 8 has grown significantly since its first allocation of R271 million in the 2010/11 financial year. Growth rates have been reduced with the 2013/14 allocation, which represents a relatively modest 2.1 per cent real growth on the provision of the previous year. Similar growth rates are expected over the medium term.

During the last financial year, SARS have been able to continue with the modernisation of customs systems and processes at offices and ports of entry.

10. Deliberations

Following the interaction with the National Treasury and SARS, the Standing Committee on Finance:

  • Noted that municipalities' financial management capacity was not improving as expected. Therefore questions had to be asked as to the efficacy of the interventions.
  • Sought National Treasury’s view on whether there was adequate spending to ensure that municipalities were adequately capacitated to deal with issues of financial management.
  • Noted that in some provinces no progress was evident.
  • Noted that according to the assessment of the Auditor-General of South Africa (AGSA), many municipalities were not performing well.
  • Expressed concern that National Treasury was striving to minimise corruption rather than to eradicate corruption completely.
  • Noted that as part of the supply chain management strategic objective, there was no prioritisation of economic empowerment and transformation. It was not cited anywhere in this strategic objective.
  • Noted the AGSA's opinion on the National Treasury's performance, the concerns raised about National Treasury's oversight role and also about its non-compliance with laws and regulations, and wanted to know how this strategic plan would assist to address these key concerns as raised by the AGSA.
  • Noted and appreciated that SARS had been doing well in terms of its targets.
  • Sought clarity on SARS’ human capacity.
  • Sought clarity on cases involving employees, some highly published, and some dragging on for a long time, and wanted to know how these cases impacted on the performance of SARS.
  • Noted an issue that concerned accusations levelled at the Commissioner. This was a serious issue and the Committee sought a briefing about these alleged accusations.
  • Sought clarity on SARS’ role in building taxation capacity on the African continent, as it had seconded staff to participate in the new tax forum established for the African continent, and wanted to know if SARS was still pursuing that particular direction.
  • Requested comment about the status of the youth employment tax incentive, which used to be called the youth wage subsidy, and asked why the youth employment tax incentive was not included in the youth employment accord.
  • Noted that there was no consensus within NEDLAC on the tax incentives.
  • Wanted to know if the youth employment tax incentive will be included in tax laws that would come before the Committee.
  • Wanted to know the inception date of the youth employment tax incentive.
  • Wanted to know the actual cost associated with the youth employment tax incentive, as the original youth wage subsidy was to cost R5 billion over three years.
  • Noted that senior managers are leaving National Treasury, and wanted to know the reasons therefore, as well as what plans were in place to keep people from leaving as their skills were scarce.
  • Wanted to know how SANRAL’s debt was being serviced, given that there was no money being made from e-tolls.
  • Noted the increase in compensation of employees of 15 per cent, and wanted to know the reasons for this, particularly given measures put in place to alleviate the state wage bill.
  • Wanted to know if there was an update with respect to the R63 000.00 estimated tax compliance cost per company figure presented to the committee last year.
  • Noted that corruption had replaced other crime as the number one concern for South Africans and this compromised their willingness to pay tax. SARS kept identifying this, but there did not seem to be any improvement in this regard. The Committee wanted to know what had changed, and what did SARS do about the situation where a perception of corruption was compromising tax payments.
  • Noted that many queries were received from members of the public on VAT registration and tax clearance certificates, as they were frustrated by both processes. The Committee further noted that if businesses were not allowed to register for VAT, and their tax clearance certificates were not given, then economic growth was compromised.
  • Appreciated the idea of the automated tax clearance certificate.
  • Wanted to know what the time frame for the single registration process was.
  • Noted under-spending in Programme one of the previous financial year, and hoped that this year the expenditure would be within the projected target.
  • Wanted to know if National Treasury had any additional measures to accelerate growth and job creation as it was a national agenda item.
  • Wanted to know the progress of financial management capacity development in all three spheres of government.
  • With reference to the increased customer compliance and the movement of goods in and out of bonded warehouses, the Committee wanted to know about the disposal policy at the Durban port government warehouse.
  • Noted the cargo and the baggage scanners in Durban , which were good but expensive, and wanted to know if it was possible to have similar scanners in the border posts given the budget constraints.
  • Observed that the vacancy rate in the civil service was almost 300 000, and wanted to know if National Treasury had included this in its projections.
  • Noted that it would like to see only posts filled that would make a difference to service delivery, and that were funded.
  • Noted that debt was projected to be R1.7 trillion, which was slightly higher in the budget speech, and wanted to know if it was still stable at 2.8 per cent of GDP.
  • Wanted to know if anything was planned for the next five years for Beitbridge , given that South Africa ’s neighbours were growing at a rate of between 7 and 8 per cent.
  • Noted that a South African delegation had addressed the European Parliament earlier this year on carbon tax, and there was consensus among African nations in favour of a carbon tax. The Committee further noted the unintended consequences that it might have on the economy.
  • Wanted to know if withholding the funds from municipalities had worked.

11. Responses by National Treasury and SARS

With regard to questions raised and comments made by the Standing Committee on Finance, National Treasury and SARS responded/commented as follows:

· Building a capable state was a long process that takes time, and a discussion is needed to establish what a capable state is, and what political decisions and hiring of skills need to be taken. Hiring the wrong skills could become costly to the entities concerned.

· There was an improvement in compliance at municipal level and withholding of funds did work as it led to improved compliance. National Treasury will intervene in problematic areas within its limited capacity. National Treasury could not manage municipalities from Pretoria , as municipalities were responsible and accountable for running their own affairs.

· Regarding the statement of minimising corruption, the ideal situation would be to eradicate corruption, but there were capacity constraints. Ideally corruption should be fought wherever it is found, as it has now become a social issue and there is a resolve to combat corruption.

· The focus in procurement was on the immediate issues and not on economic transformation and empowerment, as it was already addressed in other programmes and legislation.

· The investigation into the matter regarding the Commissioner of SARS was nearing its completion, therefore there will be no comment made on it, a report will be made available in due course.

· The Youth Employment Accord was signed by various political parties.

· The e-tolling legislation was currently in Parliament. Steps were taken to ensure that SANRAL did not suffer further losses.

· There were reasons for the tightening of processes regarding VAT registration and Tax Clearance Certificates ( TCC’s ). R139 billion was refunded through the VAT system and if the system was loose it would encourage negative behaviour. The same applied to TCC’s to taxpayers. A balance was needed between the ease of compliance and risk mitigation, which was not easy in the current economic environment.

· Carbon Tax was also a balancing act, as it is a tax that seeks to change behaviour but may also have unintended consequences. Implementation was only envisaged for 2015, and it was hoped that an acceptable solution would have been found by then. Officials could brief members on the latest discussion document.

· A distinction needed to be made between bonded and general warehouses. Non-compliant behaviour usually occurred in bonded warehouses. Confiscated goods are kept in government warehouses. A disposal policy does exist and textiles, which comply with SABS standards, were usually distributed to charities. Other items such as cigarettes, weapons etc. were usually destroyed. The policy document will be made available to the Committee.

· Vacancy rates did have implications for the wage bill, but were underpinned by funding. It was agreed that employment of new people should ideally be frontline staff such as healthcare professionals and teachers, as they would have an impact on the states’ delivery capacity.

· Economic Partnership Agreements ( EPA’s ) were dealt with by the Department of Trade and Industry. Negative issues impacting exports and the current account deficit should be adequately addressed.

· The number of senior managers leaving National Treasury was minimal. Succession planning and internal capacity building helped to deal with the loss of staff. The fact that National Treasury staff members are sought after in other departments and the private sector is a testament to National Treasuries people management processes and should not be viewed as an exodus crisis.

· Systems were implemented to ensure that new employees made the necessary declarations

· SARS has a staff complement of more than 15 000 people, and there were cases of misconduct, all staff found guilty of fraud had been dismissed.

· Tax capacity building on the continent was happening successfully through the ATAF, which started in 2009 and now operated as a standalone operation with 36 members.

· The tax compliance costs for businesses were probably still the same at R63 000. The company assessment process had been modernised and hopefully it would impact positively on the current tax compliance cost level.

· The single registration process was a SARS project for the registration of all required taxes. It would have been ideal to be up and running during 2013/14, but the architectural foundation had to be in place between SARS, Stats SA and the CIPC.

· Two informed discussions have been held with officials from Zimbabwe regarding a one-stop-border post, and processes were in place on the development of a legal framework based on the Mozambique project.

12. Recommendations

Based on the deliberations with the National Treasury and SARS, the Standing Committee on Finance recommends that the Minister of Finance should ensure that:

12.1 National Treasury provides the House with a progress report on the establishment of the Procurement Office, that will assist in the eradication of corruption in the supply chain management processes of municipalities and government departments, this report should be submitted within three months of the adoption of this report by the House;

12.2 National Treasury, within six months of the adoption of this report by the House, report on the implementation of, and costs associated with, the youth employment tax incentive;

12.3 National Treasury provides the House with a progress report on the status and results of ongoing and completed provincial interventions, this report  should be submitted within three months of the adoption of this report by the House;

12.4 National Treasury provides the House with a report on sustaining local government finances in ensuring members’ understanding of the efficiency of its interventions as outlined in its public finance and management budget, this report should be submitted within three months of the adoption of this report by the House;

12.5 SARS provides the House with a report on trends in the cost of tax compliance for business, this report should be submitted within three months of the adoption of this report by the House;

12.6 SARS provides the House with a progress report on the process of implementing the automated tax clearance certificate system, this report should be submitted within three months of the adoption of this report by the House;

12.7 SARS, in conjunction with Statistics South Africa and the Companies and Intellectual Property Commission , report to the House at least twice a year on progress made until the finalisation of the single business registration project is completed;

12.8 SARS report on its success in collecting outstanding tax, this report should be submitted within three months of the adoption of this report by the House; and

12.9 SARS report to the House at least twice a year on progress made with the pilot project at the one stop border posts in Lebombo .

13. Conclusion

The Standing Committee on Finance, having considered Budget Vote 10: National Treasury recommends that the House supports Budget Vote 10: National Treasury.

Report to be considered.


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