ATC150505: Report of the Standing Committee on Finance on the National Treasury and South African Revenue Service Strategic Plans and Annual Performance Plans (Budget Vote 7), Dated 05 May 2015

Finance Standing Committee

Report of the Standing Committee on Finance on the National Treasury and South African Revenue Service Strategic Plans and Annual Performance Plans (Budget Vote 7), Dated 05 May 2015

The Standing Committee on Finance, having considered the Strategic Plans, Budgets and Annual Performance plans of the National Treasury and the South African Revenue Service as presented to the Committee on 24 March 2015, reports as follows:


1. National Treasury


1.1 Policy Priorities 2015/16


The National Treasury aims to ensure that the country’s fiscal resources are managed in a manner that secures fiscal policy integrity and facilitates long-term economic growth and job creation. The National Development Plan (NDP) expresses the need for structural change to ensure a sustainable and inclusive economy in order to achieve the socio-economic development goals of the country.  In the medium term period, National Treasury will focus on the following key strategic areas:


-   Directing public funds towards inclusive growth and long term economic stability;

-  Gearing tax policy and administration for sustainable growth and job creation by supporting tax proposals, promoting environmental stability and youth employment;

- Facilitating sustainable employment through the Jobs Fund and other policy interventions;

-   Supporting infrastructure development by providing technical assistance for   infrastructure planning and delivery;

-   Transforming government procurement by developing a centralised supplier database, introducing policy reforms and implementing a price referencing system on a nationally accessible platform; and

-   Strengthening government financial management by accelerating the deployment of the integrated financial systems to all government departments and facilitating capacity development in order to improve financial management execution.


  1. 1.2  Budget Analysis


National Treasury’s budget allocation increases by R959.4 million or 3.7 percent in nominal terms from R26 billion in 2014/15 to R27 billion in 2015/16. With regard to the economic classification of expenditure, current payments amount to R128.4 billion of the 2015/16 budget. Compensation of employees amounts to R725.5 million, while goods and services amount to R1.2 billion in 2015/16, up by R107.9 million from the R1.1 billion allocated in the previous financial year. The allocation for transfers and subsidies’ increases by R24.0 billion or 6.2 percent in nominal terms from R390.9 billion in 2014/15 to R415.0 billion in 2015/16. The allocation for capital assets decreases by R10.0 million from R26.4 million in 2014/15 to R16.4 million in 2015/16.


Table 1: Budget estimates for 2015 MTEF

Source: National Treasury ENE (2015)



  1. 1.3  Programme Analysis and Aims


Programme 1: Administration


The Administration programme provides strategic management and administrative support to the department. The programme’s strategic focus in 2015/16 will be on:


-     Achieving cost-savings in goods and services;

-     Ensuring that the Information, Communication and Technology (ICT) are aligned to the department’s business processes;

-     Retaining appropriately skilled personnel by ensuring that 92 percent of all positions are filled and maintaining an 87 percent retention rate; and

-     Implementing an enterprise risk management strategy and a risk-based internal audit plan.


The programme budget amounts to R366.7 million in 2015/16. Current payments amount to R353.8 million (96.5 percent share of the programme budget), of which R188.9 million is allocated for compensation of employees and R165.0 million for goods and services. Transfers and subsidies amount to R3.6 million and payments for capital assets amount to R9.2 million in 2015/16.


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


An amount of R133.9 million is allocated to Economic Policy, Tax, Financial Regulation and Research for the 2015/16 financial year. The Programme 2 budget is largely allocated to the following three sub-programmes in line with its strategic focus of promoting tax policy, which promotes sustainable growth and a sound financial sector and regulatory reform:


-     R30.3 million (i.e. 22.6 percent of programme budget) to the Financial Sector Policy sub-programme in 2015/16, which aims to implement the “Twin Peaks” legislation to establish the regulators thereof by 2015/16. A new directorate will be created to focus specifically on analysing market conduct in line with the “Twin Peaks” model;

-     R24.3 million (i.e. 18.2 percent of programme budget) to the Tax policy sub-programme, which aims to implement the carbon tax policy and monitor and evaluate the effectiveness of the legislation in 2015/16; and

-     R27.6 million (i.e. 20.6 percent of programme budget) to the Economic Policy sub-programme which aims to continue with developing and maintaining economic forecasting models that provide in-depth economic analysis, including 3-year macroeconomic forecasts and assessments of exchange rate and capital flow trends in 2015/16.


Programme 3: Public Finance and Budget Management


Programme 3 receives a budget of R257.0 million for 2015/16 to give effect to government’s economic, fiscal, social, and development goals by managing the budget process and providing public management support through the following three sub-programmes:


-     Public Finance receives R56.7 million to provide financial and budgetary analysis, advise on policy and service delivery trends and monitor the use of public resources;

-     Budget Office and Coordination receives R59.9 million to provide fiscal policy advice, implement budget reform, coordinate national budgeting process and coordinate international development cooperation; and

-     Intergovernmental Relations receives R80.1 million to coordinate fiscal relations between national, provincial and local government; promote sound provincial and municipal budget planning, reporting and financial management; and provide technical assistance to government departments aimed at improving planning and management of infrastructure delivery.


Programme 4: Asset and Liability Management


Programme 4 receives R3.1 billion to facilitate prudent cash management in order to achieve an optimal portfolio of debt and enforce prudent financial management of state-owned entities. The Financial Investments sub-programme dominates the programme budget, accounting for 97 percent or R3 billion in 2015/16.


Other significant allocations, include:


 -     R32 million to the State-owned Entity Financial Management and Governance sub-programme, which exercises oversight over state-owned entities to enable the achievement of government’s policy objectives in a financial and fiscally sound manner;

   -      R20.6 million to the Government Debt Management sub-programme to ensure that government’s funding needs are met while maintaining debt service costs at sustainable levels; and

-     R20.4 million to the Financial Operations sub-programme to manage government’s cash resources in a manner that is sound by adhering to credit risk benchmarks and ensuring that government’s liquidity requirements are met at all times.


Programme 5: Financial Accounting and Supply Chain Management Systems


Programme 5 receives a budget of R751.4 million for 2015/16 to promote effective and efficient government financial management and accountability across all three spheres of government. Two major areas of strategic focus over the 2015/16 medium term are:


-   Strengthening government financial management by accelerating the deployment of the integrated financial systems to all government departments and facilitating capacity development in order to improve financial management execution; and

-   Modernising or transforming government’s procurement by developing a centralised supplier database, introducing policy reforms to ensure that a single supply chain management policy is implemented by all procuring government institutions, and providing training to close the skills gap for existing and future supply chain management practitioners.


Programme 6: International Financial Relations


R1.25 billion was allocated to International Financial Relations for the 2015/16 financial year. The African Integration and Support sub-programme and the International Development Funding Institutions sub-programme receive significant budget prioritisation, i.e. R717.6 million (or 57.5 percent of programme budget) and R463.8 million (or 37.2 percent of programme budget), respectively in 2015/16. The budget prioritisation is aligned to the strategic focus of the programme, which is to:


-   Promote regional economic integration and strengthen economic links within Africa by:  concluding negotiations around the Southern African Customs Union (SACU) reform, including new revenue sharing agreement by 2015/16; developing and implementing a policy of one stop border posts by 2015/16; and providing ongoing support to the Southern African Development Community committees dealing with economic and financial protocols.

-   Advance South Africa’s interest and Africa in general through regular engagement and negotiations at regional and global financial and economic forums by: lobbying for reform of these institutions and securing a third board chair for the International Monetary Fund for the benefit of Sub-Saharan Africa by 2015/16.


The bulk (i.e. 68.3 percent) of the programme budget is in the form of transfers and subsidies to foreign governments and international organisations amounting to R851.8 million, of which:


-     R705 million is allocated to the Common Monetary Area Compensation;

-     R11.5 million is allocated to the International Finance  Facility for Immunisation;

-     R26.5 million for capital expense in terms of the African Development Bank and African Development Fund; and

-     R90.7 million for capital expense in terms of the World Bank Group.


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


The Programme 7 mandate is to ensure that government’s pension and post-retirement medical benefit obligations to former employees and retired military members are fulfilled. The strategic focus of ensuring good governance and administration and improving customer service will be continued and strengthened through adherence to policy payment timeframes, improving client data integrity, and improving customer service. The allocation to Programme 7 amounts to R3.96 billion in 2015/16, and is divided between three sub-programmes, namely:


-   Government Pensions Administration Agency receives R612 million (i.e. 1.5 percent of programme budget) in 2015/16;

-   Civil Pensions and Contributions to Funds receives R3.1 billion (i.e. 77.7 percent of programme budget) in 2015/16; and

-   Military Pensions and Other Benefits receives R821.8 million (i.e. 207 percent of programme budget) in 2015/16.


Programme 8: Technical Support and Development Finance


The Technical Support and Development Finance allocation increased marginally by R44.1 million in 2015/16 to R3.14 billion from R3.10 billion in 2014/15. An amount of R1.318 billion was allocated to the Employment Creation Facilitation sub-programme in 2015/16, which is responsible for job creation and enterprise development through the Jobs Fund. The bulk of this sub-programme’s budget, that is R1.301.8 billion, is transferred to the Government Technical Advisory Centre, which manages the Jobs Fund. Other significant allocations in 2015/16 include:


-  R587.2 million to the Local Government Financial Management Support sub-programme which aims to continue to improve financial capacity; financial management practices and audit outcomes in municipalities.

-   R884.2 million to the Urban Development and Support sub-programme to focus on providing catalytic infrastructure that attracts third-party investment in township development, with 18 spatial transformation zones identified for development by 2015/16; and

- R270.9 million (i.e. 8.6 percent of programme budget) to the Infrastructure Development Support sub-programme, which supports capacity-building in both municipalities and provinces in terms of infrastructure planning and delivery. The sub-programme has targeted 400 municipal officials to be trained in terms of the built environment programme and 150 provincial officials to be trained on the infrastructure delivery management toolkit in 2015/16.


Programme 9: Revenue Administration


This programme allocation amounts to R9.434 billion for 2015/16 and is a transfer payment to the South African Revenue Service, which is responsible for administering the tax system.


Programme 10: Financial Intelligence and State Security


An amount of R4.5 billion was allocated to the Financial Intelligence and State Security for the 2015/16 financial year. This programme is divided into two sub-programmes, namely:


-   Financial Intelligence Centre receives R234.5 million to combat money laundering and the financing of terrorism by continuously monitoring and ensuring compliance with the Financial Intelligence Centre Act (2001); and

-   The South African Secret Service receives R4.3 billion (i.e. 94.8 percent share of the programme budget.



2. South African Revenue Service (SARS)


2.1 Policy Priorities 2015/16


SARS aims to contribute to the economic and social development of the country by collecting all taxes, duties and levies due to fund the South African government’s public service programs and priorities. SARS aims to focus on the following broad institutional priorities in 2015/16:


   Finalising the mainstream modernisation programmes:  these mainly include the design, development, testing and implementation of tax related Information Communications Technologies (ICT) systems, as well as updates and upgrades.

   Increasing the Tax Revenue Base: The rate of growth in tax revenues has begun to moderate in the face of anemic domestic growth and the negative impact on domestic consumption and corporate profits.

   Institutional Responsibility: SARS seeks to be highly efficient and maintain institutional integrity.

   Adequate Human Resource Capacity: through the graduate recruitment programme; recruiting personnel to fill critical posts; and refurbishing and relocating branches as part of the organisation’s strategy to expand its footprint.




  1. 2.2  Achievements and Challenges


The following achievements and challenges were observed:


  1. 2.2.1     Achievements


   During the 2014 fiscal period, taxpayers filed more than 99% of their returns electronically through the e-filing system and at SARS’ branch offices.

   Taxpayer compliance has improved significantly over the years, and SARS is now easily accessible to more South African taxpayers through its growing network of branch offices, mobile offices and electronic channels.

In terms of tax avoidance and evasion, the Group of Twenty (G20) countries committed to the Automatic Exchange of Information (AEOI) between their tax authorities as the new global standard. Regarding tax avoidance specifically, they agreed to support developing countries to collect the taxes due to them. SARS also plans to invest a significant portion of its resources to develop the skills and capability to identify and deal with tax avoidance and evasion schemes employed by Multinational Enterprises (MNEs) and wealthy individuals.

  South Africa is working with the United States government through the Foreign Account Tax Compliance Act (FACTA) to implement the AEOI program between the two countries in September 2015.

   A group of more than 50 countries known as the “early adopters group”, which includes South Africa, intend to implement automatic exchange of information by 2017; and SARS will continue to support and participate in multi-country initiatives.


2.2.2. Challenges


   The global and local economic environment threaten SARS’ revenue collection and compliance goals.

   SARS seeks to make it easier for taxpayers to meet their obligations, and improve equity and fairness in their dealings with SARS. 


  1. 2.3  Programme Budget


Most of the budget allocated to SARS will be expended through the Operations (52.4%) and Administration (33.1%) programmes, as indicated in Table 3 below.



Table 3



Nominal Rand change

Real Rand change

Nominal % change

Real % change




R million










 3 210.6

 3 399.3

 3 598.5

 3 808.6



5.88 %

1.03 %

Tax Customs and Enforcement Investigations







7.00 %

2.09 %


 5 035.2

 5 377.6

 5 740.8

 6 124.5



6.80 %

1.91 %

Large Business Centre







7.05 %

2.15 %

Modernisation and Impactful Initiatives





-  30.9

-  39.4

-14.24 %

-18.17 %

African Tax Administration Forum







5.70 %

0.86 %

Tax Ombud







6.12 %

1.26 %

Tax Committee







5.88 %

1.03 %


 9 669.5

 10 253.8

 10 840.8

 11 522.5



6.04 %

1.19 %



2.4 Strategic Plan Goals over the Medium Term Strategic Framework (MTEF)


   Improving efficiency: Over the next five years, SARS aims to continue to change the way it operates to meet the growing expectations of taxpayers. SARS aims to focus on its employees in terms of the transformation process in the quest to provide excellent services to taxpayers, as well as to address the sophisticated schemes employed by those taxpayers who prefer to evade their tax obligations. 

   Resource management: manage resources more prudently to build resilience into SARS systems and processes to mitigate the adverse consequences of the negative economic environment on taxpayer compliance and revenue collection. 

   Compliance: SARS aims to continue to apply risk management principles to focus its efforts on areas where it will have the biggest effect on compliance, as well as to collaborate with all stakeholders to strengthen its compliance efforts, and to improve effectiveness across government’s entire value chain.

   Tax Policy: SARS will seek ways to improve conditions for small businesses through tax incentives, as well as partake in the development and implementation of tax policy and legislation.

   Customs Developments: SARS will explore the necessity of amending its systems to take advantage of the ‘IRIS’ tool that was developed by the WCO to collect all customs-related information globally, and house it in one location.

   Regional Involvement: SARS is involved in several agreements within the SADC region, and continues to explore other alternatives.


In addition to the above, SARS aims to:


   Improve its operations in order to meet the growing needs of taxpayers, and reduce the administrative burden;

    Invest in its employees to serve taxpayers better;

    Collaborate with stakeholders to strengthen compliance;

   Apply risk management principles to focus efforts on areas that will impact most on compliance;

   Increase customs compliance by implementing the Customs Control and Customs Duty Acts, 2014; improving management of bonded warehouses; deploying additional cargo/container & baggage scanners at key ports of entry; implementing the Model Port Pilot project at selected ports of entry and continuing to facilitate implementation of the One Stop Border Post between South Africa and Mozambique, and South Africa and Zimbabwe.



3. Recommendations


3.1        National Treasury


  1.       The 2015/16 budget was tabled under difficult economic circumstances, and National Treasury has had to make significant adjustments in terms of the fiscal policy stance of government. Low economic growth and high debt-service costs have put huge pressure on National Treasury. The Committee will through its review of National Treasury’s Quarterly Reports more actively monitor its performance in these more challenging times.
  2.      While the Committee will monitor National Treasury’s responses to its Budget Vote Report recommendations when considering National Treasury’s Quarterly Reports, it is recommended that when National Treasury appears before the Committee on its Budget Vote each year, it reports on its responses to the Committee’s key recommendations in the previous year’s Budget Vote Report. 
  3.       Compared to last year, there is greater synergy between the National Development Plan (NDP) and the Department’s budget and this is welcomed. The Committee will regularly monitor this.
  4.      The Committee expressed its concerns about the divisions in Eskom and the impact this might have on the economic growth targets and other goals set out in the Fiscal Framework. While recognizing the limits of National Treasury’s role in regard to Eskom, the Committee believes that National Treasury should play a fully effective role in Cabinet’s “War Room” led by the Deputy President that is dealing with the challenges confronting Eskom.
  5.        The Committee believes that government is not managing its communication on the energy challenges well and that National Treasury needs to raise this matter effectively in meetings of the “War Room”.
  6.       The Committee notes that National Treasury intends to allocate the first tranche of R9 billion, of the total of R23 billion, to Eskom in June. The Committee draws attention to its 2014 Fiscal Framework Report: “NT needs to be very clear about the criteria it uses to define non-strategic assets and the terms of any sale of these. NT also needs to seek to ensure that the sale of these non-strategic assets do not lead to job-losses or other unintended consequences that undermine the country’s economic growth and developmental goals.” The Committee believes that whatever decisions National Treasury takes on the sale of non-core assets, it needs to also take this into account. The Committee believes that National Treasury should introduce its Special Appropriation Bill to allocate money to Eskom in early May for parliament to process it by the end of June.  
  7.       The Committee notes that a major focus of National Treasury will be on “strengthening government financial management by accelerating the deployment of the integrated financial systems to all government departments”. The Committee believes that this is long overdue and would like a progress report on this within 6 months of the adoption of this Report by the House.
  8.        The Committee welcomes the Office of the Chief Procurement Officer’s modernising of government’s procurement through developing a centralised supplier database and a single supply chain management policy for all procuring government institutions. The Committee also welcomes the e-Tender publication portal which will be a single platform for the publication of tenders to eliminate duplication and fragmentation of notices for government tenders. The Committee would like a progress report on these issues within 6 months of the adoption of this Report by the House.
  9.        The Committee notes that there were far too many different pension funds at local government level and believes that National Treasury should engage with the South African Local Government Association (Salga) to consider how these could be rationalized. 
  10. The Committee believes that National Treasury should provide more details regarding its recruitment and retention plans, which target a retention rate of 87 percent. In this regard, the Treasury should report periodically on progress in filling vacancies and retaining personnel among the skilled, supervision and management salary bands.


  1. The Committee welcomed the decision to launch the New Development Bank by Brazil, Russia, China, India and South Africa (BRICS). The Committee notes that South Africa would have to contribute $2 billion over a seven year period. The Committee believes that the New Development Bank should over time operate with a far more developmental and inequality-reducing approach than the World Bank and IMF, and recommends that National Treasury should, taking into account all the sensitivities, seek to ensure this. 
  2. While recognizing the constraints, the Committee believes that National Treasury, in cooperation with the provincial departments of finance and Salga, needs to be more effective in monitoring cost-containment at provincial and local government levels.
  3. In its 2014 Budget Review Report, the Committee noted that “while the Property Rates Act is administered by the Department of Cooperative Governance, National Treasury needs to work with that Department to ensure that the increasing number of people owning huge properties in rural areas are subject to rates.” The Committee requires a progress report on this within 6 months of the adoption of this Report by the House.


3.2 South African Revenue Service


  1. The Committee recognizes the challenges SARS will confront in the difficult economic climate of the country at the moment, and will more actively consider its performance.
  2. The Committee welcomes the significant improvement in taxpayer compliance over the past few years and will continue to monitor progress in this regard.
  3. The Committee notes SARS’ commitments in its mainstream modernizing programme and would like a progress report on this within 6 months of the adoption of this Report by the House.
  4. The Committee believes SARS needs to develop its capacity to deal with Base Erosion and Profit Shifting and will, together with other relevant parliamentary committees, be regularly monitoring this.         
  5. The Committee needs a report on the progress of the Davies Tax Committee, and will arrange for a representative of the Committee, and officials of National Treasury and SARS to brief the Committee.
  6. The Committee notes that SARS is to establish small business desks to support small business compliance, and requires a report on progress in this regard within 6 months of the adoption of this Report by the House.
  7. The Committee recommends that SARS ensures that there are enough funds for baggage scanners to be procured at the Beit Bridge and other border posts.
  8. The Committee requires SARS to provide it with a comprehensive Human Resource report in terms of the age analysis of its personnel. It is important to ensure that with the aging of the current staff, there is a proper succession plan to ensure that the organization sustains its efficiency.
  9. The Committee expressed its concern about the divisions within SARS and the effect it might have on SARS’ credibility and performance. The Committee would address these issues in a separate meeting. It was pointed out that consistent with the rules of Parliament there would be a complementary division of labour between the Joint Intelligence and Finance Committees on processing these matters, The Joint Standing Committee on Intelligence would be dealing with the legal and other issues related to the role of the SARS intelligence unit and the Sikhakhane and Intelligence General’s reports. The Finance Committee would deal with the possible effect of the exit of senior managers from SARS on its performance and the role of the Judge Kroon Commission in this regard. While recognizing the complexities, the Committee believes that there should be an amicable settlement of the divisions.



The Democratic Alliance (DA) reserved its position on this Report.


Report to be considered.





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