Presentation to the
Standing Committee on
Public Accounts
19 March 2003
Contents
1. Introduction
2. What has SARS Achieved
i. Business Achievements
ii. Revenue Achievements
iii. Audit Reports
3. SARS Transformation
4. Risk Management & Internal Controls
5. The Next Steps …
Business Achievements
Achievements - Processing

Improved cycle times:
 84% of all assessments issued within 21 days

Quality Improvement
 quality assurance to reduce assessment errors
 Corrections of accounts


Reduced balance of SMR account (unallocated
payments) by 43.8%
Introduced UIF collections process in April 2002
 UIF collected till 16 March 2003 – R3.9 billion

Developed a more user friendly tax return
Achievements - Customs





Improvement in border post infrastructure
Implemented: Transit System; Warehouse
Inventory Management System; Export
System; Manifest Acquittal System; CAPE
Phase II
Recruitment and training of over 500 staff
Established national and local stakeholder
forums
Promotion of regional and international
cooperation
Excise Duty at Source

Implementation of Duty at Source
Tobacco
Spirits
Beer
Oil
1 Oct 2003
26 Feb 2003
26 Feb 2003
2 April 2003
Service





Launched SARS Service Monitoring Office
New dedicated tax exemption unit for public
benefit organisations and other entities
Released discussion document on Taxpayer
Service Charter
New rules for tax courts and settlement of
disputes
Introduce an advance ruling system
Enforcement Actions

Registration
Create awareness of obligation to register
Penalties and prosecution for failing to register
Reduce number of unregistered taxpayers
Migrate towards single registration for taxes
Initiate specific tax base broadening programs


Using third party information
Street visits
Enforcement Actions (cont)

Filing
Provide assistance to taxpayers with filing process
Revision of extension regime
Quicker action against filing defaulters
Penalties and prosecution for non – filers
Enforcement Actions (cont)

Audit
Risk based approach
Introduce segmentation of the taxpayer base
Enhanced field audit presence
Proper reporting and statistical analysis of audit
results
Special audit teams focussing on areas of serious
non-compliance
Higher penalties on PAYE defaulters
Increase skilled audit capacity
Enforcement Actions (cont)

Investigation
Proactively identifying criminal investigation cases
through intelligence; industry analysis
Enhanced cooperation with other government
agencies
Strengthen investigation and prosecution capacity
Special focus on organised crime
Targeted campaigns iro high risk areas



Alcohol
Ghost exports
Counterfeit products
Enforcement Actions (cont)

Collections
 Automated debt management system
 Special focus on old debt
 Proactive management of new debts
 Enhancing outbound call centre capacity
 Outsource certain categories of debt collection
 Extension of appointment of agents for payment of tax to
other taxes
 Making shareholders of liquidated companies personally
liable for failed companies tax liabilities
 Making withholding agents directly liable for taxes
Measures to Address Tax
Avoidance







Disclosure of tax avoidance structures
Limiting losses from secondary trades
Extension of general anti-avoidance principles
to other tax acts
Transfer duty avoidance utilising nominee
transactions
Extension of anti-connected person loss rules
200% penalties for PAYE transgressions
Penalties for non-royalty payments
Audit Achievements
Audit Achievements

A notable achievement in the audit report for
Administered Revenue was the elimination of the
previous report items relative to insufficient risk
analysis and audit procedures.

An unqualified audit opinion for SARS Own Accounts

Ongoing strengthening of the relationship between
SARS and AG and a shared understanding of the
key risks in the Audit engagements, with recognition
of the Internal Audit role.
Revenue Achievements
Revenue : 2002/03




Printed Estimate: R268.5 billion
Feb 2003 Revenue Estimate: R280.1 billion
Revised is R11.6 billion above Printed
Estimate
This is attributed to:
 real growth in the economy
 higher than expected inflation
 greater corporate earnings particularly in the
commodities sector, and
improved compliance activities
Achievements for the past six years
R 'billion
1997/8
1998/9
1999/0
2000/1
2001/2
2002/3
Target
164.2
179.2
193.9
213.6
236.8
268.5
Collections
165.3
184.6
200.9
220.9
252
280.1
1.1
5.4
7.0
7.3
Above target
Total additional collections
* R11.6 billion is projected as the surplus above the original estimate
15.2
11.6
47.6
Trend - Individual Tax Rates
Lowest personal bracket
Lowest marginal rate
Highest personal bracket
Highest marginal rate
Number of brackets
Primary rebate
Additional rebate
Tax threshold
For under 65
1998/9 1999/2000 2000/01
31,000
33,000
35,000
19%
19%
18%
120,000
120,000 200,000
45%
45%
42%
6
6
6
3,515
3,710
3,800
2,660
2,775
2,900
18,500
19,526
21,111
2001/2
38,000
18%
215,000
42%
6
4,140
3,000
23,000
2002/3
40,000
18%
240,000
40%
6
4,860
3,000
27,000
Trend – Corporate Tax Rates
1995/6 96/7 - 98/9 99/00 - 01/02 2002/3 2003/4
Company rate
STC
Combined rate (100% distribution)
Combined rate (33.3% distribution)
35%
25.0%
48.0%
39.3%
35%
12.5%
42.2%
37.4%
30% 30%
30%
12.5% 12.5% 12.5%
37.8% 37.8% 37.8%
32.6% 32.6% 32.6%
Tax Cuts

PIT relief
1998 – R3.7 billion
1999 – R4.9 billion
2000 – R9.9 billion
2001 – R8.4 billion
2002 – R15.2 billion
2003 – R13.3 billion
Total
R55.4 billion
SARS Transformation
SARS Transformation Process
Approach to Transformation at SARS
 Immediate Changes
 Infrastructure; Process Improvements; Teaming; Skills
Upgrading

Immediate to Medium Term Changes
 New Business Architecture; Policy Changes; Organisational
Design

Medium to Long-term Changes
 New Automation and Technology Platform; Continuous
Policy and Process Improvements
SARS Transformation: Delivered?

December 2001:
Implementation of Siyakha in KwaZulu-Natal

October 2001 to September 2002:
New Management Team in Customs; New
Business Process; e.g. New Anti-smuggling, PCI,
Risk Profiling Teams.

October 2002 - January 2003:
Implementation of Siyakha in Western Cape
Siyakha Western Cape Roll Out

Bellville Assessment Centre

Establishment of a call centre and two branch
offices

Enforcement Centre in central Cape Town

Changes to smaller offices over the next few
months
In the medium term
Medium Term

Develop an Enterprise Architecture to facilitate the
organisation’s transformation

Review Administrative Policy

Continuous Process Improvement

Risk-Based Business Processes

Performance Metrics and Measurement

Skills Development and Deployment

Technology enhancement
Filing
Assessing
Pre-filing
Preengagement
SARS Business Process
Financial investigations
Criminal investigations
Prosecutions
Internal /
External
examinations
and inspections
Risk-profiling
Educat
e
Communicat
e
Advertise
Service
Subscription
registration
Education
Service
Payments
Encourag
e filing
Calculate
and measure
liability i.r.o
declaration
by customer
Examine
Inspect
Investigate
Receive &
update
information
Service & Engagement
Criminally
investigate
Prosecute
Collect
In the medium to long term
Long Term

New Automation Technology
Electronic Document Management System
Integration of Systems

New Technology Platform
Additional FIMS Modules
Completion of New Customs Systems

E- SARS
Risk Management &
Internal Controls
Risk Management

Governance

Process/Business Risks
Tax Gap
SARS Compliance Model

Internal Control System

Technology and Systems
Governance

Minister
 Regular Meetings

PFMA
 Audit Committee; Internal Audit

SARS Amendment Act
 HR; IT Committees

Internal Governance
 EXCO; Sub-Committees; Programme Steering Committees

Parliamentary Committees
Revenue Gap
Drivers of Revenue
Macro economic
factors
Tax gap
strategies
Anti avoidance
measures
Legislative loopholes
Assessing efficiencies
and quality
Revenue
Target
Tax and Customs Gap
Tax Gap Analysis
Inductive Surveys
Deductive Analyses
Rbn
How to close
the Tax Gap?
How big is the
current Tax Gap?
What is the future
Revenue Base?
Segmentation of Tax Base
Activation Strategies
Time
Long Term
Revenue Trends
Tools for Activation
Key Accounts & their Drivers
Models for Estimation
Tax Gap - Complexities of the PIT
Tax Gap
Foreign dividends
Salary
Understate
Taxable
Income
Retirement Benefits
Interest
Rental
Filing
Self-employed profits
Fringe Benefits
(non-cash income)
PIT Evasion
Individual
Evasion
Overstate
expenses /
deductions
Allowances
Subsistence
Uniform
Travel
Entertainment
Other allowances
Deductions
Not filing
Donations
Medical
Pension / RA
Not registered
for PAYE
Other
Under deducts
(with knowledge)
PAYE Employer
Evasion
Deducts
Retains all
Retains partial
Registered for
PAYE
Simply not deducting tax
Not deduct
Incorrect issuance of
IT3’s
This tree defines the
exhaustive set of areas that
require data to estimate the
tax gap based on where the
decision rights are held.
Tax Gap - Corporate Income Tax
Evasion
Underdeclare
income
(1, 12)
Active
Filing
Understate
income (2)
Other income
Declaring income
as capital
(5,6,7,8)
Recoupment
Cash
Dormant
Corporate
Evasion
Overstate
expenses
(1, 12)
Active
Interest received**
Discounts/rebates
Sundry (3,4)
Inflation of
expenses
(7,8,9,10,11,12)
False
deductions
Private
expenses
Depreciation
Non
cash
Tax underpaid
(13)
Evasion Schemes:
Allowances
Provisions
(14)
Assessed
loss
schemes
Tax holidays
Not
filing
1. Offshore structures (includes
transfer pricing)
2. Controlled foreign entities
3. Under-declare foreign
income
4. Foreign dividends
5. Deferred allotment and
share-incentive schemes
6. Incorporation of professional
practices
7. Long-term insurance
schemes (inflated premiums)
8. Short-term insurance
schemes (inflated premiums)
9. Preference share financing
schemes
10.Property schemes (could
include CGT)
11.Structured finance schemes
Dormant
* Income earned on ‘grey’ money, which cannot be declared as it was taken out illegally
** Interest received and foreign exchange gains on Rand denominated outward bound loans
12.Transfer pricing
13.STC not paid
14.Under-valuation of trading
stock
SARS Compliance
Strategy
Key Principles of Compliance
Strategy

Balance between Education, Service and
Enforcement

Taxpayer Conduct Determines Administration
Response

“Cradle-to-Grave” Approach

The Drivers of Revenue
SARS Compliance Model
Enforcement
TAXPAYER
COMPLIANCE
Education
Service
COMPLIANT
TECHNICALLY
COMPLIANT
NONCOMPLIANT
The Compliance Behavioural Model
NON-COMPLIANCE:
Identify; legal action;
prosecute; investigate
EVASION
CREATIVE COMPLIANCE:
EVASION
CREATIVE COMPLIANCE:
AVOIDANCE (GAAR)
CREATIVE COMPLIANCE
CAPITULATIVE COMPLIANCE
COMMITTED COMPLIANCE
Monitor; legal action;
investigate
Monitor; Legal action to
challenge; “compliance checks”
Monitor:
inspect
Monitor (lesser degree);
examine; incentivise
Incentivise;
accredited clients
Risk Management: External Clients

All actions to be intelligence driven
Automation of risk profiling systems
Regulatory model developed
Understanding of the tax gap

Implementing integration of Enforcement,
Customs and Revenue Analysis risk units into
a centralised risk management unit for SARS
Risk Management: AG Concerns

GRAP vs. GAAP
 Defining rules relative to Revenue from non-exchange
transactions

Year-end Accounts for Own Accounts and Administered Revenue
 Synergies between AG and Internal Audit to reduce scope of work
 Planning workshops conducted in order to optimize scope of work
and operational management of the audit
 Regular audit progress meetings

Siyakha
 Involvement of AG and Internal Audit
Internal Controls
Internal Control Model
Risks
(Inherent Risk
assessment)
Measure & Monitor
(Risk management)
Internal Controls
(Risk mitigation)
Management
Responsibility
Control Objectives
Audit Role
Audit/Business
Interface
COSO is the adopted model in SARS
COSO
Audit
SelfAsses
sment
Risk Management Model
Process
Enablers
Contingen
t taxpayer
(Tax gap)
Taxpayer
data base
Core Assets
Key Risk (Impact)
Assessment
Integrity of assessments (Financial loss; poor taxpayer service)
Collection
Non collection (Financial loss; SARS collection target)
Enforcement
Non-collection
Growth in the tax gap (Financial loss; SARS collection target)
Export and import of prohibited goods (Financial loss; SARS collection
target)
Importers
&
Exporter
Loss of funds or assets (Financial loss; SARS collection target)
People
KEY OUTPUTS
- Organisational goals
- People outcomes
Transformation
Technology
New business design
Change management
Project management
Skills & Capacity
- Poor assessment, enforcement & TPS
- Increased service/production costs
Integrity, availability, adaptability and confidentiality of the Information
Systems
- Turnaround times
- Service/production cost
- Taxpayer service
- Financial loss
Inappropriate business architecture/ design
- Loss in current revenue streams, increase in the tax gap
- Undesirable people outcomes
- Compromise to the current business model
Decreased business results during Transition period (Financial + People)
- People fatigue
- Increase in tax gap
- Increased project cost
- Risk to the project outcomes (new business)
Failure to manage resources to deliver on Siyakha goals
- Delayed and costly Siyakha
- Decrease in the current business edge (loss of the sustained growth in
collection and TPS.
- Undesirable people outcomes
Technology

Information Security

COBIT Process Control Framework

Disaster Recovery Planning
The Next Steps...
The Next Steps:Transformation

Siyakha Programme
 Gauteng, Eastern Cape, Free State

Large Business Office

Continuous Process Improvement

Registration and Filing

Technology
 New Customs System; New Integrated Financial System;
EDMS; CRM; Business Intelligence; Risk Profiling
The Next Steps: E-SARS





Evolve to an intelligent e-business infrastructure
Creation of a single SARS corporate portal for
employees and customers
Electronically enable most of our processes and
transactions, improving productivity and maximizing
IT investment
Improve information security as a corporate priority
Avail appropriate information to government
constituencies through world wide web services
The Next Steps: Processing








Revenue Target 2003/04
Improved Quality of Assessment and Cycle
Times
Enhancement of Skills
Implementation of New Dispute Rules
Filing Process
E-Filing/E-Payment
Single Registration
Third Party Verification
The Next Steps: Enforcement

Coordinated Campaigns on High Risk Sectors
 Industrial Focus Areas

Revenue Activation Projects
 Tax Gap





Risk Profiling System
Roll out Debt Management System
Outsourcing Part of Debt
Prosecution for Non-registration
Building Greater Prosecution Capacity with NPA
The Next Steps: Customs








SA Cargo Security Project
Smuggling of Drugs and Protected Species
Export Control
Control of Rail Traffic
Implementation of Risk Management
Suppressing corruption and promoting integrity
Improving infrastructure especially for land border
posts
Regional co-operation and Nepad
The Next Steps: Service






One stop service to the largest companies
Additional call centre capacity
Simplified tax returns for individuals
Provide assistance to taxpayers with filing
process
Differentiated Channels
Regulation of professionals
Tax practitioners
Customs accreditation
Continuous Process Improvements




Process Culture – a new way of looking at business at all levels.
Process Management – the concept that processes need to be
owned and managed in accordance with customer requirements.
Process Enhancement – supporting the pace of change required
to deliver on strategic intent covering improvements, reengineering and transformation.
Process Technology – the tools that allow the organisation to
best fulfill its mandate, including hardware, mapping software,
design methodologies and project management disciplines.
Conclusion

The enduring challenge for SARS
Sustain performance in revenue collection
Consolidate and deepen efficiency gains
Improve quality of service and education to
taxpayers
Improve levels of compliance and reduce the tax
gap
Expand the tax base
Enhance risk management and internal controls
THE END….!