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LEADING THE WAY IN TRANSFORMATION: THE SARS SUCCESS STORY!

Pravin GordhanCommissioner: SA Revenue Service

The 2nd BANKSETA International Conference

2004

Presentation by

PRAVIN GORDHAN

Commissioner of SARS

to

3SARS MandateThe SARS Mandate

The organisation is tasked to efficiently and effectively collect -

• all national taxes, duties and levies imposed in different pieces of taxation legislation

• all revenue that may be collected in terms of any other legislation, as is agreed between SARS and the organ of State or Institution

SARS is also responsible for the control over the import, export, manufacture, movement, storage or use of certain goods

The organisation is also responsible to the provide advice to the Ministers of Finance and Trade and Industry to on all revenue and customs matters

4The Economy

1984-1993

Growth a mere 1% a year

Investment shrinks 2,9% a year

Inflation averages 14,3%

Deficit up to 9.3% in 1993

Fin account net outflows of R46,1 bn

Investment boycott

1994-2003

Growth around 3% a year

Investment expands 4.7% a year

Inflation down to <6%

Deficit down to around 3%

Fin account, net inflows of R169,6 bn

Unprecedented ratings upgrades

5Basic needs and social services

1.6 million houses built

700 new primary health clinics built

Electricity to 4 million homes

4.5 million children benefit from primary school nutrition programme

Grant beneficiaries increased: 2.9 million to 7.4 million

6SARS Profile

The SARS profile

Collects approximately 90% of the government’s revenue, in excess of R300 billion in direct and indirect taxation

Administers 22 tax types

Deals with over 5 million taxpayers/ taxpaying entities

Operates from over 100 sites nationwide

Employs over 14 000 staff

Administration costs <1.5% of revenue collected (developed countries 2%; developing countries 4-5%)

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1,7 MillionImport

transactions

1,4 MillionExport

transactions

3 000Bonded

Warehouses

3 000Rebate Manufacturers

14 000 SARS Employees

136 000Registered

Traders/Operators

1 451Manufacturers of

excisable products & 4 licensed distributors

1,4 MillionSACU Movements

SARS VOLUMETRICS

4 MillionIndividual taxpayers

1,3millionCorporate Taxpayers

536 281Vat vendors

274 764PAYE Employers

8REVENUE PERFORMANCE

R 'billion 1998/9 1999/0 2000/1 2001/2 2002/3 2003/4

Target 179.2 193.9 213.6 236.8 268.5 310.0

Collections 184.8 201.4 220.3 252.3 282.2 302.4

Above/under target 5.6 7.5 6.7 15.5 13.7 (7.6)

Total additional collections (10 year period)           50.4

9SARS Performance

Stable tax regime

Fiscal stability

Increased revenue yield (exceeding revenue targets)

Significant tax relief (R73 billion)

Broadening the tax base

Improved service

10OUR LEGACY11 separate departments within the Department of Finance.

Declining performance against revenue targets

Unwieldy organisation structures, many layers of management

Procedures were highly bureaucratic, manual and clerical in nature

Weak and outdated physical infrastructure

Wholly inadequate technology infrastructure – disparate line of business systems

Low staff morale with minimal representivity, limited career opportunities and lower than market related remuneration

Prevalence of internal fraud and corruption

11OUR LEGACY…The SA ClimateThe South African compliance climate reflected

Low tax literacy vs high tax complexity

Low tax morality

Negative perception of the tax system and administration

Weak protection of our borders against illicit trade

Preferential tax treatment

• Certain sectors

• Greater ability to distort tax burdens among the affluent

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PRINCIPLES OF A GOOD TAX AND CUSTOM ADMINISTRATION (OECD)

A good tax and customs administration should….

1. Apply tax laws in a fair, reliable and transparent manner

2. Outline and communicate to taxpayers their rights and obligations as well as the available complain procedures and redress mechanisms

3. Treat enquiries, requests and appeals from taxpayers in an accurate and timely fashion

4. Provide an accurate and dependable information service

5. Ensure that compliance costs are kept to a minimum

6. Where appropriate give taxpayers’ opportunities to comment on changes to administrative policies and procedures

7. Use taxpayer information only to the extent permitted by laws that limit their use to tax officials except under compelling circumstances

13EVOLUTION OF SARS Introduced modern employment practices

Standard job descriptions and job specifications

Career paths

Competitive remuneration

New collaborative approach with Unions

Redefined strategic direction of SARS

Vision

Mission

Values

Taxpayer Charter

Code of Conduct

Compliance Model

14EVOLUTION OF SARSRefocused efforts on enforcement

Increased audit capacity

Introduced new tools and techniques

Rolled out national campaigns addressing high risk areas

Siyakha “We are Building”

Transformation programme launched

Commenced with organisation wide diagnosis

Implementation of pilot in Kwa-Zulu Natal region

Established centers (Taxpayer Service; Assessment; Enforcement; Customs)

15EVOLUTION OF SARS

Appointment of a new, representative management team

Provision of modernised infrastructure

Streamlined and standardised business processes – supported by new policies, procedures and skills

Provided a dedicated frontline environment for taxpayers

Focused, high visibility enforcement interventions addressing high risk industry sectors and taxpayers

16SIYAKHA PROGRESS

Successful implementation in Kwa-Zulu Natal and Western Cape (CBD)Ongoing transformation in Western Cape and Gauteng 9 additional offices being converted to the Future mode of operation.

This platform has enabled us to identify further process improvements which are being implementedConcentration of assessment activities resulted in improved turnaround timesOver 2400 staff have been trained in service and functional expertiseTo date, over 3000 staff have either been appointed in new positions or absorbed in terms of the Siyakha protocol Employment Equity has been improved

To date more than 20 SARS locations (excise, tax and customs) have been improved

17SARS LBC • Launch of SARS Large Business Center - 2 September ‘04

• The LBC Business Model:

Developing enhancedRelationships with our corporate taxpayers based on intimate knowledge derived fromindustry sector

specialization

Dedicated Sector Managers supported by Taxpayer Relationship Managers for each of the following sectors respectively:• Financial Services• Mining• Manufacturing• Information, Communication & Technology• Retail • Primary (Agriculture, Forestry Logging)• Construction• General & Diverse Holdings

18LBC Service Model

Providing world-class operational excellence with one-stop - single point of entry for all tax types and effective Administration & Resolution processes

A Convenient one stop service for

cost effective filing and processing

of all tax submissions, as well as

the efficient management of

accounts, registration of new

taxpayers or changes in taxpayer

status

19Noteworthy achievementsConsistently exceeded revenue targets despite undergoing organisation wide transformationSuccessfully introduced challenging legislative changes eg. RBT, CGTShifted the compliance culture in SA through targeted, visible enforcementExpanded the business to take on new tax products eg. UIF and SDLMade initial strides in entrenching a service culture Provided dedicated service areas Established a SARS Service Monitoring Office Released a draft Taxpayer Charter which will entrench service

standards Introduced an online customer feedback system to gauge service

satisfaction Implemented dispute resolution procedures for speedier resolution of

administrative issues

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AT A GLANCE…10 years of delivery

BEFORE

Low Revenue

Weak customs

Inefficient processes

Ineffective enforcement

Poor compliance

Poor technology

Low skills

AFTER

Significantly increased revenue collections

Visible and more efficient customs

More efficient, streamlined and integrated processes

Visible and more efficient enforcement

Increased compliance culture

Enhanced and stable technology platform

Enhanced focus on development of technical and management skills

21A REALITY CHECKChange is ongoing

We’ve achieved a lot…but there are still many challenges that remain

Challenges we are facing

Revenue administration as a suitable response to the dualistic nature of the South African economy

• Widen the net to include both economies; reduce the tax gap

Building fiscal citizenship to ensure a climate of sustained compliance

Achieving a robust administrative machinery that supports revenue growth in a highly effective and efficient technology enabled organisation

Further transforming the organisational culture to reflect greater professionalism, service and integrity

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THE NEXT WAVE OF TRANSFORMATION

A vision for 2010 Individuals Business SMEs and large corporates

Key shifts Inward administrative view to outward taxpayer view Reactive to proactive engagement Manual to automated

Compliance strategyInstitutional transformation

23ANTICIPATED OUTCOMESSmarter SARS More efficient Electronically enabled

Visible SARS Touching all segments Tax officers in the field Increasing access to taxpaying community

Responsive SARS Better Service Swift detection and deterrence of non-compliance Learning organisation – leadership and technical capability

These outcomes translate into sustained compliance and delivery on revenue targets

24RECIPE FOR OUR SUCCESS…

Overall fiscal reform – tax policy and tax administration changes in tandem

Political support of Minister of Finance

Administrative autonomy brings greater flexibility and control

Create a vision for the future

Transformational passionate leadership – actively driving change and instituting a new way

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Create a critical mass of change drivers

Evolutionary change but revolutionary thinking – sustain the change. Implement change in manageable chunks

Willingness to engage with all stakeholders and across all functional areas of the business to achieve a holistic robust solution

Integrated process view and enhanced business knowledge

RECIPE FOR OUR SUCCESS…

Thank You