Honourable chairperson and members
In his State of the Nation address on 10th February this year, his Excellency President Jacob Zuma noted that we had achieved much as a nation in our 17 years of democracy but exhorted all South Africans to work together to achieve even more.
The central theme of our President’s address was that each and every South African has a role to play in our nation’s success and he concluded with the following exhortation:
Our goal is clear. We want to have a country where millions more South Africans have decent employment opportunities, which has a modern infrastructure and a vibrant economy and where the quality of life is high.
We all have a responsibility to work hard to make this a reality.
As the South African Revenue Service we are both proud and humbled by our role in supporting this shared ambition. As our country’s revenue authority, we facilitate perhaps the most widespread and far-reaching engagement between the state and its citizens. For while the President’s call for all to contribute to our nation’s success goes beyond mere financial support through taxation, it is this revenue which provides the solid and enduring foundation for the acceleration of our progress as a country.
At the heart of this social contract lies compliance on the one hand and accountability on the other. These are two of the pillars of the democratic state we have built in which citizens participate and contribute to the common good and the state accounts for how it will – and has – used those contributions to meet the needs of the people.
The annual submission of a Strategic Plan to Parliament is an integral part of this accountability. In it, government entities provide a roadmap for how they will contribute to the improvement of the lives of all South Africans in the period ahead; a roadmap with key milestones and markers along the way against which they will be held to account for progress in this journey.
We are privileged today as SARS to present our roadmap for the next three years.
The four outcomes of the SARS Strategic Plan.
Honourable members, the SARS Strategic Plan we present today is a roadmap for the next important part of our on-going journey to build a culture of tax and customs compliance and a sustainable, trust-worthy, efficient and effective institution which all South Africans can be proud of and have faith in. These two over-arching and enduring objectives are expressed in four core outcomes for the organisation that will serve as the foundation for all current and future strategies.
The four core outcomes of SARS are to increase customs compliance, to increase tax compliance, to increase ease and fairness doing business with SARS and to increase the cost effectiveness, internal efficiency and institutional respectability of its operations.
All four outcomes are interdependent and mutually beneficial, as the pursuit of achieving one outcome frequently enables the achieving of another outcome. Increasing the ease and fairness of doing business with SARS encourages economic growth which in turn supports job creation and ultimately leads to greater revenue collection. Similarly, maximising the cost effectiveness of SARS builds confidence and accountability that Government is utilising taxes effectively and thus, a greater willingness to comply with obligations is encouraged.
The outcomes contained in our Strategic Plan were developed with a primary strategic focus on reducing the amount of red-tape that taxpayers and traders are faced with, so as to enable entrance into the economy, and on raising the level of compliance. We believe that this will not merely address the issue of technical compliance, but more importantly the long-term objectives of building a behavioural level of compliance in which compliance to the spirit and not just the letter of the law takes root as a positive social value.
In most instances, this compliance manifests along the entire value chain, which for most of the legislation that SARS administers, includes on time registration, on time filing, full and honest disclosure, and on time payment.
The SARS Compliance Model
Honourable members, our approach for many years in pursuing these outcomes has been founded on a philosophy of compliance based on education, service and enforcement.
Education is the foundation of this model because taxpayers and traders must as a minimum requirement know and understand their obligations and how to meet them.
But knowledge alone is insufficient to ensure compliance. Unfortunately, knowing that the speed limit is 60km an hour and actually driving 60km an hour are two quite different things as I am sure any driver can attest to!
Our experience – and that of many other enforcement agencies around the world – has shown that in order to get people to obey the speed limit or not to drink and drive or to declare and pay all their tax on time, takes two additional factors.
- The first is appealing to most people’s sense of right and wrong. Most people want to do the right thing and if you can convince them of the benefits of compliance – that not speeding and not drinking and driving is safer for them and for other road users and that paying your tax has direct benefits to you and all South Africans – then you will have made significant progress in creating a moral foundation and a growing social consciousness for compliance.
- The second key motivator is a credible threat of detection and meaningful consequence for non-compliance. Only the most foolhardy person will exceed the speed limit if they know there is a speed trap ahead and that getting caught will result in a hefty fine or even arrest.
This threat is not only there for those who are not moved by the nobler moral motivation. It also provides a vital sense of justice and fairness to those who are doing the right thing in knowing that those who are not will pay the consequences of their actions.
SARS will continue to apply this model by ensuring that all are aware of their legal obligations, that it is reasonably easy to meet these obligations and by having a credible deterrent and consequence – including a social stigma - for those who seek to avoid their obligations.
How we plan to improve service and enhance enforcement.
Honourable members, most of you in this committee have heard repeatedly over the past four years about the importance of our Modernisation
Programme and how it seeks through automation to release human resources away from routine, low value-adding activity, into service, education and enforcement areas with high value-adding activity.
This programme continues to be a central enabler for all our objectives. The benefits of this initiative for increased efficiency, improved service and convenience, greater risk detection and broader compliance have been proven within the personal income tax process with which you are all familiar. These are also bearing fruit in driving greater compliance and the associated revenue which naturally results in more South Africans playing their part in our society.
During Tax Season 2010 – and with the help of a robust new administrative penalty regime - we achieved further gains in compliance with a record number of over 4 million individual taxpayers submitting their returns on time. And with the support of employers who registered all employees in formal employment, we have now added over 4 million additional salary earners to the tax register.
These and other measures have helped garner additional revenue in support of government’s programme of action at a time when revenue around the world is under significant pressure from global economic factors. Despite the continued fragility of the economic recovery, SARS was able to collect R674.2 billion in revenue during the 2010/11 financial year – representing year-on- year growth of R76 billion or 13%.
But a great deal of work remains to cascade these gains throughout SARS as an organisation and the various major tax and customs processes which we administer.
Last year we indicated that the modernisation of Customs would be a key focus in the medium term period ahead. This programme continues strongly and holds great potential for both protecting our country’s people and economy from harmful, illicit and unwanted goods and products and at the
same time supporting economic growth by freeing of the movement of legitimate goods from compliant traders.
And our modernisation programme is expanding to the VAT and corporate income tax processes this year as announced by our Minister in his Budget speech earlier this year.
These are just a few of the priority programmes we will focus on this year and I think provide an opportune moment to turn our attention to the full range of priorities which we have outlined in the Strategic Plan.
SARS’s Strategic Priorities for the medium term
Honourable members, in order to ensure continuity and accountability, we have retained the seven broad objectives of our previous Strategic Plans.
Our 3-year deliverables for the objective “Drive revenue realisation to deliver now and ensure sustainability” include:
1. Growing the taxpayer register through inclusion of individuals/businesses that are eligible to pay tax as well as inclusion of individuals/businesses that are likely to become eligible in the future
2. Streamlining the audit and customs inspection processes and strengthening audit capability to deal with complex cases and serious taxpayer and trader non-compliance
3. Re-engineering the debt collection processes
4. Expanding the administration of penalties for non-compliance
5. Expanding the use of third party data, time-series taxpayer history and statistical scoring methodologies to enhance our compliance risk detection and rating capabilities for PIT, PAYE, CIT, VAT and Customs and
6. Concluding the voluntary disclosure programme to encourage proactive disclosure of non-payment by non-compliant taxpayers.
Our second priority is to “Drive productivity, service quality and cost efficiency”. In this regard we aim to:
1. Improve the ease and speed of registration and other interactions for businesses supported by a single view of each taxpayer and trader
2. Improve turnaround times and reduced paperwork for transactions and queries (via automation) for priority taxpayer and trader segments and
3. Implement a revised service philosophy, service charter and channel strategy that meets taxpayer/trader needs.
Thirdly we will “Fully deliver on SARS’s Custom’s mandate” through the following key deliverables:
1. A seamless transition to an integrated border management model, developed with other government departments
2. An enhanced service offering (reduced paperwork, quicker processing times) to preferred traders comprising 80% of all legal trade entering the country
3. Improved ease and speed of declaration processing and inspections, through modernising processes and systems
4. A system to prioritise and expedite Customs inspections through use of additional data sources and the continued rollout of non-intrusive inspection capability to vastly improve our ability to inspect the goods crossing our ports of entry
5. Enhanced border control detection capability through the Customs Border Control Unit (CBCU) and the Dog Detection Unit (DDU), thereby improving security at ports of entry and
6. Enhancement of the traveller experience when entering and leaving the country.
Fourthly we will “Improve SARS’s operating model, streamline governance and strengthen leadership” by:
1. Fully implementing our new operating model, with integrated workforce plan that makes SARS’s workforce more empowered, agile and responsive to meet the needs of our taxpayers/traders
2. Streamlining our governance framework to reduce unnecessary levels of bureaucracy while still maintaining appropriate levels of oversight and
3. Further embed the SARS values-based leadership model with appropriate resourcing and capabilities.
Our fifth priority is to deliver differentiated products and compliance approaches (including targeted and tailor-made outreach, education, service and enforcement strategies), that meet the needs of different taxpayer and trader groups as part of our Segmentation approach. This means:
1. Delivering tailored services to meet the needs of our five priority segments namely large business, medium-sized businesses, practitioners, traders and individual taxpayers
2. Accelerate the development of a small business segment in support of entrepreneurship, economic growth and job creation including the enhancement of the Turnover Tax system
From an internal perspective, our sixth priority is to “Enable SARS’s people to perform at their peak”. We will continue on this journey by
1. Embedding a workforce planning methodology to inform employee development, redeployment and recruitment
2. Enhancing our employee value proposition, to attract and retain the skills SARS needs
3. Improving performance management processes to empower managers to effectively manage employee performance
4. Improving our organisational culture and employee engagement and
5. Building of an external skills pipeline to enable sustainability and employment creation.
Finally, our seventh strategic priority is to “Deepen key external relationships to manage the whole value stream”. This priority acknowledges that we cannot achieve our objectives in isolation and that both tax and customs are systems with a wide variety of stakeholders who are partners in our journey.
Nowhere were the benefits and gains of this cooperative approach more evident than in the planning and hosting of the FIFA World Cup last year. Out of this collaboration – especially between those agencies which cooperated in security including border security - has been born an on-going and encouraging partnership which is working towards an enhanced border management process.
This collaboration has manifested in additional benefits including a partnership between SARS and the Department of Home Affairs in which we are assisting the department to modernise its processes leveraging the investment government has made in our modernisation. We are also privileged to be working together with the dti and others in developing and implementing a single, streamlined and secure business registration system.
As part of our priority to develop and expand key relationships with stakeholders, over the medium term we plan to:
- Enhance outreach, education, service and enforcement by building collaborative partnerships with private, public and international sector partners and utilising their feedback to improve compliance
- Make a broader societal contribution through targeted, high- impact initiatives and
- Build institutional respectability and service delivery excellence for SARS and its government partners.
Measuring our performance
SARS is continuing with the alignment of its performance management approach to that of the government’s new planning, performance monitoring and evaluation approach, with the emphasis on delivery. This new planning approach emphasises the need for SARS to set and achieve against clear measures for each of the core outcomes.
SARS aims to hold itself accountable in the eyes of the government and its people against associated targets. However, moving towards an outcomes- based approach is no easy task. A recent OECD report (Tax administration in OECD and selected non-OECD countries: 2010) showed that even countries that have been using this approach for over 15 years continue to struggle with issues of measurement and target setting. This is especially the case for “outcomes”. A key challenge for all countries is obtaining good quality information which is valid, reliable and timely.
Among the challenges are:
1. Finding accurate measures of performance: Outcome measures are technically more difficult to measure, they are complex and involve the interaction of many factors, planned and unplanned. Also, there are problems with time lag issues and in some cases the results are not completely within the control of the revenue administration. Most countries have adopted a combination of outputs and outcomes.
2. Establishing and maintaining systems of data collection: To ensure quality there needs to be a process by which data is verified and validated. However, setting up and maintaining these systems can be both complex and costly. It is especially challenging to assure the quality of the data when revenue administrations are dependent on third parties to provide the information.
3. Setting and using performance targets: Performance targets help clarify performance expectations for a given time period. Other revenue administrations continue to struggle with the issues of target levels and numbers. There are problems with setting targets too high and/or too low. Setting targets too low means that revenue administrations are not challenged to improve performance. Setting them too high, while it can serve as a motivation, also creates unrealistic expectations and situations where revenue administrations can fail. It takes time to get the right level and to get to the comparative data to realise that targets are set at too high or too low a level. There is also an issue about how many targets to have. Too many targets create information overload and make it difficult to select. Too few targets create distortion effects again. It takes time to achieve the right balance.
While the ideal outcome measures are being developed and implemented, a set of proxy output measures will be used to monitor and evaluate SARS’s delivery against its core outcomes. These proxy measures have been selected to provide a reasonable level of accuracy of progress against the core outcomes and to hold the organisation accountable. The output measures selected as proxies are well-established, robust and reliable metrics at SARS.
The measures and targets by which SARS will continue to hold itself accountable to the public are detailed in our Strategic Plan and are presented here to you today. Highlights include significant increases in electronic submissions and a marked improvement in turnaround times, specifically for CIT and VAT, in line with our Modernisation priorities.
Our budget resources will be allocated in roughly the same split between our modernisation, enforcement, service and support functions. Furthermore, there will only be marginal increases in our human resource levels, in spite of the significant increase expected in the volume of transactions.
Conclusion
Honourable members, the three-year road map we have presented today is part of a longer journey which began 17 years ago with the birth of a new, inclusive, just and democratic order in our country.
It is part of a journey towards meeting the hopes and aspirations of all our nation’s people. It is part of a journey which, as the President noted, we must all take together and in partnership if we are to move more rapidly along this path of progress.
We believe that the strategic choices we have made will best advance us along this path by creating a strong, moral foundation for ever-widening tax and customs compliance built on a credible, accountable, efficient, effective and values-based institution which all South Africans can be proud of and have faith in.
Thank you.
