Introduction
Ladies and gentlemen, I would like to welcome you all here today for an update on our Customs Modernisation programme. As part of our preparations and planning for this programme, we have been engaging with some key stakeholders around the design of this programme and its products since the Minister of Finance officially launch of this programme in October last year.
I would firstly like to thank these partners for the considerable time and effort they have put in to working with us to design and develop solutions which we believe will significantly improve the supply chain for the benefit of us all. We are now in a position to expand this partnership and joint implementation process to a wider group of Customs stakeholders and today we are beginning this process.
Our intention today is firstly to provide you with far greater detail on our plans to fundamentally change the way in which we process goods with the aim of radically improving the speed at which legal goods move through our borders and at the same time significantly enhancing our ability to identify illegal and illicit goods.
Because at the end of the day, that is our core mandate – to on the one hand facilitate desirable trade which supports our economic growth and development and on the other hand to protect South African’s people and our economy from undesirable goods. And our second intention today is to create the platform for partnership and collaboration in this endeavour because none of us owns the supply chain – each of us have different but co-dependent roles to play in the supply chain.
The SARS compliance approach
Our modernisation journey, which we began in 2007, is all about gearing SARS and our clients for greater compliance with the legislation which governs tax and customs. The foundation of this journey – and indeed for the entire SARs strategic approach – is our compliance model which is in use in many countries around the world. This model says that there are two key ingredients to achieve the desired compliant behaviour by taxpayers and traders.
Those ingredients are service and enforcement – or in different terms “a carrot and a stick”. On the service side, this approach says that compliance will improve if we make it as easy, convenient and quick as possible for people to meet their obligations. The second ingredient is credible enforcement and punishment for those who choose not to be compliant. This is about making it as difficult as possible for people to get away with non-compliance and having a credible threat of detection and punishment for those who fail to meet their obligations.
This enforcement side is not just to about convincing those who don’t want to be compliant that the risks are not worth taking. It is also about fairness for those who choose to be compliant. Because if you are paying your duties and meeting all of your obligations you want to be sure that everyone is or else there is a very uneven playing field. So everything we do at SARS is based on this foundation of the drivers of human behaviour and if you read our latest Strategic Plan, or any previous Strategic Plan for that matter, you will see that all of our objectives are aimed at either improving service or enhancing enforcement or both.
Our Modernisation journey
Our modernisation programme looked at how we could harness technology and process change to make it easier for people to meet their obligations and easier for SARS to detect and deter non-compliance. The essence of our modernisation programme is the automation of our processes because this provides three key gains:
- Better service: Automated processes are faster and more convenient for traders and taxpayer
- Better risk detection: Automated processing allows for the use of risk tools using third party data to better identify potential non-compliance
- More resources: Automation releases resources within SARS to focus on service and enforcement activities
Over the past three years this modernisation programme has focused on the income tax process because it had the greatest potential for improvement and affected the greatest number of clients and the biggest part of SARS.
As taxpayers yourselves you should be familiar with some of the changes we have made from a manual, paper-based system to an electronic, automated system with the resultant gains in efficiency. Over the past three years we have seen:
- SARS becoming a world-leader in the growth of electronic submission of income tax returns with 93% of all submissions received in the 2009/10 tax year having been received electronically
- A spectacular reduction in the processing time of returns from an average of ± 55 working days in 2006 to an average of just 1.8 working days last year.
- A remarkable improvement in the speed of refund processing from an average of only 45% within 5 working days in 2006 to an average of 83% within 5 working days.
At the same time the automation of the process and the expanded use of third party data has allowed the use of sophisticated risk engines to enhance our ability to detect non-compliance. Of course, the ultimate test for us of whether this is having the desired impact is whether these changes are translating into compliance gains. In this regard I think we can answer with a resounding “yes”. Despite the economic downturn during the past year – which experience around the world has shown tends to result in a drop in compliance when times are tough – SARS recorded an increase in taxpayers filing their returns on time from 58% in 2008/09 to 79% in 2009/10.
Customs modernisation
While we have been introducing these innovations to the income tax process including changes to the PAYE process, at the same time we have been designing changes to other parts of our business based on the same principles and applying the lessons we have learned. This year we have already announced major changes to the provisional tax system and during the course of the next year we will make significant changes to corporate income tax and VAT.
But that is all on the tax side. What we are here to talk about today and what you are really interested in is customs and trade and how we are planning to apply these principles of modernisation to the customs environment. Firstly, I think it is important to note that improvements have been introduced in Customs over the past few years and in many respects Customs was a forerunner to our modernisation programme – most especially in the adoption of electronic interchange between traders and SARS. EDI has been in use within SARS long before eFiling was opened to all taxpayers and is already far and away the most common form of interaction with SARS with almost 99% of international imports and exports using EDI.
Over 85% of exports to BLNS countries are processed via EDI and imports from BLNS countries are also showing impressive growth in the adoption of EDI from 5% in 2008 to over 28% currently. This year has also seen significant improvements in the movement of passengers at our ports of entry through an enhanced Movement Control System which was developed by SARS in conjunction with the Department of Home Affairs. Since the roll out of this new system at all major ports of entry shortly before the start of the 2010 FIFA World Cup, more than 6.5 million movements have been processed on the system bringing massive gains in both efficiency and security.
We have also recently implemented an enhanced system of goods clearance to significantly reduce congestion at the Lebombo border post by moving the clearance of goods away from the border post to new facilities 7 kilometres inside South Africa and 4 kilometres inside Mozambique which has hugely streamlined traffic congestion and the movement of goods at that border post. We have some pictures here of what it looked like previously and what it looks like today because of these changes – but those of you who are familiar with Lebombo will know better than these pictures can show the impact that this is having. I would like to read a note which we received from Brenda Horne-Ferreira, the CEO of the Maputo Corridor Logistics Initiative after we introduce the changes.
She wrote the following to SARS last month: Thank you for enquiring around the improvements at the Lebombo Border Post. I furthermore engaged with another couple of frequent users this morning and they all confirmed that things are now much improved at the immigration desks and what is very useful is the special tent for 2010 and SA passport Holders. Two of them confirmed that from the entrance door to being fully processed by immigration has not taken them longer than 6 minutes – indeed a huge improvement. Furthermore the impact of not having the commercial freight vehicles through the frontier and having all their documents processed at kilometre 4 and kilometre 7 is immense – the users felt like there is control back at the border post! We remain extremely grateful to all departments for working together to bring about this very positive change and will greatly appreciate you conveying this as such.
We have also been working with the South African Reserve Bank to facilitate improvements in the way we manage foreign exchange regulations in the export process and you will hear a bit later from our colleague from the Reserve Bank about some of the improvements they have introduced including a pilot project to do away with the F178 form. I mention these initiatives because our border posts and the supply chain is an integrated process involving a wide range of public and private sector stakeholders and the facilitation of trade and protection of our borders are two sides of the same coin. All the processes and systems on both sides must work in harmony in order to achieve these common goals. Based on the success of the Lebombo pilot, we will also be assessing how we can implement similar measures at other land border posts to reduce congestion.
The need for Customs modernisation
While working with other government agencies to establish better and more efficient mechanisms and structures to secure our borders, SARS is simultaneously proceeding with planned enhancements to the process for the import and export of goods as a key economic enabler. In support of government’s priority to create jobs, measures to boost trade while simultaneously protecting local industries from unfair competition from illicit, counterfeit and duty-free goods are a key priority.
According to the World Bank, unnecessary Customs delays have more sinister effects than increasing costs; the Doing Business 2009 report suggests that the more delays in the import and export process, the less likely that a trader will be able to reach markets which negatively affects the ability to expand businesses and create jobs. Another study found that each additional day that a product is delayed prior to being shipped reduces trade by more than 1% percent. Research indicates that countries that pursue reform in Customs, generally achieve improvements in revenue collection and international trade compliance and administrative efficiency, which provide benefits to both governments and the international trading community.
At a time when technological developments are changing the world of international trade and travel, our focus is to minimise the level of Customs intervention in cargo movements and to maximise the level of trade facilitation by: revolutionising the core Customs processing system enhancing risk management techniques to better identify suspect imports and exports for scrutiny Implementing new philosophies on Customs and border control and engaging with private sector partners in mutually beneficial alliances This focus manifests itself in a Customs modernisation agenda that replaces aging legacy systems with a locally developed cutting edge integrated customs and border management solution.
This solution, which is already in use and been tested in a European country, will allow for seamless, swift movement of goods and passengers while at the same time enhancing our ability to identify risk earlier in the process and thereby focussing our enforcement resources on high-risk consignments. A key component of this strategic approach is the concept of a “trusted trader” model in which key stakeholders who meet strict criteria of self regulation will enjoy the benefits of more rapid movement of goods. The solution provides the opportunity for massive gains in streamlining and improving supply chain security for all stakeholders not only for South Africa but for its neighbours and other regional partners. We have already negotiated the implementation of the solution in Lesotho with support from the international community and will engage with other countries to explore further expansion through the African Tax Administration Forum.
Conclusion
Ladies and gentlemen, at last week’s Cabinet Lekgotla government leaders outlined their plans to achieve the 12 priority outcomes government has identified as critical to the success of our nation. Measures to enhance and facilitate trade and at the same time better protect our country from unwanted goods and persons are a crucial enabler for job creation and protection through economic growth. They are also a key feature of improved safety and security for our people. As partners in and beneficiaries of this process, it is up to us in both the public and private sector to work together to reach these shared objectives. At the start of my talk I mentioned co-development, partnership and the supply chain. Like any chain, the supply chain is only as strong as its weakest link. With your help we are embarking on a journey to secure and strengthen the supply chain for all our benefit. We look forward to working with you in developing and implementing improvements to the customs process in the coming months and years.
I thank you.
Source: South African Revenue Services
