Presentation to

1
Presentation to Parliament Committee on
Finance 15 May 2007
2
OVERVIEW

1. Introduction
2. A new strategic plan 2008 - 2010
3. The strategy for the next 5 years
4. The modernisation agenda 10 programs
5. What will be delivered in 07/08
6. The operational deliverables 07/8
7. Financials
8. Conclusion

3

• Introduction

4
KEY MESSAGES 2002 2006 STRATEGIC APPROACH

• Understanding the base
• Segmentation
• Cradle to grave approach
• Compliance approach
• Compliance model (service, education and
  enforcement)
• Focused enforcement
• Integrated approach to compliance
• High visibility and maximum coverage
• Promote understanding of citizenship obligations

5
KEY MESSAGES 2002 2006 STRATEGIC APPROACH

• 3 Changing the culture and work ethic
• Intensive communication
• Integrity
• Better skills and management cadre
• 4 SARS Transformation programme / Siyakha
  enhancement i.e
• Process innovation
• Integrated systems
• Variety of channels of interaction
• 5 Partnership/ collaboration - taxpaying
  community

6
KEY MESSAGES 2002 2006 CAPABILITIES REQUIRED

• People development
• Inculcate team culture
• Achieve better employment equity
• Enhanced people wellbeing
• Develop cadre of progressive professional
  managers
• Business and Technical skills

• Information Technology
• Systems responsive to complex business
  environments
• Migration from legacy systems to a more modern
  platform
• Empower and enable frontline
• Business Intelligence
• Data mining

7
SARS CELEBRATES 10 YEAR ANNIVERSARY

• This year SARS celebrates 10 years as an
  integrated, administratively autonomous Customs
  and Revenue Administration
• As we prepare to celebrate the past decade we
  have taken some time to pause, reflect, take
  stock of our journey so far and chart our focus
  for the journey ahead
• Re aga bokamoso bobothle - We are building our
  future together

8
SARS JOURNEY TO DATE AND BEYOND . . .
50
Siyakha 2 (Modernisation)
IT enabled, process and market segmented
organisation
40

• Leverage IT to gain efficiencies and further
  reduce processing times
• Smoother revenue collection cycle
• Service and enforcement tailored to market
  segment needs
• Ability to absorb other government enforcement
  and collection roles
• Knowledge intelligence drive

Siyakha 1
30
Process modeled team based organisation
Efficiency Gains

• Flatter more empowered organisation
• Efficient, standard scale processes
• Dedicated taxpayer services function
• Dramatically improved enforcement
• Better trained/motivated staff

20
Pre-Siyakha
Bureaucratic, inefficient and siloed by tax
products and systems
10
0
0
1
2
3
5
4
Timeframe - Years
9

• A new strategic plan 2007/08-2009/10
• The reflection and diagnostic
• A new Strategic plan

10
SARS JOURNEY TO DATE AND BEYOND . . .

• SARS has been very successful in the past 10
  years in collecting revenues and absorbing volume
  growth while integrating and transforming the
  organisation
• In the past 10 years SARS has grown revenues
  from R123 billion in 1995/96 to R495 billion in
  2006/07. This revenue growth has been driven by
  South Africas GDP growth and inflation together
  with improvements in compliance, improved
  taxpayer behaviour and tax policy changes
• In addition to coping with this growth, SARS has
  been able to significantly improve taxpayer and
  trader service levels as well as transform the
  organisation in many respects

11
THIS HAS BEEN DRIVEN BY SARS EFFORTS OVER THE
LAST 10 YEARS
From . . .
To . . .

• Rigid administrative organisation

• Externally oriented and flexible to change

• A government department

• Autonomous integrated organisation

• 11 independent tax authorities

• Separate revenue, customs and excise department

• Increased diversity and strong positive image in
  SA and region

• Uninspiring culture with low racial diversity

• Strong growth in revenue and tax register

• Improved external reputation and global
  involvement through WCO chairmanship

• Less than 5 of population registered taxpayers

12
SARS HAS ACHIEVED ANNUAL REVENUE GROWTH OF 12.6
P.A. OVER THE PAST 10 YEARS
657
SARS revenue collection, 1996-2006 Rbn
CAGR
417

• Annual revenue has grown by 12.6 p.a. over past
  10 years
• CIT has shown fastest growth, growing at 19.4
  p.a.
• PIT has had the slowest growth at 9.5 p.a.
  partly due to R69 billion rebates/ tax breaks
  awarded to taxpayers

10.9
59
18
13.1
329
302
33
19.4
13
49
252
8
43
201
9
13.3
114
36
165
7
99
28
81
123
6
Other
61
17
48
Customs
5
17
40
CIT
9.5
33
126
112
VAT
98
90
86
68
51
PIT
1995/96
1997/98
1999/2000
2001/02
2003/04
2004/05
2005/06
Compound Annual Growth Rate
13
PROCESSED INCREASED VOLUMES WHILE IMPROVING
LEVELS OF COMPLIANCE
12.1
Total imports and exports Rbn
Taxpayer volumes No. of PAYE, PIT and VAT
assessments processed, millions


169
198
1996/97
2000/01
2005/06
1995/96
2000/01
2005/06
Population registered for tax Registered
taxpayers as of labour force
Tax register has grown by 10.5 over last 10
years Individuals and companies, thousands


67
158
1995/96
2000/01
2005/06
1995/96
2000/01
2005/06
No PAYE data available due to manual systems
14
TRANSFORMED ITS EMPLOYEE PROFILE AND DIVERSITY
10
Change in employee diversity
37
44
50
56
White
69
6
6
6
5
Indian
4
6
47
Coloured
40
36
31
21
African
2004
2006
1998
2001
2002

• Since 1998 the representation of
• Previously disadvantaged individuals increased
  from 21 to 47
• Black females increased from 10 to over 25
• Since 2002, African representation in senior
  management (grade 79) has increased from 34 to
  47

15
OUR CHALLENGES

• Growth in processing volumes has significantly
  outpaced growth in available resources
• In order to achieve its current operational
  commitments SARS has been allocated R18.7 billion
  over next three years
• In addition SARS needs to
• Play a role in implementing the new social
  security and the wage subsidy
• Increase its focus on border security due to
  increasing challenges in the international
  environment
• Improve its current processing is largely manual
  and paper intensive
• Enhance and professionalise management and
  operational processes and systems
• Increased focus on border security and customs
• Enhanced systems and processes

16
GROWTH IN PROCESSING VOLUMES HAS SIGNIFICANTLY
EXCEEDED GROWTH IN AVAILABLE RESOURCES
13 977
SARS has managed strong volume growth . . .
. . . however, growth in SARS resources has not
kept pace
Growth in processing volumes No. of transactions,
m
Growth in trade volumes No. of transactions, m
Growth in SARS employees
13 977
13 138
13 210
39
12 265
27
12.1
11 012
46
2005/06
2001/02
02/03
03/04
04/05
2002/03
2005/06
2001/02
2005/06

• Resources have not grown in line with revenues
• In addition SARS has old systems and improved,
  but manual processes

17
SARS NEEDS TO PLAY A ROLE IN IMPLEMENTING THE NEW
SOCIAL SECURITY AND THE WAGE SUBSIDY
SARS is already starting to plan and the next
steps are

• Finalise the role that SARS will play in
  collecting/administering the SST and Wage Subsidy
• Determine the other stakeholders that SARS will
  need to partner with
• Engage with stakeholders to determine the model
  that will be used for the administration of the
  Wage Subsidy

• Determine resources needed and develop the
  necessary capabilities to deliver
• Identify the inter dependencies and areas of
  synergies
• Design a detailed implementation plan

Social Security and Wage Subsidy are priorities
which need significant effort in initial thinking
and planning and should be appropriately resourced
18
CHALLENGES IN THE INTERNATIONAL ENVIRONMENT
REQUIRE AN INCREASED FOCUS ON BORDER SECURITY
Implications/impact
International trends

• Customs subjected to globalisation and a catalyst
  for competitiveness
• Global security concerns require customs to
  safeguard borders
• Shift emphasis from import control to export
  control as result of single transaction approach
• SARS lead agency at port of entry as well as
  BCOCC chair

• Increased global interconnectedness and
  complexity
• Increased international trade volumes and number
  of participants
• More advanced global production networks and
  trade
• Emergence of transnational organised crime
  networks

19
SARS SYSTEMS AND PROCESSES DELIVER THE BASIC
REQUIREMENTS, BUT ARE NOT FULLY INTEGRATED AND
CAN BE ENHANCED

• Systems currently fulfill basic processing
  requirements, however
• Lack of automation across business processes
  high volume of core manual processes
• Lack of integration across core tax systems
• Distinct solutions by tax for similar processes
• Overall data quality across all tax systems has
  been compromised
• Lack of consolidation of functions across customs
  and revenue
• Upstream problems in the functional business
  units
• Current complexity limits ability to implement
  change quickly

SARS needs to significantly modernise operations
in order to deliver on current business needs
whilst creating the capacity and foundation for
future growth
20

• A new strategic plan 2007/08-2009/10
• The reflection and diagnostic
• A new Strategic Plan

21
DELIVERY OF CORE OPERATIONS AND MODERNISATION
PROGRAMME

• For SARS to deliver on its strategic
  challenges requires balancing delivery of core
  operations whilst accelerating implementation of
  the modernisation programme
• SARS must continue to sustain operational
  performance
• AND
• Accelerate the Modernisation Programme

22

• Key elements of strategic plan

23
THE MANAGEMENT AGENDA WILL ENSURE THAT SARS IS
ABLE TO DELIVER ON ITS STRATEGIC CHALLENGES
24
SARS MODERNISATION PROGRAMME HAS BEEN SEQUENCED
ACROSS 3 PHASES OVER NEXT 5 - 7 YEARS
1.5
Phase 3 Delivery of world-class service
Phase 2 Implement new model
Phase 1 Create capacity, design and prepare
for modernisation
Estimated timing
2 years
2-3 years
1-2 years

• Align organisation on strategic choices and
  direction
• Launch division specific quick-wins and no
  regrets moves
• Develop intelligence and transparency on taxpayer
  and trader segments and develop differentiated
  business model
• Develop core skills and capabilities to deliver
• Take actions to improve performance transparency
  and business processes
• Develop organisational capabilities and capacity

Focus of management agenda

• Implement new business model per segment
• Capabilities in place
• Shift in effort and allocation of resources
• Core tax process re-design
• Broader people process and values programme

• Change the way SARS acts and performs in all
  areas and on all organisation levels
• Deliver full results according to aspirational
  targets and desired end state (revenue,
  compliance, border management)

25

• SARS MODERNISATION AGENDA
• Develop new Operating Model
• Support Government Priorities
• Strengthen Organisational Foundations

26
THE MODERNISATION AGENDA NEW OPERATING MODEL
Programmes
Rationale and actions
Create differentiated operating model

• Segment taxpayers/traders and develop strategies
  and operating model by segment
• Reallocation of resources
• Long-term benefits once established

Develop an integrated risk management and
enforcement system

• Capture of additional growth and closure of tax
  gap
• Increase capacity and enhance capabilities of
  enforcement and risk

New operating model
Improve customer service, outreach and education

• Important for SARS to be responsive to taxpayers,
  
• Maintain perception of being efficient revenue
  collector
• Re-design service model to improve service levels
  and meet service charter targets

Enhance core operations and build capabilities

• Imperative to stabilise and repair core
  foundation for sustained performance
• Build basic core operations capabilities (e.g.
  scanning, automation and e-filing)
• Redesign core tax product processes

27
NEW OPERATING MODEL? - MOST REVENUE TODAY IS
COLLECTED FROM A CONCENTRATED NUMBER OF TAX PAYERS
Taxpayer population pyramid
Revenue collection pyramid
Tax and revenue pyramid comparisons
Number of taxpayers today
Total revenues collected today
High
Majority of revenues collected from concentrated
number of tax payers (large corporations and
individuals)
Revenue per taxpayer
Limited revenue collection from bulk of existing
tax payers
Informal economy and new tax payers from economic
growth
Strategic challenge to educate and capture effect
of informal economy and new taxpayer growth
Low
28
CURRENT RESOURCE DISTRIBUTION
SARS today
Revenue
Tax base
29
SARS REQUIRES A DIFFERENTIATED APPROACH TO
ENGAGING WITH TAXPAYERS AND TRADERS
Future SARS
30
SARS COMPLIANCE MODELS SEEKS TO INCREASE
VOLUNTARY COMPLIANCE
27
Risk Assessment
Enforcement
Service
Environmental Knowledge and Understanding
Effective Segmen-tation
Customer Awareness
Education
31
SARS COMPLIANCE STRATEGY IS BASED ON
PROPORTIONAL RESPONSE
27
SARS compliance strategy is based on a response
proportional to the behaviour of taxpayers and
traders

• Excellent service for those who are compliant and
  low risk
• Service and education for those who seek to be
  compliant but may not understand their
  obligations
• Assistance and understanding for those who make
  honest mistakes
• Full weight of the law for those who are
  knowingly non-compliant

32

• New Operating Model
• What we plan to have achieved by end of this year
  and 2010

33
WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR
AND 2010 - CREATE A DIFFERENTIATED OPERATING
MODEL
Deliverables in 2007/08
Deliverables over next 3 yrs

• Refined and completed taxpayer and trader
  segments
• Defined segment strategies for agreed segments
  with respect to enforcement, customer service
  model and tax products
• Re-designed our operating model to meet
  differentiated requirements and
• Operationalised the reconfigured operating model
  for key segments

• Develop clearer understanding of taxpayer and
  trader segments

34
WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR
AND 2010 - INTEGRATED RISK AND MANAGEMENT AND
ENFORCEMENT SYSTEM
Deliverables in 2007/08
Deliverables over next 3 yrs

• Develop an integrated risk and enforcement
  strategy
• Implemented integrated risk scoring and targeting
  tools
• Leveraged 3rd party data capabilities and
• Tailored our risk approach based on the outcome
  of the differentiated operating model

• Increase capacity and enhance capabilities of
  enforcement and risk

35
WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR
AND 2010 - IMPROVE CUSTOMER SERVICE, OUTREACH AND
EDUCATION
Deliverables in 2007/08
Deliverables over next 3 yrs

• Significantly improved our service levels
• Redesigned our service delivery model with
  respect to all service channels
• Implemented some key re-designed changes (such as
  a call centre upgrade, case management and
  tracking solution and single registration
  capability)
• Implemented a single registration and view of a
  taxpayer/ traders relationship across SARS
  products and
• Differentiated treatment of practitioners in
  Service Centres

• Replace current systems at call centres, back
  office and branches and
• Implement an easy-to-use interface to our PIT
  legacy system at call centres

36
WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR
AND 2010 - ENHANCE CORE OPERATIONS AND BUILD
CAPABILITIES
Deliverables in 2007/08
Deliverables over next 3 yrs

• Improve payment processing and administration
• Refined and automated the assessment process
  (including simplification of forms) and
• Implemented 3rd party data verification and
  applied it to assessment process

• Complete initial phase of revised PIT assessment
  process and
• Implement revised debt definition rules and
  reduce debt balance

37

• SARS MODERNISATION AGENDA
• Develop new Operating Model
• Support Government Priorities
• Strengthen Organisational Foundations

38
THE MODERNISATION AGENDA NEW GOVERNMENT
PRIORITIES
Programmes
Rationale and actions
Implement national social security tax and wage
subsidy

• Commitment to implement social security by 2010,
  and administer wage subsidy
• Leverage synergies and interdependencies with
  core tax systems

New government priorities
Strengthen border control (lead agency
security at ports of entry)

• National priority to protect borders and curtail
  illicit trade
• Implement AEO accreditation programme and
  implement CBCU units
• Prepare for tax and customs implications of World
  Cup 2010

39

• Government priorities
• What we plan to have achieved by end of this year
  and 2010

40
WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR
AND 2010 - IMPLEMENT NATIONAL SOCIAL SECURITY TAX
AND WAGE SUBSIDY
Deliverables in 2007/08
Deliverables over next 3 yrs

• Implement SARS components of social security
• Implement necessary process and technology
  infrastructure and
• Started administering the wage subsidy

• With key stakeholders, agree SARSs role and the
  strategy to deliver on social security tax and
  wage subsidy

41
WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR
AND 2010 - STRENGTHEN BOARDER CONTROL
Deliverables in 2007/08
Deliverables over next 3 yrs

• Implemented a fully operational Authorised
  Economic Operators (AEO) accreditation programme
• Set up Customs Border Control Unit (CBCU) at
  Customs borders
• Improved coordination and cooperation between all
  agencies at ports of entry
• Increased regional cooperation with Southern
  African Customs Union members
• Successfully prepared to manage border and tax
  related issues in the hosting of 2010 FIFA Wold
  Cup and
• Further captured internal synergies between
  Customs and Revenue

• Finalise SARS Customs strategy
• Implement first phase of Customs Border Control
  Unit (CBCU)
• Implement first phase of scanner programme at
  selected ports of entry and
• Implement first phase of the Authorised Economic
  Operators (AEO) accreditation programme

42

• SARS MODERNISATION AGENDA
• Develop new Operating Model
• Support Government Priorities
• Strengthen Organisational Foundations

43
THE MODERNISATION AGENDA ORGANISATIONAL
FOUNDATION
Programmes
Rationale and actions
44

• Strengthening Organisational foundation
• What we plan to have achieved by end of this year
  and 2010

45
WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR
AND 2010 - FURTHER PROFESSIONALISE MANAGEMENT AND
GOVERNANCE
Deliverables in 2007/08
Deliverables over next 3 yrs

• Integrate the current disparate stores of human
  resource and financial information to optimise
  planning and transactional processing and
• Automate a number of current manual,
  paper-intensive human resource processes

• Professionalised management planning, tracking
  and reporting processes and
• Improved our strategic sourcing strategy and
  implemented process changes to selected purchase
  categories

46
WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR
AND 2010 - TRANSFORM SARS CULTURE AND FURTHER
ENHANCE PEOPLE CAPABILITIES
Deliverables in 2007/08
Deliverables over next 3 yrs

• Revised our talent management strategy
• Implemented key initiatives such as recruiting,
  training and development, succession planning and
  repositioning of talent and
• Implemented improved performance management
  processes within an enhanced governance framework

• Engage the organisation on the new direction and
  prioritise areas for improvement and
• Implement first phase of an automated performance
  management process

47
WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR
AND 2010 - IMPROVE INFRASTRUCTURE (ICT)
Deliverables in 2007/08
Deliverables over next 3 yrs

• Implement the first phase of the stabilisation
  programme
• Implement the first phase of the new network and
• Implement the first phase of the hardware and
  mainframe optimisation programme and release
  capacity

• Stabilised and upgraded the foundation of core
  legacy systems
• Implemented a revamped network to support
  transactional volume growth and
• Improved disaster recovery capability

48
WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR
AND 2010 - IMPROVE INFRASTRUCTURE (FACILITIES)
Deliverables in 2007/08
Deliverables over next 3 yrs

• Finalise our facilities strategy
• Redesign facilities to align with the new service
  model and
• Upgrade and improve facilities to ensure
  compliance with health and safety regulations and
  to satisfy business needs

• Complete the revised facilities strategy and
• Complete the first phase of the 3-year plan to
  achieve compliance with health and safety
  regulations

49
WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR
AND 2010 -EFFECTIVE COMMUNICATION AND CHANGE
MANAGEMENT
Deliverables in 2007/08
Deliverables over next 3 yrs

• Implemented the revised brand management strategy
  reflecting SARSs direction and
• Enhanced communication capacity to support change
  management

• Communicate the modernisation agenda to all
  employees and
• Successfully communicate the changes to the 2007
  assessment process to taxpayers and traders

50
THE MODERNISATION AGENDA COMPRISES OF 3 PILLARS
WHICH ARE SUPPORTED BY 10 PROGRAMMES
Programmes
New operating model
New government priorities
Organisational foundation
51

• Operational Deliverables

52
WE ANTICIPATE SIGNIFICANT GROWTH IN CORE
TRANSACTION VOLUMES OVER THE NEXT 3 YEARS
7.5
53

• Financials

54
IN ORDER TO ACHIEVE ITS CURRENT OPERATIONAL
COMMITMENTS SARS HAS BEEN ALLOCATED R18.7 BILLION
OVER NEXT THREE YEARS
659.8
Revenue targets R billions
Funds allocated R billions
19
6.7
6.2
5.7
0.9
0.8
0.7
Initiatives
Business as usual
5.8
5.4
5.0
2009/10
2008/09
2007/08
2009/10
2007/08
2008/09
55
SARS BUDGET ALLOCATION FOR NEXT THREE YEARS
Funds allocated FY 2007/08 FY 2008/09 FY 2009/10 3 year Total
         
Personnel 3,342 3,609 3,890 10,841
Administration 519 560 604 1,683
Stationery and Printing 202 218 235 656
Professional and special services 599 647 697 1,942
Land and Buildings 350 377 407 1,134
Miscellaneous 2 3 3 8
Business as usual funding allocated 5,014 5,414 5,835 16,263
Inititiative funding allocated 716 808 942 2,467
Total Funds allocated 5,731 6,222 6,777 18,730
56
CONCLUSION

• SARS celebrates its ten year anniversary we have
  managed to collect an estimated R493 billion in
  2006/7 up from R165 billion in 1997/98. This has
  been rooted in the synergies of economic growth,
  tax policy reform and improvements in
  administrative efficiency. But over time such
  reforms and improvements will have an
  ever-diminishing impact on revenue collection
• Already the organisation is burdened with an
  ever-mounting avalanche of paperwork linked to
  its process of manual and paper-based tax
  administration and steadily increasing numbers of
  taxpayers.
• Among the immediate challenges facing SARS are
  meeting its Service Charter standards and
  enhancing its risk identification capability.
  Technology has a major role to play, with process
  re-engineering also providing key gains
• People remain at the centre of SARS. In this
  regard, skills development and capacity remain
  one of the organisations most immediate and
  on-going challenges. Our strategic plan provides
  a platform for building these capabilities
• Our strategic plan is dependant on the sufficient
  allocation of financial resources
• It is in the spirit of BATHO PELE Putting
  people first and Re aga bokamoso bobothle - We
  are building our future together that we embrace
  our role in the future of South Africa.

57

• THANK YOU!!