PORTFOLIO AND SELECT COMMITTEES ON FINANCE SARS PRESENTATION ON THE 20034 BUDGET 4 MARCH 2003

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PORTFOLIO AND SELECT COMMITTEES ON FINANCESARS
PRESENTATION ON THE 2003/4 BUDGET 4 MARCH 2003
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CONTENTS

• INTRODUCTION
• REVENUE TO DATE
• REVENUE TARGET 2003/4
• COMPLIANCE STRATEGY
• EDUCATION
• SERVICE
• ENFORCEMENT
• CUSTOMS
• THE FUTURE

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REVENUE ACHIEVEMENTS 2002/3

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REVENUE 2002/03

• Budget Estimate R268.5 billion
• Feb. 03 Revised Estimate R280.1 billion
• Revised is R11.6 billion above Budget Estimate
• This is attributed to
• real growth in the economy
• higher than expected inflation
• greater corporate earnings particularly
  commodities sector, and
• improved administrative efficiency

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Achievements for the past six years
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Additional collections assisted in the reform of
tax rates increased expenditure programmes

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TREND - INDIVIDUAL TAX RATES
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TREND CORPORATE TAX RATES
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• REVENUE TARGET
• 2003/4

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2003/4 R310 billion
2002/3 R268.5 billion
Printed Estimates
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REVENUE COMPARISON
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• How will SARS delivery Revenue Target?
• Comprehensive Compliance Strategy

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KEY PRINCIPLES OF COMPLIANCE STRATEGY

• BALANCE BETWEEN EDUCATION, SERVICE AND
  ENFORCEMENT
• TAXPAYER CONDUCT DETERMINES ADMINISTRATION
  RESPONSE
• CRADLE-TO-GRAVE APPROACH
• THE DRIVERS OF REVENUE

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TOTAL COMPLIANCE MODEL
Enforcement
TAXPAYER COMPLIANCE
Education
Service
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The Compliance Behavioural Model
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Risk-profiling
Education Service Encourage filing
Subscription - registration
Calculate and measure liability i.r.o
declaration by customer
Educate Com-municate Adver-tise Service
Examine
Inspect
Investigate
Criminally investigate
Collect
Prosecute
Payments
Receive update information
Service Engagement
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DRIVERS OF REVENUE
Macro economic factors
Tax gap strategies
Revenue Target
Anti avoidance measures
Legislative loopholes
Assessing efficiencies and quality
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OVERVIEW OF SERVICE

• Customer centricity
• Multiple channels of Interaction
• First time resolution of queries
• Creating a service culture

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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

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SERVICE

• Going forward
• One stop service to the largest companies
• Additional call centre capacity
• Simplified tax returns for individuals
• Provide assistance to taxpayers with filing
  process
• Integrated channels
• Relationship Managers at every branch
• Regulation of professionals
• Tax practitioners
• Customs accreditation

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Processing and Assessment

• Efficient and high quality processing capability
• Timely submission of tax returns
• Improved turnaround times
• Improved quality of assessments
• No backlogs
• Continuous improvement of processes
• Introduce appropriate measurement instruments
• Reduce costs and increase efficiencies
• Implementation of duty at source
• Tobacco 1 October 2002
• Spirits and beer 26 February 2003
• Oil 2 April 2003

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PRINCIPLES OF ENFORCEMENT

• High visibility eg outstanding returns
• High frequency of contact
• Optimal geographic coverage
• Targeted sector/industry campaigns
• Third party data matching
• Intelligence and Risk Assessment

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TECHNIQUES

• Segmentation
• Risk Profiling
• Data Mining
• Matching complexity of skills
• Single view of tax payer

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THIRD PARTY INTERFACES

• Natis (traffic authorities)
• Deeds office (property transactions)
• Websec (Link directors to companies)
• Movement control (Movement in and out of the
  country)
• ITC (Credit bureau)
• FIC (Financial Intelligence Center)
• Internet
• Mapnet (Property search)
• Aircraft Register
• Yacht register
• Interaction with other agencies such as SAPS,
  Scorpions Commercial Branch

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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

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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

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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

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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
• illegal beer and wine production
• Ghost exports
• Counterfeit products

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ENFORCEMENT ACTIONS (cont)

• COLLECTIONS
• Introduction of 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

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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

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CUSTOMS PRINCIPLES

• Prevention of trade in prohibited goods
• Effective administration of trade programmes
• Transparent, quick and consistent facilitation of
  legitimate trade
• Risk targeting
• Segmentation according to risk
• Reduction of non-tariff barriers

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CUSTOMS ENFORCEMENT

• Enhanced visible enforcement through
• Raising examination rate to between 5 and 6
• Increased post-clearance inspections
• Industry task teams for sensitive sectors like
  liquor, tobacco, electronics, motor and textile
  and clothing
• Increased drug detection, especially at JIA
• Increased detection of trade in protected species
  like abalone
• Detection of illegal export of currency
• Implementation of an improved risk management
  system
• Collaboration with customs compliant traders,
  agents and their organisations (accreditation),
  including organised labour.
• Enhanced control and assurance security of export
  cargo

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FOREIGN EXCHANGE AMNESTY

• Long history of shifting funds offshore illegally
• Many individuals wish to repatriate their foreign
  assets and regularise their affairs
• Any individual not subject to investigation by
  SARS or Exchange Control Department may apply
• Application submitted from 1 May until 31 October
  2003
• Full and proper disclosure of offshore income,
  assets and liabilities
• Assets repatriated to South Africa 5 once-off
  levy
• Disclosed assets kept offshore 10 once-off
  levy
• Declared assets below Excon limits 0

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FOREIGN EXCHANGE AMNESTY CHARGE
International Benchmarking The charge levied for
the repatriation of funds held illicitly offshore
has varied widely internationally. Particularly
interesting are the German and Maltese models
where the charge increases as the window period
for the amnesty draws to a close.
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FOREIGN EXCHANGE AMNESTY (2)

• Benefit
• No civil and criminal liabilities in respect of
  contraventions until 28 February 2002
• No taxes and interest on failure to disclose
  gross income or capital gains on or before that
  date
• Excon violations apply with authorised dealer
• Income tax violations apply with SARS on
  condition that return for 2003 tax year must be
  submitted disclosing all foreign income and
  income tax on foreign income during that year
  must be paid

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FOREIGN EXCHANGE AMNESTY (3)

• A joint SARS/SARB call centre is planned to
  assist individuals with queries relating to the
  foreign exchange and related income tax amnesty
• A guide setting out the application form and
  procedures to be followed will be published on
  the SARS website and will be made available at
  SARS branch offices
• Draft legislation will be developed before the
  end of March and be made available by Minister
  for comment

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• Prospects for the Future

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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 and create scope for reducing
  the burden to taxpayers