LEADING THE WAY IN TRANSFORMATION: THE SARS SUCCESS STORY! Pravin Gordhan Commissioner: SA Revenue Service

1. LEADING THE WAY IN TRANSFORMATION: THE SARS SUCCESS STORY! Pravin Gordhan Commissioner: SA Revenue Service

2. The 2nd BANKSETA International Conference 2004 Presentation by PRAVIN GORDHAN Commissioner of SARS to

3. SARS Mandate • The 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

4. The Economy • 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 • 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

5. Basic 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

6. SARS 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%)

7. SARS VOLUMETRICS 3 000 Bonded Warehouses 1,4 Million SACU Movements 4 Million Individual taxpayers 1,7 Million Import transactions 14 000 SARS Employees 1 451 Manufacturers of excisable products & 4 licensed distributors 1,4 Million Export transactions 3 000 Rebate Manufacturers 1,3million Corporate Taxpayers 136 000 Registered Traders/Operators 274 764 PAYE Employers 536 281 Vat vendors

8. REVENUE PERFORMANCE

9. SARS Performance • Stable tax regime • Fiscal stability • Increased revenue yield (exceeding revenue targets) • Significant tax relief (R73 billion) • Broadening the tax base • Improved service

10. OUR LEGACY • 11 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

11. OUR LEGACY…The SA Climate • The 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

12. 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

13. EVOLUTION 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

14. EVOLUTION OF SARS • Refocused 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)

15. EVOLUTION 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

16. SIYAKHA 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 implemented • Concentration of assessment activities resulted in improved turnaround times • Over 2400 staff have been trained in service and functional expertise • To 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

17. SARS LBC • • Launch of SARS Large Business Center - 2 September ‘04 • • The LBC Business Model: • 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 Developing enhanced Relationships with our corporate taxpayers based on intimate knowledge derived from industry sector specialization

18. LBC 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

19. Noteworthy achievements • Consistently exceeded revenue targets despite undergoing organisation wide transformation • Successfully introduced challenging legislative changes eg. RBT, CGT • Shifted the compliance culture in SA through targeted, visible enforcement • Expanded the business to take on new tax products eg. UIF and SDL • Made 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

20. 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

21. A REALITY CHECK • Change 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

22. 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 strategy • Institutional transformation

23. ANTICIPATED OUTCOMES • Smarter 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

24. RECIPE 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

25. RECIPE FOR OUR SUCCESS… • 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

26. Thank You