PORTFOLIO AND SELECT COMMITTEES ON FINANCE

SARS PRESENTATION ON THE 2003/4 BUDGET

4 MARCH 2003

CONTENTS

1. INTRODUCTION2. REVENUE : TO DATE3. REVENUE TARGET 2003/44. COMPLIANCE STRATEGY

• EDUCATION• SERVICE• ENFORCEMENT• CUSTOMS

5. THE FUTURE

REVENUE ACHIEVEMENTS

2002/3

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

R 'billion 1997/8 1998/9 1999/0 2000/1 2001/2 2002/3

Target 164.2 179.2 193.9 212.2 234.0 268.5

Collections 165.3 184.4 200.2 219.6 249.2 280.1

Above target 1.1 5.2 6.3 7.4 15.2 11.6

Total additional collections 46.8

Achievements for the past six years

Additional collections assisted in the reform of tax rates & increased expenditure

programmes

TREND - INDIVIDUAL TAX RATES

1998/9 1999/2000 2000/01 2001/2 2002/3 2003/4Lowest personal bracket 31,000 33,000 35,000 38,000 40,000 70,000 Lowest marginal rate 19% 19% 18% 18% 18% 18%Highest personal bracket 120,000 120,000 200,000 215,000 240,000 255,000 Highest marginal rate 45% 45% 42% 42% 40% 40%Number of brackets 6 6 6 6 6 6Primary rebate 3,515 3,710 3,800 4,140 4,860 5,400 Additional rebate 2,660 2,775 2,900 3,000 3,000 3,100 Tax threshold under 65 18,500 19,526 21,111 23,000 27,000 30,000 Tax threshold 65 and over 31,950 33,717 36,538 39,154 42,640 47,222

TREND – CORPORATE TAX RATES

1995/6 96/7 - 98/9 99/00 - 01/02 2002/3 2003/4

Company rate 35% 35% 30% 30% 30%STC 25.0% 12.5% 12.5% 12.5% 12.5%Combined rate (100% distribution) 48.0% 42.2% 37.8% 37.8% 37.8%Combined rate (33.3% distribution) 39.3% 37.4% 32.6% 32.6% 32.6%

REVENUE TARGET

2003/4

2003/4

R310 billion

2002/3

R268.5 billion

Printed Estimates

REVENUE COMPARISON

TAX 2002/3 2003/4 % Change

Individuals 93.2 96.7 3.8

Companies 54.9 65.9 20

STC 6.3 8 27

Tax on Retirement Funds

6.9 6 -13.8

Taxes on Property 5.3 5.9 10.4

VAT 70.6 81 14.7

Customs 9.5 11.0 15.8

Excise 10.3 11.4 10.5

Advalorem Excise 1.0 0.3 -67.2

Fuel Levy 15.2 16.3 7.5

How will SARS delivery

Revenue Target?

Comprehensive Compliance Strategy

KEY PRINCIPLES OF COMPLIANCE STRATEGY

• BALANCE BETWEEN EDUCATION, SERVICE AND ENFORCEMENT;

• TAXPAYER CONDUCT DETERMINES ADMINISTRATION RESPONSE

• “CRADLE-TO-GRAVE” APPROACH

• THE DRIVERS OF REVENUE

TOTAL COMPLIANCE MODEL

Education Service

Enforcement

TAXPAYER COMPLIANCE

COMMITTED COMPLIANCE

CAPITULATIVE COMPLIANCE

CREATIVE COMPLIANCE

CREATIVE COMPLIANCE: AVOIDANCE (GAAR)

CREATIVE COMPLIANCE: EVASION

NON-COMPLIANCE:

EVASION

Incentivise; accredited clients

Monitor (lesser degree); examine; incentivise

Monitor: inspect

Monitor; Legal action to challenge; “compliance checks”

Monitor; legal action; investigate

Identify; legal action; prosecute; investigateE

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TThe Compliance Behavioural Model

Education

Service

Encourage filing

Pre-en

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Pre-filin

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Filing Assessing Internal / External examinations and inspections

Financial investigationsCriminal investigationsProsecutions

Subscription - registration

Receive & update information

Payments

Calculate and measure liability i.r.o declaration by customer

Examine Inspect InvestigateCriminally investigate

CollectProsecute

Educate

Com-municate

Adver-tise

Service

Risk-profiling

Service & Engagement

Revenue Target

Macro economic factors

Tax gap strategies

Assessing efficiencies and quality

Anti avoidance measures

Legislative loopholes

DRIVERS OF REVENUE

OVERVIEW OF SERVICE

• Customer centricity

• Multiple channels of Interaction

• First time resolution of queries

• Creating a service culture

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

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

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

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

TECHNIQUES

• Segmentation

• Risk Profiling

• Data Mining

• Matching complexity of skills

• Single view of tax payer

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

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

FILING

• Provide assistance to taxpayers with filing process

• Revision of extension regime

• Quicker action against filing defaulters

• Penalties and prosecution for non – filers

ENFORCEMENT ACTIONS (cont)

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

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

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

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

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

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

• 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%

FOREIGN EXCHANGE AMNESTY

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.

Country Year Charge

France 1982 25%

France 1986 10%

Germany Proposed 25%, 35%

Ireland 1993 15%

Italy 2001 2.50%

Italy 2002 5%

Malta 2002 3%, 4%, 5%

Russia Proposed 13%

• 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

FOREIGN EXCHANGE AMNESTY (2)

• 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

FOREIGN EXCHANGE AMNESTY (3)

Prospects for the Future

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

CONCLUSION