Post-budget speech on revenue collections

 

Pretoria – Friday, 24 February 2017 – SARS has noted media reports, especially in the Business Day of 24 February 2017.

We find it extremely regrettable that the Minister of Finance elects to attribute the announced tax proposals to fill the Revenue gap of R30bn to the performance of the SARS administration.

In fact, such utterances by a person, as senior as the Minister of Finance, poses serious challenges to the overall credibility, and hence effectiveness of SARS as an institution.  

It is unfortunate that this happens at this particular time in the financial year with only 5 weeks away from the end of the 2016/17 financial year.

As customary, the final quarter of any financial year is characterised by a step-up in engagements with taxpayers to ensure that reconciliations are timeously carried out and outstanding returns and payments are finalized.

Any Interruption or distortion in this well established practise will impact negatively on the attainment of the 2016/17 Revenue Estimate of R1144.4bn. It has the potential to adversely affect the overall fiscal framework of South Africa.

The erosion of our public finance framework in this manner will have serious consequences for all South Africans, especially the most vulnerable in our society. 

Revenue Estimates are based on macro-economic indicators developed by National Treasury. This set of assumptions is then considered by a committee of technical experts comprising of SARB, SARS and National Treasury. This committee is referred to as the Revenue Analysis Working Group (RAWC). Based on a consensus seeking process the RAWC recommends a Revenue Estimate to the Minister of Finance.

Revenue Estimates for any particular financial year are set in February of the preceding year. Within the financial year it is revised twice based on economic and business cycles that manifest themselves in the course of the year.

This process has proved to be effective and has ensured Revenue outcomes well within a 1% confidence interval over the past decade.

In fact history will show that within the final estimates the outcome is normally within 0.5% of the Revenue estimates, an accuracy commented favourably upon by the IMF.

The buoyancy, which is the ratio of Revenue growth to GDP growth, is below (one) 1 for this financial year.  However it should be noted that the tax responses, in general, lag GDP and business cycles. For instance, the CIT that SARS collect now is attributable to company performance 6 to 12 months back in history.

The Tax to GDP ratio is an internationally accepted norm to measure the efficiency of a tax administration to extract Revenue from the economy. The outlook in the 2017 budget for the Tax to GDP ratio, remains above the long term average of 25.5% and is contemplated at 26% for the 2016/17 financial year in budget 2017.

This is well above South Africa’s peers and certainly on par with the mid 2000’s when the South Africa had strong economic growth aided by high commodity prices – boom period! 

The Printed Revenue Estimate for 2016/17 announced in February 2016 of R1175bn and constituted a nominal 9.8% Revenue growth year-on-year. At that stage the GDP growth forecast was anticipated to be 1.2%.

Since February 2016 the economy failed to grow to the anticipated level and on that basis, the RAWC recommended a downward revision in Revenue at MTBPS and subsequently at the February 2017 Budget.

The significant downward revision from the Printed Estimate of R1175bn by R30bn for the 2016/17 Financial Year according to the 2017 Budget is attributable to;

a. Customs Duties being down by R6.5billion, as a result of contraction in real terms in imports. 
b. VAT, similarly being dragged down by Import VAT collections to an underperformance by R11.3bn.
c. PIT, for long being the anchor of Revenue Collections, underperforming by R15.2bn. The growth of PIT, year to date, has declined from levels exceeding  12% to about 9% as a result of lower wage settlements, containment of  bonus payments and job shedding.

All of the above are attributable to economic factors which were analysed by RAWC and taken into consideration when formulating the budget proposals. This process throughout the years ensured integrity and transparency to the determination of Revenue Estimates

Allow me know to deal with the issue of VAT refunds. SARS has an obligation to ensure both service and compliance which includes complying with the TAA and ensuring that all incorrect activities are managed correctly which could include fraud.

 
Taxpayers are managed in line with the Administrative Process pertaining to a specific tax product.


Only once the Audit Process has been satisfied and the case has been verified by the SARS Risk engine will the case flow to the required step to refund a taxpayer or to route the case to an auditor dependent on the information picked up.


Due to an increase in fraud, SARS has had to react by tightening up our Risk Rules.  Despite that we have seen 89% of VAT refund payments paid within the VAT SLA with only 11% of cases allocated for detailed audit. Regarding Personal Income Tax payments of 98.2% is paid within (72 hours).  Cases routed for further Audit is directly attributable to concerns seen such as:

  • Banking details
  • Outstanding Debt
  • Outstanding returns
  • Mismatch of information supplied against 3rd party data sources

Refund payments are therefore a function of finalised audit cases which is well documented and aligned to the National Treasury guidelines of cash flow management.


Lastly, I intend to address the widely publicised Mail & Guardian article titled “Gordan vs Moyane” dated 24 February 2017. 

 
Firstly, the alleged 16 letters of correspondence between SARS and Treasury were not leaked by SARS.  An investigation conducted by the SSA into leakage of correspondences within SARS and between SARS and treasury confirmed that there is no leakage from SARS.

 
In this regard, The Minister should explain and/or investigate the leakages from his office.  The letters in questions were privileged and confidential documents and were only shared with the Minister of Finance.


As a result, I have no alternative but to reasonably suspect that the leakages emanates from the office of the Minister.
In responding to the substance of the allegations contained in the M & G article, it is important to concede that the relationship between the Commissioner for SARS and the Minister of Finance is not ideal and has its own peculiar challenges. In a nutshell, the point of contention with the Minister revolves around the following issues;


(1) Unreasonable delays by the Minister in the approval  and appointment of  senior employees of SARS as required by section 18(3) of the SARS Act;
(2) Undue interference by the Minister into the operational matters of SARS as conferred by the SARS Act; and
(3) The inability to resolve the current challenges pertaining to the relationship between SARS leadership and the Treasury due to a personality cult.

Unreasonable delays in the approval of key appointments


(1) SARS has made key appointments such as the Chief Officer: Digital Information Services and Technology.  Since July 2016, SARS had requested the Minister to approve the said appointment. To date, the Minister has failed to make the necessary appointment.

Notwithstanding various follow ups and request and the fact that the vacuum of the said Chief Officer has a debilitating effect on the operations of SARS, the Minister has failed make the approval without providing reasons. 

SARS has a number of appointments in acting capacities due to the Minister’s failure to make the required appointments. I intent to continuously engage the Minister in this regard.

Undue interference by the minister into operational matters of SARS and in particular the work performed by the commissioners of SARS on a day to day basis


(1) The point of departure with the Minister arises from the Minister’s insistence in irregularly interfering in the operations of the institutions such as approval of leave for senior SARS employees, salary increment and bonus payment for SARS employees.

(2) At this juncture, the powers to administer the operations and expenditure for SARS are exclusively vested in the Commissioner in terms of Section 9 of the SARS Act, as both the chief executive officer and the accounting authority for SARS.

Furthermore, Sections 50 and 51 of the Public Finance Management Act vest the fiduciary duties of administering SARS in the commissioner for SARS as the accounting authority for SARS. The Minister and the Office of the Commissioner are only vested with powers enshrined in the PFMA and the SARS Act.

My view has consistently been that our powers have to be exercised within the confines of the law.

(3) With particularity to the issues of salary increase and bonuses, that decision exclusively resides with me in terms of section 9(3) since I am exclusively responsible for all income and expenditure of SARS.

The 14 500 employees deserve bonuses and salary increment for exceeding the revenue collection target for 2015/2016.

As the Commissioner, I confirm that to date, I have not paid any bonus to myself. I am still awaiting a decision by the Minister to make a determination on whether should the Commissioner for the SARS be paid a bonus and if yes, by how much.

(4)  I confirm that there was a formal referral to the President to appoint a third party to mediate the differences between SARS and the Minister.

I approached the President since he appointed the Commissioner for SARS in terms of section 5 of the SARS Act and appointed the Minister as a member of the cabinet.  I am waiting for the President to revert with regard to the appointment of a referee to adjudicate differences between the Minister and SARS.

In light of the pending adjudication, I am not privy to divulge further details.

The inability to resolve current challenges   pertaining to the relationship between SARS and treasury

I concede that the challenges between National Treasury and SARS are mainly characterised by the cult of personality between the Minister and the person of the Commissioner for SARS.


I concede that on a personal and professional level, my relationship with the Minister has not been cordial but rather strained. 
In the interest of South Africa and in particular SARS, I am willing to engage the Minister with or without the intervention of a third party, in order to resolve whatever personal and/or professional differences that may exist.


It is my conviction that the current economic conditions requires that both the Minister and  I need to engage and map a constructive way forward so as to retain public confidence in both SARS and National Treasury. As both veterans of the struggle for the liberations of South Africa, we are duty bound to put the interest of the country above any differences.