CIAT CONFERENCE THE CONTROL OF PRODUCTIVITY AND RESULTS, BENCHMARKING Peter Richer – General Manager Risk Management Division Amsterdam, 7 th October 2004

2 INTRODUCTION TO SARS 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

3 INTRODUCTION TO SARS 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 staff  Administration costs <1.5% of revenue collected (developed countries 2%; developing countries 4-5%)

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

5 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structures, many layers of management  Procedures were highly bureaucratic, manual and clerical in nature  Weak and outdated physical infrastructure  Wholly inadequate technology infrastructure – disparate line of business systems  Low staff morale with minimal representivity,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

6 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

7 BEHAVIOURAL CHART

8 NEW BEGINNINGS  1 April 1996  Established SARS as a separate Government Department  1 October 1997  Administrative autonomy Separate legislation enacted by Parliament to provide for tax and customs mandate SARS no longer part of Public Service but still part of Public Administration outlined in Constitution SARS now determines own staff establishment as well as conditions of employment Functions performed under the policy control of Minister of Finance and an Advisory Board  Staff of former branches of Inland Revenue, Customs and Excise and Administration transferred to new single department

9 SARS KEY STRATEGIES  Increase Revenue Yield  Provide Service Excellence  Responsible Enforcement  Performance Culture  Build Capability  Good Governance

10 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

11 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 centres (Taxpayer Service; Assessment; Enforcement; Customs)

12 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

13 GENDER RATIO Gender 64% of the employees in July ‘04 were Female and 36% Male

14 RACIAL DEMOGRAPHICS The demographics as a percentage of total headcount were as follows: White46% African39% Coloured9% Indian6%

15 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

16 REVENUE COLLECTION

17 REVIEW FRAMEWORK FOR MEASURING PRODUCTIVITY

18 WHAT MUST CHANGE IN ORDER TO INCREASE PRODUCTIVITY  Embodiment of new values  New “co-operative governance” approach is needed  Business plan – the focus  Align & Measure  New work culture  Move way from the old to the new  Support new offices / old offices  Strong policy focus

19 CHANGES IN SARS TO INCREASE PRODUCTIVITY?  Delineation of functions into: - Strategic / planning - Operations - Support functions  Consistency across operational divisions: - Creation AGM positions: - AGM: Operations - AGM: Policy - AGM: Planning / Research / Special Projects - Creation of Senior corporate support manager in each division  that will look at: - Knowledge management; - Change management; - Human development; - Financial management; - Planning and PMS; and - Internal control.

20 Aligning goals

21 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

22 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

23  Engaged in local, regional and international for the sharing of best practices and technical exchange of information A different way of doing business through the offerance of:  E-filing  Customs Accredited Client Scheme  Signing of Memoranda of Understanding (MOUs) and Memoranda of Administrative Assistance (MAAs) NOTEWORTHY ACHIEVEMENTS

24 E-FILING The number of new taxpayers registered for e-filing during July was with returns filed through E-filing. The revenue from e-filing payments was R 1.93bn (YTD R3.62bn) 2.6 E-Filing Status

25 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

26 THE NEXT WAVE FOR INCREASED PRODUCTIVITY  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

27 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

28  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 RECIPE FOR OUR SUCCESS…

29 RECIPE FOR OUR SUCCESS…  Staff loyalty, resilience and adaptability – effective change management programmes  Pursuance of organisational coherence  Create the space to innovate  Donor support and direction  Adequate resourcing and capability  Market related remuneration for staff linked to performance SUCCESS BREEDS SUCCESS!!!!

30 AN EVOLVING BUSINESS MODEL…  Proactively reducing the tax gap and enhancing revenue collection by growing the tax base  Increasing compliance and enforcement capability to meet the needs of the primary taxpayer segments and to address high risk areas  Investing in appropriate cost effective technology that improves service delivery and processing efficiency  Empowering our staff through appropriate devolution of authority

31 AN EVOLVING BUSINESS MODEL…  Investing in skills upgrade and creating a work environment that supports learning and innovation and building a knowledge based organisation where intellectual capital is our core competence  Reducing administration and compliance costs by pursing the optimal balance between encouraging and enforcing compliance that is relevant to the SA compliance climate  Implementing the SARS compliance strategy that provides a consistent response driven by taxpayer behaviour