NRCS Levy Consultations November 2016

NRCS representation Mr. Edward Mamadise Ms. Reshma Mathura Acting Chief Executive Officer Ms. Reshma Mathura Chief Financial Officer Ms. Elmarie Cornelius Financial Manager Mr Bongani Khanyile General Manager Electrotechnical Ms Meisie Katz General Manager FAI

Scope of Presentation Strategic Overview of the NRCS NRCS Operational performance NRCS Financial performance Fee and Tariff proposal

Strategic Overview of the NRCS

NRCS Strategy, Mission and Vision NRCS Strategic Goals Mission & Vision To ensure an optimally capacitated institution To develop, maintain and administer compulsory specifications and technical regulations To maximise compliance with all specifications and technical regulations To inform and educate our stakeholders about the NRCS Mission To develop compulsory specifications and technical regulations, and maximise compliance of regulated products and services Vision A credible and respected regulator for the protection of the public, the economy and the environment

Legislative Mandate Mandate of the NRCS is derived from the following Acts. National Regulator for Compulsory Specifications Act (Act No. 5 of 2008) Legal Metrology Act (Act No. 9 of 2014) National Building Regulations and Building Standards Act (Act No. 103 of 1977) The Foodstuffs, Cosmetics and Disinfectants Act (Act 54 of 1972)

Industries regulated by NRCS Industry Sector Product regulated / Service rendered Automotive Vehicles, Replacements components, Manufacturers Importers and Builders Chemicals, Materials and Mechanicals Building materials (Cement. Treated timber, Safety glass and other safety glazing material). PPE (Safety Footwear, Swimming aids, personal flotation devices, respirators Electro-technical Electrical appliances and products, Electronic appliances and products Foods and Associated Industries (FAI) Fishery products, canned meat and processed meat Legal Metrology Verification of measuring instruments, type approval of measuring instruments, calibration in fields of mass and volume, designation of verification laboratories, Verification Officer examinations, E-mark Registration and LOCs for gaming equipment Building Regulations Ensure uniform interpretation of National Building Regulations and Standards Act, administer review Board

Organisational performance Operational Performance Financial Performance

NRCS Successes IPAP: Lock in and Lock out principles implemented Non-compliant products to the value of R204,85 million were removed from the market. The NRCS conducted 50 509 inspections The NRCS issued 9 457 approval certificates for Electro-technical, Automotive and Chemicals, Materials and Mechanicals products Issued 10 233 health guarantees which ensured that all exported fishery and associated products were accepted in foreign markets. Developed, withdrew and/or amended eight compulsory specifications (VCs) and submitted for approval to the Minister. These VCs were for Live Lobsters, Lamp Holders, Flexible Cords, Medium Voltage Electric Cables, Electric Cables with Extruded solid dielectric (300/500V to 1900/3300V) 2 Technical Papers developed and approved by the CEO for publication Corporate social investment (Safe paraffin stove campaign) Levy Audit successes (R9.5m in Q2 of 2017)

Challenges and strategies Inadequate testing facilities in South Africa for some regulated products e.g. Motor cycle helmets. Capacity constraints, given resources available Escalating cost of regulation Importation of products without NRCS Approval Generation of revenue reliant on trends and markets. Non-compliant levy payers Internal control weaknesses – ICT system Strategies SARS & NRCS Collaboration (Code alignment project) NRCS and other government departments & entities System modernisation Border enforcement Levy collections and under-declarations Meeting the current LOA turnaround times

Financial Status: Income Statement

Financial Status: Revenue

Financial Status: Revenue

Completeness of levies Levies are incomplete/ inaccurate due to: Bona fide error If a levy payer has incorrectly classified the levy commodity which they import or manufacture a bona fide error has been made. Lists of regulated products are available on the NRCS website www.nrcs.org.za and technical specialists are available to advise. Under-declaration The NRCS has the right to request any information it deems necessary for a period of five years. If under-declaration is suspected notify a levy officer. A levy auditor will then be dispatched to follow up. Non-submission of returns As at the end of October 2016, 53% of the levy returns due to the NRCS had not been submitted yet. A levy is the equivalent of a tax If the NRCS does not recognise all levies due to it, its revenue is incomplete A combination of levy audits and follow up on outstanding levies attempts to address this

Levy Declaration: Deadlines According to the Standards of GRAP: A levy is the equivalent of a tax A tax must be recognized at the date of the taxable event A taxable event for a levy happens when manufacture or import occurs Therefore levies need to be aligned to the NRCS’s financial year Mandatory declarations were introduced to achieve this Type of submission Mandatory declaration 1 Levy period 1 (Period A) Mandatory declaration 2 Levy period 2 (Period B) Period covered 1 January – 31 March annually 1 January – 30 June annually 1 July – 30 September annually 1 July – 31 December annually Submission Mandatory declaration Period A Levy declaration & payment Mandatory declaration Period B Due date for submission 30 April annually 31 July annually 31 October annually 31 January annually A period (January to June) B period (July to December) Mandatory declaration March Mandatory declaration March NRCS Financial year (April to March)

Financial areas highlighted Successes Strengthened Levy Audit function Compliance check on applications (levy, debtors, fees) Challenges Non-compliant industry (levy declarations, payment) Adverse economic conditions Declining government funding Key strategies Automation of the NRCS levy declaration function Levy audit focus on non compliance (under-declaration, incorrect declaration, non-declaration) Email statements

Proposal for increases Overall proposal A fixed increase equal to CPI. CPI calculated as at end of September 2016 = 6% applicable to both levies and fees. Exceptions Fees Legal Metrology (LM) Levy tariffs Foods and Associated Industries (FAI)

Legal Metrology: Rationale Scope Legal metrology fees Rationale for approach Benchmarking exercise conducted by NRCS Fees charges by NRCS are significantly lower than industry Legal Metrology is funded by government grant, which is reducing Approach Adjustment of fees to match industry tariffs based on a benchmarking exercise conducted. These fees are applicable to verification and type approval services.

Legal Metrology: Proposal for increases

FAI: Rationale Scope FAI Levies Rationale for FAI proposed increases Fee disparity between low volume and high volume producers SMME’s disadvantaged financially Intra-Industry cross subsidisation To provide a more equitable basis of pricing between high volume producers/ importers and low volume producers/ importers FAI unit not fully funded – Loss of R 12m Levy increase alternatives Levy scale review Single scale for levies

Proposal for increases - FAI CPI increase for 14 commodities

Proposal for increases - FAI Single tariff for 8 Commodities

Proposal for increases - FAI

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