PORTFOLIO AND SELECT COMMITTEES ON FINANCE 26 FEBRUARY /3 BUDGET

REVIEW OF 2001/02

2001/2 LEGISLATION Capital gains tax Strategic investment incentive PAYE iro directors of private co.’s Accelerated allowances for small business corporations Group re-organisation relief Duty at source Licencing, registration and accreditation of customs business

REVENUE 2001/2

REASONS FOR REVENUE TRENDS

Names of 42 tax offenders have been published. Investigations conducted by SARS’s Criminal Investigations division resulted in a total of 150 years of imprisonment for taxpayers who committed tax fraud. Customs stepped up anti-smuggling operations and targeted inspections. SARS shifted from audits of a single tax type to an integrated approach. Performed Income Tax audits which resulted in additional tax assessed of R6.3 billion. Companies represent R4.9 billion Individuals represent R1.4 billion OTHER REASONS

COMPARISON OF TAX RATES

R2 billion R2 billion R2.8 billion R3.7 billion R4.9 billion R9.9 billion R8.3 billion R15 billion Total = R48.6 billion COST OF ADJUSTMENTS - PERSONAL INCOME TAX

TAX MIX OVER THE YEARS

Companies and Close corporations m1,06 m Individuals registered -2.9 m3.3 m Individuals SITE -approximately 3 m3 m Trusts m0.23 m VAT vendors0.474 m PAYE0.215 m NUMBER OF TAXPAYERS

NEW TARGET 2002/03

R268.5 billion REVENUE TARGET 2002/3

NEW REVENUE TARGET

TAX GAP

Difference between revenue collected and the revenue that should be collected if the tax laws were complied with fully. Arises because taxpayers- are not aware of their obligations; choose to aggressively plan their affairs while purportedly adhering to the letter of the law; or simply flout their obligations and break the law. THE TAX GAP - DEFINITION

SARS and the National Treasury have begun with a project to identify the size and the composition of the tax gap. Currently estimated at more than R30 billion. Identify risk areas over the different tax types, e.g. Companies, i.e different sectors Individuals PAYE VAT Customs QUANTIFICATION OF THE TAX GAP

SARS continues to make progress in reducing the tax gap by introducing integrated audits and employ highly skilled specialists as part of the Woodmead project putting the spotlight on arrangements and structures that lead to low effective tax rates doubling the number of personnel in SARS’s Corporate Tax Centre by the middle of this year extending compliance to areas of the economy where it is erratic or non-existent INITIATIVES TO ADDRESS TAX GAP

Customs stepped up anti-smuggling operations and targeted inspections Extend tax awareness and compliance efforts to informal economy Initiate discussions on the regulation of tax consultants and tax advisors INITIATIVES TO ADDRESS TAX GAP (continued)

Balanced approach between closing the tax gap and providing a good service. Those who do not contribute to the tax gap may expect initiatives to improve the level of service they receive as good citizens. Ensure that taxpayers that approach SARS voluntarily to meet their obligations will be met with a helpful and sympathetic reception. Introduce a dedicated Complaints Office independent from Branch offices. SERVICE

BUDGET PROPOSALS 2002/03 Tax avoidance Simplification and reduced administration Economic stimulus Thresholds

Deeming income provisions to enforce the taxation of foreign income in respect of foreign assets Tax trusts, other than special trusts and testamentary trusts established for the benefit of minor children, at a flat rate of 40 per cent Eliminate deemed accommodation expenditure against subsistence allowance General tax avoidance provision for Customs MEASURES TO ADDRESS TAX AVOIDANCE

Change June tax year end individuals to end of February Limitation of employee deductions Introduce VAT retail method of accounting Simplify and consolidate tax forms Eliminate excise on soft drinks Raise provisional tax threshold from R2 000 to R SIMPLIFICATION AND REDUCED ADMINISTRATION

Grant R15 billion tax relief to individuals Introduce an accelerated depreciation allowance Increased exemption for domestic interest and dividends Revised transfer duty rates Lower fuel levy on environmentally friendly diesel fuels Extension of offshore diesel fuel concession Implement wage incentive Further relief for small business corporations Removal of certain transaction taxes,e.g. warrant repurchases by issuers, issue of debt instruments and cession of mortgage bonds. ECONOMIC STIMULUS

Long service and bravery awards from R2 000 to R5 000 Donations tax casual from R5 000 to R Donations individuals from R to R Estate duty from R1m to R1.5m Bursaries and scholarships Medical - eliminate R1 000 threshold Immediate expensing of intellectual property from R3 000 to R5 000 MONETARY THRESHOLDS

New legislation IT system changes Tax returns will have to be changed New procedures and changes to exiting procedures Additional cost to implement proposals IMPLICATIONS OF TAX PROPOSALS

FURTHER INITIATIVES AND INVESTIGATIONS 2002/03

Siyakha programme and technology improvement programme to address inadequate and outdated systems and technology to provide a better quality service to all taxpayers UIF contributions Legislation Aligned with other payroll taxes, i.e. PAYE and SDL Implementation programme Target date - 1 April 2002 SARS’S SPECIAL INITIATIVES

Retirement funding The taxation of derivative financial instruments and financial leases The introduction of more frequent provisional tax payments Process of rewriting the Income Tax Act SITE system Application of penalty provisions Tax returns and number of returns to be submitted Public Benefit Activity lists INVESTIGATIONS

Appointment to Chair of the Council of the World Customs Organisation reflects SARS as a reliable partner in trade administration. Coming year will be dedicated to building the division, improving service delivery and management systems and upgrading the physical infrastructure. Improved training and re-organising the new management and staff into high performing teams. Effective measures against illicit trade as well as cross-border trafficking in prohibited substances and trade in endangered species. Rules - implementation CUSTOMS