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Presentation to Parliament Committee on Finance 15 May 2007

Presentation to Parliament Committee on Finance 15 May 2007. OVERVIEW. Introduction A new strategic plan – 2008 - 2010 The strategy for the next 5 years The modernisation agenda – 10 programs What will be delivered in 07/08 The operational deliverables 07/8 Financials Conclusion.

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Presentation to Parliament Committee on Finance 15 May 2007

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  1. Presentation to Parliament Committee on Finance 15 May 2007

  2. OVERVIEW • Introduction • A new strategic plan – 2008 - 2010 • The strategy for the next 5 years • The modernisation agenda – 10 programs • What will be delivered in 07/08 • The operational deliverables 07/8 • Financials • Conclusion

  3. Introduction

  4. KEY MESSAGES: 2002 – 2006 STRATEGIC APPROACH • Understanding the base • Segmentation • “Cradle to grave” approach • Compliance approach • Compliance model (service, education and enforcement) • Focused enforcement • Integrated approach to compliance • High visibility and maximum coverage • Promote understanding of citizenship obligations

  5. KEY MESSAGES: 2002 – 2006 STRATEGIC APPROACH • 3 Changing the culture and work ethic • Intensive communication • Integrity • Better skills and management cadre • 4 SARS Transformation programme / Siyakha enhancement; i.e • Process innovation • Integrated systems • Variety of channels of interaction • 5 Partnership/ collaboration - taxpaying community

  6. People development Inculcate team culture Achieve better employment equity Enhanced people wellbeing Develop cadre of progressive professional managers Business and Technical skills Information Technology Systems responsive to complex business environments Migration from legacy systems to a more modern platform Empower and enable frontline Business Intelligence Data mining KEY MESSAGES: 2002 – 2006 : CAPABILITIES REQUIRED

  7. SARS CELEBRATES 10 YEAR ANNIVERSARY This year SARS celebrates 10 years as an integrated, administratively autonomous Customs and Revenue Administration As we prepare to celebrate the past decade we have taken some time to pause, reflect, take stock of our journey so far and chart our focus for the journey ahead – “Re aga bokamoso bobothle - We are building our future together”

  8. SARS JOURNEY TO DATE AND BEYOND . . . 50% Siyakha 2 (Modernisation) IT enabled, process and market segmented organisation 40% • Leverage IT to gain efficiencies and further reduce processing times • Smoother revenue collection cycle • Service and enforcement tailored to market segment needs • Ability to absorb other government enforcement and collection roles • Knowledge & intelligence drive Siyakha 1 30% Process modeled & team based organisation Efficiency Gains • Flatter more empowered organisation • Efficient, standard scale processes • Dedicated taxpayer services function • Dramatically improved enforcement • Better trained/motivated staff 20% Pre-Siyakha Bureaucratic, inefficient and ‘siloed’ by tax products and systems 10% 0% 0 1 2 3 5 4 Timeframe - Years

  9. A new strategic plan 2007/08-2009/10 The reflection and diagnostic A new Strategic plan

  10. SARS JOURNEY TO DATE AND BEYOND . . . • SARS has been very successful in the past 10 years in collecting revenues and absorbing volume growth while integrating and transforming the organisation In the past 10 years SARS has grown revenues from R123 billion in 1995/96 to R495 billion in 2006/07. This revenue growth has been driven by South Africa’s GDP growth and inflation together with improvements in compliance, improved taxpayer behaviour and tax policy changes In addition to coping with this growth, SARS has been able to significantly improve taxpayer and trader service levels as well as transform the organisation in many respects

  11. THIS HAS BEEN DRIVEN BY SARS EFFORTS OVER THE LAST 10 YEARS • From . . . • To . . . • Rigid administrative organisation • Externally oriented and flexible to change • A government department • Autonomous integrated organisation • 11 independent tax authorities • Separate revenue, customs and excise department • Increased diversity and strong positive image in SA and region • Uninspiring culture with low racial diversity • Strong growth in revenue and tax register • Improved external reputation and global involvement through WCO chairmanship • Less than 5% of population registered taxpayers

  12. 657 SARS HAS ACHIEVED ANNUAL REVENUE GROWTH OF 12.6% P.A. OVER THE PAST 10 YEARS • SARS revenue collection, 1996-2006 • Rbn • CAGR* • 417 • Annual revenue has grown by 12.6% p.a. over past 10 years • CIT has shown fastest growth, growing at 19.4% p.a. • PIT has had the slowest growth at 9.5% p.a. partly due to R69 billion rebates/ tax breaks awarded to taxpayers 10.9% • 59 13.1% • 18 • 329 • 302 • 33 19.4% • 13 • 49 • 252 • 8 • 43 • 201 • 9 13.3% • 114 • 36 • 165 • 7 • 99 • 28 • 81 • 123 • 6 • Other • 61 • 17 • 48 • Customs • 5 • 17 • 40 • CIT 9.5% • 33 • 126 • 112 • VAT • 98 • 90 • 86 • 68 • PIT • 51 • 1995/96 • 1997/98 • 1999/2000 • 2001/02 • 2003/04 • 2004/05 • 2005/06 * Compound Annual Growth Rate

  13. 12.1 PROCESSED INCREASED VOLUMES WHILE IMPROVING LEVELS OF COMPLIANCE Taxpayer volumes No. of PAYE, PIT and VAT assessments processed, millions Total imports and exports Rbn • +169% • +198% • 1996/97* • 2000/01 • 2005/06 • 1995/96 • 2000/01 • 2005/06 Tax register has grown by 10.5% over last 10 years Individuals and companies, thousands Population registered for tax Registered taxpayers as % of labour force • +67% • +158% • 1995/96 • 2000/01 • 2005/06 • 1995/96 • 2000/01 • 2005/06 * No PAYE data available due to manual systems

  14. 10 TRANSFORMED ITS EMPLOYEE PROFILE AND DIVERSITY • Change in employee diversity • 37 • 44 • 50 • 56 • White • 69 • 6 • 6 • 6 • 5 • Indian • 4 • 6 • 47 • Coloured • 40 • 36 • 31 • 21 • African • 1998 • 2001 • 2002 • 2004 • 2006 • Since 1998 the representation of • Previously disadvantaged individuals increased from 21% to 47% • Black females increased from 10% to over 25% • Since 2002, African representation in senior management (grade 7–9) has increased from 34% to 47%

  15. OUR CHALLENGES • Growth in processing volumes has significantly outpaced growth in available resources • In order to achieve its current operational commitments SARS has been allocated R18.7 billion over next three years • In addition SARS needs to • Play a role in implementing the new social security and the wage subsidy • Increase its focus on border security due to increasing challenges in the international environment • Improve its current processing is largely manual and paper intensive • Enhance and professionalise management and operational processes and systems • Increased focus on border security and customs • Enhanced systems and processes

  16. 13 977 GROWTH IN PROCESSING VOLUMES HAS SIGNIFICANTLY EXCEEDED GROWTH IN AVAILABLE RESOURCES • SARS has managed strong volume growth . . . • . . . however, growth in SARS resources has not kept pace • Growth in processing volumes • No. of transactions, m • Growth in trade volumes • No. of transactions, m • Growth in SARS employees • 13 977 • 13 138 • 13 210 • +39% • 12 265 • 12.1 • +27% • 11 012 • +46% • 2001/02 • 02/03 • 03/04 • 04/05 • 2005/06 • 2002/03 • 2005/06 • 2001/02 • 2005/06 • Resources have not grown in line with revenues • In addition SARS has old systems and improved, but manual processes

  17. Social Security • Wage Subsidy • Develop the complete business case Define SARS’ role • Start implementation as soon as possible • + SARS NEEDS TO PLAY A ROLE IN IMPLEMENTING THE NEW SOCIAL SECURITY AND THE WAGE SUBSIDY • SARS is already starting to plan and the next steps are … • Finalise the role that SARS will play in collecting/administering the SST and Wage Subsidy • Determine the other stakeholders that SARS will need to partner with • Engage with stakeholders to determine the model that will be used for the administration of the Wage Subsidy • Determine resources needed and develop the necessary capabilities to deliver • Identify the inter dependencies and areas of synergies • Design a detailed implementation plan Social Security and Wage Subsidy are priorities which need significant effort in initial thinking and planning and should be appropriately resourced

  18. CHALLENGES IN THE INTERNATIONAL ENVIRONMENT REQUIRE AN INCREASED FOCUS ON BORDER SECURITY • International trends • Implications/impact • Increased global interconnectedness and complexity • Increased international trade volumes and number of participants • More advanced global production networks and trade • Emergence of transnational organised crime networks • Customs subjected to globalisation and a catalyst for competitiveness • Global security concerns require customs to safeguard borders • Shift emphasis from import control to export control as result of single transaction approach • SARS lead agency at port of entry as well as BCOCC chair

  19. SARS SYSTEMS AND PROCESSES DELIVER THE BASIC REQUIREMENTS, BUT ARE NOT FULLY INTEGRATED AND CAN BE ENHANCED • Systems currently fulfill basic processing requirements, however: • Lack of automation across business processes – high volume of core manual processes • Lack of integration across core tax systems • Distinct solutions by tax for similar processes • Overall data quality across all tax systems has been compromised • Lack of consolidation of functions across customs and revenue • Upstream problems in the functional business units • Current complexity limits ability to implement change quickly • SARS needs to significantly modernise operations in order to deliver on current business needs whilst creating the capacity and foundation for future growth

  20. A new strategic plan 2007/08-2009/10 The reflection and diagnostic A new Strategic Plan

  21. DELIVERY OF CORE OPERATIONS AND MODERNISATION PROGRAMME For SARS to deliver on its strategic challenges requires balancing delivery of core operations whilst accelerating implementation of the modernisation programme SARS must continue to sustain operational performance AND Accelerate the Modernisation Programme

  22. Key elements of strategic plan

  23. Strategic Pillars • Strategic challenges • Maximise revenue, compliance and taxpayer service • New operating model • + • Lead agency and enhanced border control • New government priorities • + • Social security tax and wage subsidy • + • Target Education and outreach programmes • Organisational foundation … whilst sustaining our current business. THE MANAGEMENT AGENDA WILL ENSURE THAT SARS IS ABLE TO DELIVER ON ITS STRATEGIC CHALLENGES

  24. 1.5 SARS MODERNISATION PROGRAMME HAS BEEN SEQUENCED ACROSS 3 PHASES OVER NEXT 5 - 7 YEARS • Phase 3: • Delivery of world-class service • Phase 2: • Implement new model • Phase 1: • Create capacity, design and prepare for modernisation • Estimated timing • 2 years • 2-3 years • 1-2 years • Focus of management agenda • Align organisation on strategic choices and direction • Launch division specific quick-wins and no regrets moves • Develop intelligence and transparency on taxpayer and trader segments and develop differentiated business model • Develop core skills and capabilities to deliver • Take actions to improve performance transparency and business processes • Develop organisational capabilities and capacity • Implement new business model per segment • Capabilities in place • Shift in effort and allocation of resources • Core tax process re-design • Broader people process and values programme • Change the way SARS acts and performs in all areas and on all organisation levels • Deliver full results according to aspirational targets and desired end state (revenue, compliance, border management)

  25. SARS MODERNISATION AGENDA Develop new Operating Model Support Government Priorities Strengthen Organisational Foundations

  26. THE MODERNISATION AGENDA – NEW OPERATING MODEL • Programmes • Rationale and actions Create differentiated operating model • Segment taxpayers/traders and develop strategies and operating model by segment • Reallocation of resources • Long-term benefits once established Develop an integrated risk management and enforcement system • Capture of additional growth and closure of tax gap • Increase capacity and enhance capabilities of enforcement and risk • New operating model Improve customer service, outreach and education • Important for SARS to be responsive to taxpayers, • Maintain perception of being efficient revenue collector • Re-design service model to improve service levels and meet service charter targets Enhance core operations and build capabilities • Imperative to stabilise and repair core foundation for sustained performance • Build basic core operations capabilities (e.g. scanning, automation and e-filing) • Redesign core tax product processes

  27. NEW OPERATING MODEL? - MOST REVENUE TODAY IS COLLECTED FROM A CONCENTRATED NUMBER OF TAX PAYERS • Taxpayer population pyramid • Revenue collection pyramid • Tax and revenue pyramid comparisons • Number of taxpayers today • Total revenues collected today • High • Majority of revenues collected from concentrated number of tax payers (large corporations and individuals) • Revenue per taxpayer • Limited revenue collection from bulk of existing tax payers Informal economy and new tax payers from economic growth • Strategic challenge to educate and capture effect of informal economy and new taxpayer growth • Low

  28. Some resource against differentiated and specialised activities, e.g., LBC, HNW • Majority of resources deployed against manual processing for mid-low end taxpayers – predominantly PIT • 1 • 2 • 1 • 2 • 3 • 3 • Targeted initiative based activities reaching out to informal economy and education, e.g., small business amnesty CURRENT RESOURCE DISTRIBUTION • SARS today • Revenue • Tax base

  29. Streamline middle Optimise and reduce effort on processing medium revenue generating taxpayers/ traders • Increased specialisation Improved targeting of high revenue generating taxpayers/ traders • Increase outreach Efficiently enlarge footprint to increase awareness and compliance amongst SMMEs and the informal sector • 1 • 1 • 2 • 2 • 3 • 3 SARS REQUIRES A DIFFERENTIATED APPROACH TO ENGAGING WITH TAXPAYERS AND TRADERS • Future SARS

  30. 27 SARS’ COMPLIANCE MODELS SEEKS TO INCREASE VOLUNTARY COMPLIANCE Risk Assessment Enforcement Service Environmental Knowledge and Understanding Effective Segmen-tation Customer Awareness Education

  31. 27 SARS’ COMPLIANCE STRATEGY IS BASED ON PROPORTIONAL RESPONSE SARS’ compliance strategy is based on a response proportional to the behaviour of taxpayers and traders • Excellent service for those who are compliant and low risk • Service and education for those who seek to be compliant but may not understand their obligations • Assistance and understanding for those who make honest mistakes • Full weight of the law for those who are knowingly non-compliant

  32. New Operating Model What we plan to have achieved by end of this year and 2010

  33. WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR AND 2010 - CREATE A DIFFERENTIATED OPERATING MODEL • Deliverables over next 3 yrs • Deliverables in 2007/08 • Refined and completed taxpayer and trader segments • Defined segment strategies for agreed segments with respect to enforcement, customer service model and tax products • Re-designed our operating model to meet differentiated requirements; and • Operationalised the reconfigured operating model for key segments • Develop clearer understanding of taxpayer and trader segments

  34. WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR AND 2010 - INTEGRATED RISK AND MANAGEMENT AND ENFORCEMENT SYSTEM • Deliverables over next 3 yrs • Deliverables in 2007/08 • Develop an integrated risk and enforcement strategy • Implemented integrated risk scoring and targeting tools • Leveraged 3rd party data capabilities; and • Tailored our risk approach based on the outcome of the differentiated operating model • Increase capacity and enhance capabilities of enforcement and risk

  35. WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR AND 2010 - IMPROVE CUSTOMER SERVICE, OUTREACH AND EDUCATION • Deliverables over next 3 yrs • Deliverables in 2007/08 • Significantly improved our service levels • Redesigned our service delivery model with respect to all service channels • Implemented some key re-designed changes (such as a call centre upgrade, case management and tracking solution and single registration capability) • Implemented a single registration and view of a taxpayer/ trader’s relationship across SARS products; and • Differentiated treatment of practitioners in Service Centres • Replace current systems at call centres, back office and branches; and • Implement an easy-to-use interface to our PIT legacy system at call centres

  36. WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR AND 2010 - ENHANCE CORE OPERATIONS AND BUILD CAPABILITIES • Deliverables over next 3 yrs • Deliverables in 2007/08 • Improve payment processing and administration • Refined and automated the assessment process (including simplification of forms); and • Implemented 3rd party data verification and applied it to assessment process • Complete initial phase of revised PIT assessment process; and • Implement revised debt definition rules and reduce debt balance

  37. SARS MODERNISATION AGENDA Develop new Operating Model Support Government Priorities Strengthen Organisational Foundations

  38. THE MODERNISATION AGENDA – NEW GOVERNMENT PRIORITIES • Programmes • Rationale and actions Implement national social security tax and wage subsidy • Commitment to implement social security by 2010, and administer wage subsidy • Leverage synergies and interdependencies with core tax systems • New government priorities Strengthen border control (lead agency & security at ports of entry) • National priority to protect borders and curtail illicit trade • Implement AEO accreditation programme and implement CBCU units • Prepare for tax and customs implications of World Cup 2010

  39. Government priorities What we plan to have achieved by end of this year and 2010

  40. WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR AND 2010 - IMPLEMENT NATIONAL SOCIAL SECURITY TAX AND WAGE SUBSIDY • Deliverables over next 3 yrs • Deliverables in 2007/08 • Implement SARS components of social security • Implement necessary process and technology infrastructure; and • Started administering the wage subsidy • With key stakeholders, agree SARS’s role and the strategy to deliver on social security tax and wage subsidy

  41. WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR AND 2010 - STRENGTHEN BOARDER CONTROL • Deliverables over next 3 yrs • Deliverables in 2007/08 • Implemented a fully operational Authorised Economic Operators (AEO) accreditation programme • Set up Customs Border Control Unit (CBCU) at Customs borders • Improved coordination and cooperation between all agencies at ports of entry • Increased regional cooperation with Southern African Customs Union members • Successfully prepared to manage border and tax related issues in the hosting of 2010 FIFA Wold Cup; and • Further captured internal synergies between Customs and Revenue • Finalise SARS Customs strategy • Implement first phase of Customs Border Control Unit (CBCU) • Implement first phase of scanner programme at selected ports of entry; and • Implement first phase of the Authorised Economic Operators (AEO) accreditation programme

  42. SARS MODERNISATION AGENDA Develop new Operating Model Support Government Priorities Strengthen Organisational Foundations

  43. Limited MIS capability and performance management in place • Professionalised management planning, tracking and reporting processes Further professionalise management processes and governance • 2007 Year of the People, people are critical enabler to any change agenda • Improve talent and performance management processes • Skills lacking in critical areas • Embedding of values Transform SARS’ culture and further enhance people capabilities • Organisational foundation • Improve operational efficiency by upgrading operating systems and hardware • Upgrade and improve facilities to ensure compliance with health and safety regulations Improve infrastructure (ICT and Facilities) • Create buy-in and excitement for change • Education of taxpayers Effective communication and change management THE MODERNISATION AGENDA – ORGANISATIONAL FOUNDATION • Programmes • Rationale and actions

  44. Strengthening Organisational foundation What we plan to have achieved by end of this year and 2010

  45. WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR AND 2010 - FURTHER PROFESSIONALISE MANAGEMENT AND GOVERNANCE • Deliverables over next 3 yrs • Deliverables in 2007/08 • Integrate the current disparate stores of human resource and financial information to optimise planning and transactional processing; and • Automate a number of current manual, paper-intensive human resource processes • Professionalised management planning, tracking and reporting processes; and • Improved our strategic sourcing strategy and implemented process changes to selected purchase categories

  46. WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR AND 2010 - TRANSFORM SARS’ CULTURE AND FURTHER ENHANCE PEOPLE CAPABILITIES • Deliverables over next 3 yrs • Deliverables in 2007/08 • Revised our talent management strategy • Implemented key initiatives such as recruiting, training and development, succession planning and repositioning of talent; and • Implemented improved performance management processes within an enhanced governance framework • Engage the organisation on the new direction and prioritise areas for improvement; and • Implement first phase of an automated performance management process

  47. WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR AND 2010 - IMPROVE INFRASTRUCTURE (ICT) • Deliverables over next 3 yrs • Deliverables in 2007/08 • Implement the first phase of the stabilisation programme • Implement the first phase of the new network; and • Implement the first phase of the hardware and mainframe optimisation programme and release capacity • Stabilised and upgraded the foundation of core legacy systems • Implemented a revamped network to support transactional volume growth; and • Improved disaster recovery capability

  48. WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR AND 2010 - IMPROVE INFRASTRUCTURE (FACILITIES) • Deliverables over next 3 yrs • Deliverables in 2007/08 • Finalise our facilities strategy • Redesign facilities to align with the new service model; and • Upgrade and improve facilities to ensure compliance with health and safety regulations and to satisfy business needs • Complete the revised facilities strategy; and • Complete the first phase of the 3-year plan to achieve compliance with health and safety regulations

  49. WHAT WE PLAN TO HAVE ACHIEVED BY END OF THIS YEAR AND 2010 -EFFECTIVE COMMUNICATION AND CHANGE MANAGEMENT • Deliverables over next 3 yrs • Deliverables in 2007/08 • Implemented the revised brand management strategy reflecting SARS’s direction; and • Enhanced communication capacity to support change management • Communicate the modernisation agenda to all employees; and • Successfully communicate the changes to the 2007 assessment process to taxpayers and traders

  50. Create differentiated operating model Develop an integrated risk management and enforcement system Improve customer service, outreach and education Enhance core operations and build capabilities Implement national social security tax and wage subsidy Strengthen border control (lead agency & security at ports of entry) Further professionalise management processes and governance Transform SARS’ culture and further enhance people capabilities Improve infrastructure (ICT and Facilities) Effective communication and change management THE MODERNISATION AGENDA COMPRISES OF 3 PILLARS WHICH ARE SUPPORTED BY 10 PROGRAMMES • Programmes • New operating model • New government priorities • Organisational foundation

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