PORTFOLIO AND SELECT COMMITTEES ON FINANCE SARS PRESENTATION ON THE 2003/4 BUDGET 4 MARCH 2003

1. PORTFOLIO AND SELECT COMMITTEES ON FINANCESARS PRESENTATION ON THE 2003/4 BUDGET4 MARCH 2003

2. CONTENTS • INTRODUCTION • REVENUE : TO DATE • REVENUE TARGET 2003/4 • COMPLIANCE STRATEGY • EDUCATION • SERVICE • ENFORCEMENT • CUSTOMS • THE FUTURE

3. REVENUE ACHIEVEMENTS 2002/3

4. REVENUE : 2002/03 Budget Estimate: R268.5 billion Feb. 03 Revised Estimate: R280.1 billion Revised is R11.6 billion above Budget Estimate This is attributed to: real growth in the economy higher than expected inflation greater corporate earnings particularly commodities sector, and improved administrative efficiency

5. Achievements for the past six years

6. Additional collections assisted in the reform of tax rates & increased expenditure programmes

7. TREND - INDIVIDUAL TAX RATES

8. TREND – CORPORATE TAX RATES

9. REVENUE TARGET 2003/4

10. 2003/4 R310 billion 2002/3 R268.5 billion Printed Estimates

11. REVENUE COMPARISON

12. How will SARS delivery Revenue Target? Comprehensive Compliance Strategy

13. KEY PRINCIPLES OF COMPLIANCE STRATEGY • BALANCE BETWEEN EDUCATION, SERVICE AND ENFORCEMENT; • TAXPAYER CONDUCT DETERMINES ADMINISTRATION RESPONSE • “CRADLE-TO-GRAVE” APPROACH • THE DRIVERS OF REVENUE

14. TOTAL COMPLIANCE MODEL Enforcement TAXPAYER COMPLIANCE Education Service

15. Identify; legal action; prosecute; investigate NON-COMPLIANCE: EVASION NON-COMPLIANT Monitor; legal action; investigate CREATIVE COMPLIANCE: EVASION Monitor; Legal action to challenge; “compliance checks” EDUCATE / ENGAGE CREATIVE COMPLIANCE: AVOIDANCE (GAAR) TECHNICALLY COMPLIANT Monitor: inspect CREATIVE COMPLIANCE Monitor (lesser degree); examine; incentivise CAPITULATIVE COMPLIANCE Incentivise; accredited clients COMMITTED COMPLIANCE COMPLIANT The Compliance Behavioural Model

16. Risk-profiling Calculate and measure liability i.r.o declaration by customer Educate Com-municate Adver-tise Service Education Service Encourage filing Subscription - registration Examine Inspect Investigate Criminally investigate Prosecute Collect Payments Receive & update information Service & Engagement

17. DRIVERS OF REVENUE Macro economic factors Tax gap strategies Revenue Target Anti avoidance measures Legislative loopholes Assessing efficiencies and quality

18. OVERVIEW OF SERVICE • Customer centricity • Multiple channels of Interaction • First time resolution of queries • Creating a service culture

19. SERVICE • Launched SARS Service Monitoring Office • New dedicated tax exemption unit for public benefit organisations and other entities • Released discussion document on Taxpayer Service Charter • New rules for tax courts and settlement of disputes • Introduce an advance ruling system

20. SERVICE Going forward: • One stop service to the largest companies • Additional call centre capacity • Simplified tax returns for individuals • Provide assistance to taxpayers with filing process • Integrated channels • Relationship Managers at every branch • Regulation of professionals – • Tax practitioners • Customs accreditation

21. Processing and Assessment Efficient and high quality processing capability: • Timely submission of tax returns • Improved turnaround times • Improved quality of assessments • No backlogs • Continuous improvement of processes • Introduce appropriate measurement instruments • Reduce costs and increase efficiencies • Implementation of duty at source • Tobacco; 1 October 2002 • Spirits and beer; 26 February 2003 • Oil; 2 April 2003

22. PRINCIPLES OF ENFORCEMENT • High visibility eg outstanding returns • High frequency of contact • Optimal geographic coverage • Targeted sector/industry campaigns • Third party data matching • Intelligence and Risk Assessment

23. TECHNIQUES • Segmentation • Risk Profiling • Data Mining • Matching complexity of skills • Single view of tax payer

24. THIRD PARTY INTERFACES • Natis (traffic authorities) • Deeds office (property transactions) • Websec (Link directors to companies) • Movement control (Movement in and out of the country) • ITC (Credit bureau) • FIC (Financial Intelligence Center) • Internet • Mapnet (Property search) • Aircraft Register • Yacht register • Interaction with other agencies such as SAPS, Scorpions & Commercial Branch

25. ENFORCEMENT ACTIONS REGISTRATION: • Create awareness of obligation to register • Penalties and prosecution for failing to register • Reduce number of unregistered taxpayers • Migrate towards single registration for taxes • Initiate specific tax base broadening programs • Using third party information • Street visits

26. ENFORCEMENT ACTIONS (cont) FILING • Provide assistance to taxpayers with filing process • Revision of extension regime • Quicker action against filing defaulters • Penalties and prosecution for non – filers

27. ENFORCEMENT ACTIONS (cont) Audit • Risk based approach • Introduce segmentation of the taxpayer base • Enhanced field audit presence • Proper reporting and statistical analysis of audit results • Special audit teams focussing on areas of serious non-compliance • Higher penalties on PAYE defaulters • Increase skilled audit capacity

28. ENFORCEMENT ACTIONS (cont) INVESTIGATION • Proactively identifying criminal investigation cases through intelligence; industry analysis • Enhanced cooperation with other government agencies • Strengthen investigation and prosecution capacity • Special focus on organised crime • Targeted campaigns iro high risk areas – • illegal beer and wine production • Ghost exports • Counterfeit products

29. ENFORCEMENT ACTIONS (cont) COLLECTIONS Introduction of automated debt management system • Special focus on old debt • Proactive management of new debts • Enhancing outbound call centre capacity • Outsource certain categories of debt collection • Extension of appointment of agents for payment of tax to other taxes • Making shareholders of liquidated companies personally liable for failed companies tax liabilities • Making withholding agents directly liable for taxes

30. MEASURES TO ADDRESS TAX AVOIDANCE • Disclosure of tax avoidance structures • Limiting losses from secondary trades • Extension of general anti-avoidance principles to other tax acts • Transfer duty avoidance utilising nominee transactions • Extension of anti-connected person loss rules • 200% penalties for PAYE transgressions • Penalties for non-royalty payments

31. CUSTOMS PRINCIPLES • Prevention of trade in prohibited goods • Effective administration of trade programmes • Transparent, quick and consistent facilitation of legitimate trade • Risk targeting • Segmentation according to risk • Reduction of non-tariff barriers

32. CUSTOMS ENFORCEMENT • Enhanced visible enforcement through: • Raising examination rate to between 5% and 6% • Increased post-clearance inspections • Industry task teams for sensitive sectors like liquor, tobacco, electronics, motor and textile and clothing • Increased drug detection, especially at JIA • Increased detection of trade in protected species like abalone • Detection of illegal export of currency • Implementation of an improved risk management system • Collaboration with customs compliant traders, agents and their organisations (accreditation), including organised labour. • Enhanced control and assurance security of export cargo

33. FOREIGN EXCHANGE AMNESTY • Long history of shifting funds offshore illegally • Many individuals wish to repatriate their foreign assets and regularise their affairs • Any individual not subject to investigation by SARS or Exchange Control Department may apply • Application submitted from 1 May until 31 October 2003 • Full and proper disclosure of offshore income, assets and liabilities • Assets repatriated to South Africa – 5% once-off levy • Disclosed assets kept offshore – 10% once-off levy • Declared assets below Excon limits – 0%

34. FOREIGN EXCHANGE AMNESTY CHARGE International Benchmarking The charge levied for the repatriation of funds held illicitly offshore has varied widely internationally. Particularly interesting are the German and Maltese models where the charge increases as the window period for the amnesty draws to a close.

35. FOREIGN EXCHANGE AMNESTY (2) • Benefit – • No civil and criminal liabilities in respect of contraventions until 28 February 2002 • No taxes and interest on failure to disclose gross income or capital gains on or before that date • Excon violations – apply with authorised dealer • Income tax violations – apply with SARS on condition that return for 2003 tax year must be submitted disclosing all foreign income and income tax on foreign income during that year must be paid

36. FOREIGN EXCHANGE AMNESTY (3) • A joint SARS/SARB call centre is planned to assist individuals with queries relating to the foreign exchange and related income tax amnesty • A guide setting out the application form and procedures to be followed will be published on the SARS website and will be made available at SARS branch offices • Draft legislation will be developed before the end of March and be made available by Minister for comment

37. Prospects for the Future

38. CONCLUSION The enduring challenge for SARS: • Sustain performance in revenue collection • Consolidate and deepen efficiency gains • Improve quality of service and education to taxpayers • Improve levels of compliance and reduce the tax gap • Expand the tax base and create scope for reducing the burden to taxpayers