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Presentation to the Standing Committee on
Public Accounts
19 March 2003
Contents
1. Introduction
2. What has SARS Achievedi. Business Achievementsii. Revenue Achievementsiii. Audit Reports
3. SARS Transformation
4. Risk Management & Internal Controls
5. The Next Steps …
Business Achievements
Achievements - Processing Improved cycle times:
84% of all assessments issued within 21 days Quality Improvement
quality assurance to reduce assessment errors Corrections of accounts
Reduced balance of SMR account (unallocated payments) by 43.8%
Introduced UIF collections process in April 2002 UIF collected till 16 March 2003 – R3.9 billion
Developed a more user friendly tax return
Achievements - Customs Improvement in border post infrastructure Implemented: Transit System; Warehouse
Inventory Management System; Export System; Manifest Acquittal System; CAPE Phase II
Recruitment and training of over 500 staff Established national and local stakeholder
forums Promotion of regional and international
cooperation
Excise Duty at Source
Implementation of Duty at Source Tobacco 1 Oct 2003 Spirits 26 Feb 2003 Beer 26 Feb 2003 Oil 2 April 2003
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
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
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
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
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
Alcohol Ghost exports Counterfeit products
Enforcement Actions (cont) Collections
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
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
Audit Achievements
Audit Achievements A notable achievement in the audit report for
Administered Revenue was the elimination of the previous report items relative to insufficient risk analysis and audit procedures.
An unqualified audit opinion for SARS Own Accounts
Ongoing strengthening of the relationship between SARS and AG and a shared understanding of the key risks in the Audit engagements, with recognition of the Internal Audit role.
Revenue Achievements
Revenue : 2002/03 Printed Estimate: R268.5 billion Feb 2003 Revenue Estimate: R280.1 billion Revised is R11.6 billion above Printed
Estimate This is attributed to:
real growth in the economy higher than expected inflation greater corporate earnings particularly in the
commodities sector, and improved compliance activities
Achievements for the past six years
* R11.6 billion is projected as the surplus above the original estimate
R 'billion 1997/8 1998/9 1999/0 2000/1 2001/2 2002/3
Target 164.2 179.2 193.9 213.6 236.8 268.5
Collections 165.3 184.6 200.9 220.9 252 280.1
Above target 1.1 5.4 7.0 7.3 15.2 11.6
Total additional collections 47.6
1998/9 1999/2000 2000/01 2001/2 2002/3Lowest personal bracket 31,000 33,000 35,000 38,000 40,000 Lowest marginal rate 19% 19% 18% 18% 18%Highest personal bracket 120,000 120,000 200,000 215,000 240,000 Highest marginal rate 45% 45% 42% 42% 40%Number of brackets 6 6 6 6 6Primary rebate 3,515 3,710 3,800 4,140 4,860 Additional rebate 2,660 2,775 2,900 3,000 3,000 Tax threshold 18,500 19,526 21,111 23,000 27,000
For under 65
Trend - Individual Tax Rates
1995/6 96/7 - 98/9 99/00 - 01/02 2002/3 2003/4
Company rate 35% 35% 30% 30% 30%STC 25.0% 12.5% 12.5% 12.5% 12.5%Combined rate (100% distribution) 48.0% 42.2% 37.8% 37.8% 37.8%Combined rate (33.3% distribution) 39.3% 37.4% 32.6% 32.6% 32.6%
Trend – Corporate Tax Rates
Tax Cuts
PIT relief 1998 – R3.7 billion 1999 – R4.9 billion 2000 – R9.9 billion 2001 – R8.4 billion 2002 – R15.2 billion 2003 – R13.3 billion
Total R55.4 billion
SARS Transformation
SARS Transformation Process
Approach to Transformation at SARS Immediate Changes
Infrastructure; Process Improvements; Teaming; Skills Upgrading
Immediate to Medium Term Changes New Business Architecture; Policy Changes; Organisational
Design
Medium to Long-term Changes New Automation and Technology Platform; Continuous
Policy and Process Improvements
SARS Transformation: Delivered? December 2001:
Implementation of Siyakha in KwaZulu-Natal
October 2001 to September 2002: New Management Team in Customs; New
Business Process; e.g. New Anti-smuggling, PCI, Risk Profiling Teams.
October 2002 - January 2003: Implementation of Siyakha in Western Cape
Siyakha Western Cape Roll Out Bellville Assessment Centre
Establishment of a call centre and two branch offices
Enforcement Centre in central Cape Town
Changes to smaller offices over the next few months
In the medium term
Medium Term Develop an Enterprise Architecture to facilitate the
organisation’s transformation
Review Administrative Policy
Continuous Process Improvement
Risk-Based Business Processes
Performance Metrics and Measurement
Skills Development and Deployment
Technology enhancement
Financial investigationsCriminal investigations
Prosecutions
Internal / External
examinations and inspections
AssessingFiling
Pre
-fil
ing
Pre
-e
ng
ag
em
en
t
Education
Service
Encourage filing
Subscription - registration
Receive & update information
Payments
Calculate and measure liability i.r.o declaration by customer
Examine Inspect Investigate Criminally investigate
CollectProsecute
Educate
Com-municate
Adver-tise
Service
Risk-profiling
Service & Engagement
SARS Business Process
In the medium to long term
Long Term
New Automation Technology Electronic Document Management System Integration of Systems
New Technology Platform Additional FIMS Modules Completion of New Customs Systems
E- SARS
Risk Management &
Internal Controls
Risk Management Governance
Process/Business Risks Tax Gap SARS Compliance Model
Internal Control System
Technology and Systems
Governance Minister
Regular Meetings
PFMA Audit Committee; Internal Audit
SARS Amendment Act HR; IT Committees
Internal Governance EXCO; Sub-Committees; Programme Steering Committees
Parliamentary Committees
Revenue Gap
Revenue Target
Macro economic factors
Tax gap strategies
Assessing efficiencies and quality
Anti avoidance measures
Legislative loopholes
Drivers of Revenue
Tax and Customs Gap
Tax Gap Analysis
Activation Strategies
Long Term
Revenue Trends
Inductive Surveys
Deductive Analyses
Segmentation of Tax Base
Tools for Activation
Key Accounts & their Drivers
Models for Estimation
What is the future Revenue Base?
How to close the Tax Gap?
Rbn
Time
How big is the current Tax Gap?
Tax Gap - Complexities of the PIT Tax Gap
Foreign dividends
Rental
Allowances
Deductions
Understate Taxable Income
Overstate expenses / deductions
Filing
Not filing
Individual Evasion
Travel
Donations
Medical
Pension / RA
Other
Salary
Self-employed profits
Interest
Other allowances
Uniform
Entertainment
SubsistenceFringe Benefits (non-cash income)
Retains partial
Deducts
Not deduct
Registered for PAYE
Not registered for PAYE
PAYE - EmployerEvasion Retains all
Incorrect issuance of IT3’s
Simply not deducting tax
PIT
Ev
as
ion
Retirement Benefits
Under deducts(with knowledge)
This tree defines the exhaustive set of areas that require data to estimate the tax gap based on where the decision rights are held.
Tax Gap - Corporate Income Tax Evasion
Cash
Non cash
Active
Dormant
Filing
Not filing
Corporate Evasion
Depreciation
Allowances
Provisions (14)
Inflation of expenses (7,8,9,10,11,12)
Private expensesOverstate
expenses(1, 12)
Under-declare income(1, 12)
Active
Dormant
Recoupment
Understate income (2)
Declaring income as capital (5,6,7,8)
Other income
Interest received**
Discounts/rebates
Sundry (3,4)
Tax underpaid (13)
Assessed lossschemesTax holidays
* Income earned on ‘grey’ money, which cannot be declared as it was taken out illegally** Interest received and foreign exchange gains on Rand denominated outward bound loans
Evasion Schemes:
1. Offshore structures (includes transfer pricing)
2. Controlled foreign entities
3. Under-declare foreign income
4. Foreign dividends
5. Deferred allotment and share-incentive schemes
6. Incorporation of professional practices
7. Long-term insurance schemes (inflated premiums)
8. Short-term insurance schemes (inflated premiums)
9. Preference share financing schemes
10.Property schemes (could include CGT)
11.Structured finance schemes
12.Transfer pricing
13.STC not paid
14.Under-valuation of trading stock
False deductions
SARS Compliance
Strategy
Key Principles of Compliance Strategy
Balance between Education, Service and Enforcement
Taxpayer Conduct Determines Administration Response
“Cradle-to-Grave” Approach
The Drivers of Revenue
SARS Compliance Model
Education Service
Enforcement
TAXPAYER COMPLIANCE
COMMITTED COMPLIANCE
CAPITULATIVE COMPLIANCE
CREATIVE COMPLIANCE
CREATIVE COMPLIANCE: AVOIDANCE (GAAR)
CREATIVE COMPLIANCE: EVASION
NON-COMPLIANCE:
EVASION
Incentivise; accredited clients
Monitor (lesser degree); examine; incentivise
Monitor: inspect
Monitor; Legal action to challenge; “compliance checks”
Monitor; legal action; investigate
Identify; legal action; prosecute; investigateE
DU
CA
TE / E
NG
AG
E
CO
MP
LIA
NT
TE
CH
NIC
AL
LY
C
OM
PL
IAN
TN
ON
-C
OM
PL
IAN
T
The Compliance Behavioural Model
Risk Management: External Clients
All actions to be intelligence driven Automation of risk profiling systems Regulatory model developed Understanding of the tax gap
Implementing integration of Enforcement, Customs and Revenue Analysis risk units into a centralised risk management unit for SARS
Risk Management: AG Concerns GRAP vs. GAAP
Defining rules relative to Revenue from non-exchange transactions
Year-end Accounts for Own Accounts and Administered Revenue Synergies between AG and Internal Audit to reduce scope of work Planning workshops conducted in order to optimize scope of work
and operational management of the audit Regular audit progress meetings
Siyakha Involvement of AG and Internal Audit
Internal Controls
Internal Control Model
Risks(Inherent Risk assessment)
Internal Controls(Risk mitigation)
Measure & Monitor(Risk management)
COSO
Self-Assessment
AuditManagement Responsibility
Control Objectives
Audit Role
Audit/Business Interface
COSO is the adopted model in SARS
Risk Management Model
Tax
pay
er
dat
a b
ase
Con
ting
ent
taxp
ayer
(T
ax g
ap)
Imp
ort
ers
&
Exp
ort
er
Key Risk (Impact) Core Assets Enablers
Pro
cess
Assessment
Collection
Enforcement
Integrity of assessments (Financial loss; poor taxpayer service)
Non collection (Financial loss; SARS collection target) Non-collection Growth in the tax gap (Financial loss; SARS collection target) Export and import of prohibited goods (Financial loss; SARS collection target)
People Skills & Capacity - Poor assessment, enforcement & TPS - Increased service/production costs
Technology
Integrity, availability, adaptability and confidentiality of the Information Systems - Turnaround times - Service/production cost - Taxpayer service - Financial loss
KEY OUTPUTS - Organisational goals - People outcomes
Loss of funds or assets (Financial loss; SARS collection target)
New business design
Change management
Project management Tra
nsf
orm
atio
n
Inappropriate business architecture/ design - Loss in current revenue streams, increase in the tax gap - Undesirable people outcomes - Compromise to the current business model
Decreased business results during Transition period (Financial + People) - People fatigue - Increase in tax gap - Increased project cost - Risk to the project outcomes (new business)
Failure to manage resources to deliver on Siyakha goals - Delayed and costly Siyakha - Decrease in the current business edge (loss of the sustained growth in collection and TPS. - Undesirable people outcomes
Technology
Information Security
COBIT Process Control Framework
Disaster Recovery Planning
The Next Steps...
The Next Steps:Transformation Siyakha Programme
Gauteng, Eastern Cape, Free State
Large Business Office
Continuous Process Improvement
Registration and Filing
Technology New Customs System; New Integrated Financial System;
EDMS; CRM; Business Intelligence; Risk Profiling
The Next Steps: E-SARS Evolve to an intelligent e-business infrastructure Creation of a single SARS corporate portal for
employees and customers Electronically enable most of our processes and
transactions, improving productivity and maximizing IT investment
Improve information security as a corporate priority Avail appropriate information to government
constituencies through world wide web services
The Next Steps: Processing Revenue Target 2003/04 Improved Quality of Assessment and Cycle
Times Enhancement of Skills Implementation of New Dispute Rules Filing Process E-Filing/E-Payment Single Registration Third Party Verification
The Next Steps: Enforcement Coordinated Campaigns on High Risk Sectors
Industrial Focus Areas Revenue Activation Projects
Tax Gap Risk Profiling System Roll out Debt Management System Outsourcing Part of Debt Prosecution for Non-registration Building Greater Prosecution Capacity with NPA
The Next Steps: Customs SA Cargo Security Project Smuggling of Drugs and Protected Species Export Control Control of Rail Traffic Implementation of Risk Management Suppressing corruption and promoting integrity Improving infrastructure especially for land border
posts Regional co-operation and Nepad
The Next Steps: Service One stop service to the largest companies Additional call centre capacity Simplified tax returns for individuals Provide assistance to taxpayers with filing
process Differentiated Channels Regulation of professionals
Tax practitioners Customs accreditation
Continuous Process Improvements Process Culture – a new way of looking at business at all levels.
Process Management – the concept that processes need to be owned and managed in accordance with customer requirements.
Process Enhancement – supporting the pace of change required to deliver on strategic intent covering improvements, re-engineering and transformation.
Process Technology – the tools that allow the organisation to best fulfill its mandate, including hardware, mapping software, design methodologies and project management disciplines.
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 Enhance risk management and internal controls
THE END….!
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