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Seychelles Revenue Commission

Annual report

2012

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Contents 1. Foreword ............................................................................................................................................. 4

2. Executive summary ............................................................................................................................. 6

3. Our mission, vision, core values and strategic objectives .................................................................. 9

Our Mission ......................................................................................................................................... 9

Our Vision ............................................................................................................................................ 9

Our Core values ................................................................................................................................... 9

Our strategic objectives ...................................................................................................................... 9

Our goal ........................................................................................................................................... 9

Strategic objectives ......................................................................................................................... 9

4. SRC Organizational Structure ............................................................................................................ 10

4.1 Office of the Revenue Commissioner ......................................................................................... 11

4.2 Reform Project Office [RPO] ....................................................................................................... 12

4.3 Support Services Division [SSD] .................................................................................................. 13

4.4 Tax Division ................................................................................................................................. 14

4.5 Customs Division ......................................................................................................................... 15

5. SRC’s Resources ................................................................................................................................ 16

5.1 Human Resources ....................................................................................................................... 16

5.2 Budget execution and performance ........................................................................................... 17

6. Performances .................................................................................................................................... 20

6.1 Revenue collection ...................................................................................................................... 20

6.1.1 Business Tax Revenue .......................................................................................................... 20

6.1.2 Goods and Services Tax ........................................................................................................ 21

6.1.3 Trades Tax Revenue ............................................................................................................. 21

6.1.4 Social Security (SS) and Income & Non Monetary Benefits Tax Revenue (INMBT) ............ 22

6.1.5 Excise Tax Revenue .............................................................................................................. 22

6.1.6 Other Tax Revenue ............................................................................................................... 23

6.2 Non revenue performance.......................................................................................................... 24

6.2.1 Improve voluntary compliance and facilitate trade ............................................................ 24

6.2.2 Improve detection and sanction of all forms of tax evasion and smuggling ....................... 26

6.2.3 Enhance our business capacity ............................................................................................ 32

6.2.4 Develop a dynamic and professional workforce .................................................................. 34

6.2.5 Promote good corporate governance .................................................................................. 36

7. Way forward ..................................................................................................................................... 37

Annex 1: Confirmed Statement of Expenditure for 2012 ..................................................................... 38

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List of Charts Chart 1: Seychelles Revenue Commission’s organigram ...................................................................... 10 Chart 2: Office of the Revenue Commissioner ..................................................................................... 11 Chart 3: Reform Project Office structure .............................................................................................. 12 Chart 4: Support Services Division’s structure ...................................................................................... 13 Chart 5: Tax Division’s Structure ........................................................................................................... 14 Chart 6: Customs Division’s Structure .................................................................................................. 15 Chart 7: Fuel consumption from the month of May to November 2012 ............................................. 17 Chart 8: Expenditure budget consumption per division for the year 2012 .......................................... 18 Chart 9: Expenditure budget consumption per cost category for the year 2012 ................................. 18 Chart 10: Spending for training per division for 2012 .......................................................................... 19

List of Tables Table 1: Number of staff per division ................................................................................................... 16 Table 2: Staff Turnover for the year 2012 compared to 2011 .............................................................. 16 Table 3: Administered budget –expenditure for the year 2012 ........................................................... 18 Table 4: Training expenses incurred in 2012 ........................................................................................ 19 Table 5: Overall revenue collection 2012 against target ...................................................................... 20 Table 6: Total Business Tax revenue for the 2010-2012 ....................................................................... 20 Table 7: GST Collection for the year 2010-2012 ................................................................................... 21 Table 8: Trades Tax collection for the years 2012 – 2012 .................................................................... 21 Table 9: SS and INMBT per category for the years 2010-2012 ............................................................. 22 Table 10: Excise Tax collection on import and local production for 2010 – 2012 ................................ 22 Table 11: Other Tax Revenue collection on importation and domestic for 2010 – 2012..................... 23 Table 12: Overall measure of compliance performance for the year 2010-2012 ................................ 26 Table 13: Audit performance by segment against planned for 2012 ................................................... 27 Table 14: Audit performance by type of tax and segment for 2012..................................................... 28 Table 15: Audit cases per tax type and type of audit for the year 2012............................................... 28 Table 16: Number of Assessed cases for 2010-2012 and revenue raised per tax type in 2012 ........... 29 Table 17: Collection rate for audit cases ............................................................................................... 30 Table 18: Number of cases received, closed and outstanding for the year 2012 ................................ 31 Table 19: Revenue raised and collected from closed interpretation and appeal cases in 2012 .......... 31 Table 19: Outstanding debt as of end of 2012 ..................................................................................... 32 Table 20: Age of debt as at the end of 2012 ......................................................................................... 32 Table 21: Training distribution per division for 2012 ............................................................................ 34

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1. Foreword

The Seychelles Revenue Commission (SRC) was faced with yet another challenging year in

2012 as we prepared for the implementation of the final tax reform Value Added Tax under

the Macro Economic Financial Program. This has paved the way for a more modern

administration and in fact changes in the way we conduct our business and perform or

discharge our responsibilities and moving towards a more effective customer oriented

organization.

SRC remains committed towards the community as evidenced in t its mission which is to

optimize revenue collection and facilitate trade to improve the socio-economic well being of

Seychelles. Despite the challenges faced in 2012, our overall performance has been

satisfactory and I am pleased to report that SRC has again surpassed the revenue target of

SR 4,365 million forecasted for the year by SR 57 million. SRC collected a net amount of SR

4,422 million which is about 7 percent (SR 286.2 million) more than the net collection for

2011.

SRC continued with its reform and modernization program in 2012 with a lot of focus on the

preparation of the implementation of the VAT and the introduction of a new Customs

Management Act. In our transformation to be a more performance based organization we

also launched our new Strategic Plan 2012-2014 which sets out our vision, mission, outlines

our objectives and priorities and performance measurement for the next 3 years. In order to

achieve our set objectives SRC has adopted 5 core values namely - Integrity; Impartiality;

Professionalism; Transparency; Accountability which is also reflected in our new logo.

A three year Compliance Management Strategy was also developed in line with our strategic

objectives to help us to better manage compliance with the aim of improving voluntary

compliance and facilitate trade and improving detection and sanction of all forms of tax

evasion and smuggling.

We also piloted our employee performance management system and this will be

implemented as from 2013.

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We are aware that corruption may hinder/obstruct SRC from achieving its objectives so we

remain committed with our zero tolerance to corruption and in that line we have developed

our integrity action plan. We have awarded a contract for an independent assessment of the

level of corruption (or perceived corruption) within SRC.

Once again let me thank the Deputy Revenue Commissioner, Heads of Divisions and all the

staff for their continued support, dedication and hard work in making e 2012 yet another

successful year for SRC.

Jennifer M. Morel Revenue Commissioner

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2. Executive summary

Similar to the last two years since its establishment, the Seychelles Revenue Commission

(SRC) once again surpassed its revenue targets in 2012 with a net receipt amounting to SR

4.4 billion, which is SR 286.2 million above the corresponding figure for 2011 and SR 57.3

million above the figure forecasted in the budget. The best performers were Income and

Non-Monetary Benefits Tax which was 2.4 percent above forecast and 1.1 percent above

2011 performance and other taxes (16.4 percent above forecast and 25 percent above 2011

performance). Business tax performed with an over collection of 5.7 percent against

forecast but recorded a negative growth of 10.4 percent against the previous year’s

performance. Whilst the overall performance was positive for 2012 there was an

underperformance in GST, Trades Tax and Excise Tax collection against forecast and the

previous year’s performance, with the only exception being GST which recorded better

performance in 2012 over that of 2011.

Arrears as a percentage of net receipt stood at 7 percent for the year with 39 percent of the

debt being in excess of 12 months. In 2012 the Tax Division completed 342 audit cases

against the 365 cases planned for the year resulting in an execution rate of 94 percent.

Gross revenue raised from both audits and administrative assessments was SR 93,982,311,

(SR 81.1 Million derived from audit and SR 12.8 million from assessments). This was 18.9

percent below the target set at SR 115 million. It must be noted however that the target was

set on the basis that an additional 11 auditors were to be recruited in 2012.

SRC acknowledges and appreciates that performance needs to be improved in these area as

well as others and therefore in 2012 saw the development of a comprehensive compliance

strategy covering both Tax and Customs. The strategy strikes the right balance between a

service-oriented approach and enforcement. The first pillar of this compliance strategy aims

at promoting voluntary compliance with a strong focus on helping customers fulfil their

obligations whilst the second pillar is centred on risk-based enforcement programs

(including tax audits, physical examinations of cargos, post clearance audits and debt

recovery).

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SRC made a major achievement in 2012 in the direction of strategic planning. A three year

strategic plan was designed and launched covering the period 2012-2014. The plan provides

the grounds, objectives and performance targets for SRC’s future actions in its core areas.

SRC also developed and piloted its employee performance management system with a set

implementation date of 1 January 2013. This was another one of the priorities set for the

year as it strives to be a performance based organisation.

SRC also reinforced its effort in changing the negative image of SRC. In June 2012, an

Integrity Action Plan was finalised and approved for implementation and in line with the

approved Integrity Action Plan SIM was awarded the contract to conduct an independent

assessment of the level of corruption (or perceived corruption) within SRC, the outcome of

which will be made public in 2013. SRC also remained committed to its zero tolerance to

corruption. Fifteen malpractice cases alone had been detected and sanctioned in 2012.

With the introduction of two new laws specifically the Value Added Tax Act and the

Customs Management Act and a high emphasis on risk management approaches, SRC

reviewed its organizational structure to be able to enhance the quality of services to its

clients in line with its vision to be a customer oriented organisation. The Tax Division

expanded the segmentation model to other sections within the division whilst five new units

were created in the Customs Division namely Post Clearance Audit, Risk Management, Excise

Tax, Manifest and Export Units.

SRC’s total Expenditure budget for 2012 was SR 53.7 million but ended the year with a

surplus of SR 3.1 million attributed mainly to the inability to successfully recruit as planned.

So while its workforce increased by 10.5 percent during 2012, there were fifty unfilled

positions across both the Divisions of Tax and Customs. . Building capacity of its staff

remained amongst SRC’s other priorities for 2012, which was done through the allocated

training budget, making up 4.5 percent of the total expenditure budget. However due to

constraints with regards to cancellation of some courses by its external counterparts only 74

percent of the allocated budget was actually used.

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Despite the fact that a lot has been achieved during 2012, SRC is cognisant of the areas that

it needs to improve upon to become a more efficient and effective organisation. These are

improving corporate governance, getting more autonomy on access to information

technology, providing an attractive scheme of service to retain staff and developing a more

collaborative working relationship with its customers. Even though SRC is faced with

numerous challenges the organisation remains committed in it endeavour to attain its

mission.

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3. Our mission, vision, core values and strategic objectives

Our Mission

“Optimize revenue collection and facilitate trade to improve the socio-economic well-being of Seychelles”

Our Vision

“To be a modern, fair and effective customer-oriented revenue administration”

Our Core values

o Integrity – demonstrate continually high moral and ethical behaviour while upholding the rule of law.

o Impartiality – without favour, apply the law equally and fairly to all.

o Professionalism – be courteous, conscientious, business-like and knowledgeable.

o Transparency- share all relevant information to external and internal stakeholders.

o Accountability – each officer is responsible for his/her actions.

Our strategic objectives Our goal “... Taxpayers meet their obligations and Seychelles revenue increases....”

Strategic objectives

1. Improve voluntary compliance and facilitate trade.

2. Improve detection and sanction of all forms of tax evasion and smuggling.

3. Enhance our business capacity.

4. Develop a dynamic and professional workforce.

5. Promote good corporate governance

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4. SRC Organizational Structure

Chart 1: Seychelles Revenue Commission’s Organigram

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4.1 Office of the Revenue Commissioner

The office of the Revenue Commissioner provides the overall strategy from which the Seychelles Revenue Commission operates and is governed by the Seychelles Revenue Commission Act, 2009. The office further advocates the administration of all legal aspects related to or within SRC whilst reinforcing and assessing the implementation of standardized operating procedures.

Chart 2: Revenue Commission’s Office structure

Revenue

Commissioner

SEL2

Legal Advice

COMMISSIONER’S OFFICE

Internal Audit

Internal Audit Section

Finance

Finance

Customs Assistant

The main responsibilities of the Legal Unit are to efficiently and effectively interpret the laws administered by the Commission and to provide guidance in all legal matters relating to both tax and customs.

Legal Section Custom Assistance Unit

The Finance Unit is responsible to effectively and efficiently manage SRC’s allocated budget and ensures that expenditure is in line with financial standards as laid down by the Ministry of Finance.

Internal Audit Unit:Ensures that the system in

place operates in all

divisions and at all levels

and that all risks are

considered;

Appraises and monitors the

adequacy and effectiveness

of internal controls;

Is a key part of effective

corporate governance.

The Customs Assistance Unit provides the necessary support to the Assistant Commissioner of Customs by ensuring that Customs complies with the Standard Operating Procedures in place; ensures compliance requirements are fulfilled and providing general assistance to the ACC.

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4.2 Reform Project Office [RPO] The RPO is a function-based structure responsible for designing, implementing and monitoring all SRC’s on-going reforms and modernization programs (covering both Tax and Customs). RPO has been instrumental in introducing VAT, launching the Customs Management Act and played a major counterpart for technical assistance with SARS, IMF, AFRITAC and others. RPO is also responsible for strategic planning including designing and implementing the Business Plan (2012-2014), the Compliance Strategy (2012-2014) and all related programs and plans namely the 2013 Audit Program and the 2013 Customs Control Strategy. RPO plays a major role in implementing a Management System (by selecting performance indicators and developing new reporting systems). RPO is also involved in the re-engineering of processes involving an in-depth analysis and streamlining of the existing procedures including the delivery of a manual for employees. The future plan for RPO is to transform the office into Headquarters which will be responsible for providing guidance at an operational level, supervising, monitoring and assessing performance of field units.

Chart 3: Reform Project Office structure

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4.3 Support Services Division [SSD]

The Support Services Division is responsible for HR Management and logistics for the whole of SRC. It aims to provide a conducive and environmental friendly working atmosphere for all staff and SRC’s visiting clients. The Division ensures that resources are properly allocated to match SRC needs. SSD liaises with finance for the budget preparation— providing a needs’ assessment— and is responsible for its execution in allocating resources. SSD is responsible for designing and implementing a comprehensive HR strategy. While this process is still at an early stage, a strong emphasis has been given so far to employees’ performance contracts (including individual’s appraisal) and the introduction of a Code of Conduct.

Chart 4: Support Services Division’s structure

SUPPORT SERVICES DIVISION

Director Support Services

Administration Section Training & Development Section

*To meet the needs of all divisions, in terms of resources, proper infrastructure and movement from location to location.

*To ensure that staffs are catered for in their working environment by providing support so as to make available resources at all levels.

*Health & Safety Unit ensures that all issues pertaining to a conducing working environment for all staff is taken up so that staff feels safe and secure in their working environment.

*Relate to the Human Resources aspects of Seychelles Revenue Commission.

*Deal with recruitment, processing of salary and amendments, manage nominal roll, staff welfare ad employee relation.

*Develop and update Human Resources policies such as salary packages, scheme of service and employee manuals

*The training and Development Section aims to conduct training and development research by developing its strategic plan which entails master training plans, budgets, monitoring tools, evaluation tools, reports. *Carry out training, ensure fair and ethical allocation of training opportunities across Seychelles Revenue Commission.

*Establish and continually update training database.

Administration Section Training & Development Section

Human Resources

Section

Human Resources Section

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4.4 Tax Division The Tax Division is responsible for carrying out all tax related field operations including (taxpayer services, audit, enforcement and collection).

Chart 5: Tax Division’s Structure

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4.5 Customs Division The Customs Division is responsible for all related-international trade operations, including the collection of customs duties (taxes levied on importation), the promotion and enforcement of compliance, border protection, enforcement of health and security laws and regulations (prohibition and restriction of goods) and trade facilitation.

Chart 6: Customs Division’s Structure

Assistant Commissioner

Customs

CUSTOMS DIVISION

Airport Operations

Section

Seaport

Section

. Collects tax revenue, including customs duties,

excise tax, GST and levies on importations.

* Risk assess importations and carry out physical

verifications of cargo

* Carry out post entry checks and from time to

time on green channel cargo.

* Retain non-authorized cargo and implement

penalties in relation to various violations of

regulations.

Processing of travelers entering or leaving the

country by aircrafts, using risk assessment.

* Controlling entry of goods through the

passenger Terminal so as to ensure that

dangerous goods are not smuggled inside

Seychelles.

* Administer the passenger and crew duty free

allowances

* Accepts declaration of a limited quantity of

importation, verify any goods and collects the

taxes applicable.

* Retain non-authorized goods and implement

penalties were justified

Processing of travelers entering or leaving the

country by vessels, using risk assessment.

* Receive, assess and validate import

declarations from importers

Airport Operations Section and Seaport

Section

Inland Revenue Section

Inland Revenue

Section

Investigation

Unit

Post Clearance Audit

Unit

Investigation

Unit

Post

Clearance Audit Unit

Asycuda

Unit

Risk

Assessment Unit

Provide functional

support to ASYCUDA

users (Customs & DTI)

for efficient access to

electronic lodging of bills

of entry and clearance of

goods imported and or

exported. Also the unit

configures the ASYCUDA

System in accordance

with existing Customs, or

other relevant legislations

and procedures to ensure

that the correct amount of

revenue is effectively

collected Provide

assistance and functional

Support (and some

technical support) to staff

and other users

Risk Assessment

Unit gathers

information relating to

risks faced by

Seychelles Customs

then analyzes and

process these

information to build

knowledge of risks

faced and to produce

specific information

products to enable

the Assistant

Commissioner

Customs to make

sound decisions

relating to the

deployment of

resources and the

implementation of

strategies to treat

risks

Asycuda Unit

Risk

Assessment Unit

The investigation unit

investigate fraudulent

cases reported/detected

by liaising with authorities

to verify that evidence

gathered supports the

investigation process. The

unit further establishes the

nature of customs

infringement reported and

produces report relevant to

the facts and/or

information collected. The

unit also conducts

clearance of suspected

cargo at customs entry

point which helps in

developing a commercial

intelligence system for

importers, suppliers by

classifying commodities.

The Post Clearance unit

identifies importers to be

audited which are

determined by assessing the

company’s reliability through

their accounting records

gathered based on the

importers various activities.

The units also test the

application soft the internal

controls in practice to assess

the effectiveness of the

prescribed procedures. Also

they conduct verification on

premises as per an Audit

plan and they further inform

the importers of al objections

and seek clarifications with

use of supporting

documents.

* Approve and administer

all Private Bonded

Warehouses

* Keep record and ensure

physical control on the

movement of goods inside

the country, for which

payments of taxes has

been deferred, exempted

or allowed through

concessions.

* Administer the Excise

warehouses of

manufacturers of excisable

products

* Carry out regular field

checks on duty free goods

at importer’s premises.

* Assess and collect taxes

upon transfer of goods

from concessions to non-

concessions end users.

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5. SRC’s Resources

5.1 Human Resources

SRC’s workforce grew by 10.5 percent, reaching 296 employees, by the end of 2012 compared to 265 employees in 2011.

Table 1: Number of staff per division As at 1 January 2012, for a total of 321 job positions within SRC, 50 remained vacant. During the year and according to plan (VAT introduction, customs re-organization in line with the new Customs Management Act), 17 new job positions have been created and 8 were unfrozen bringing the total to 346 statutory job positions. However 50 still remain vacant at the end of 2012 (among which 9 are held for internal promotions). Recruitment: It remains a major challenge for SRC to be able to recruit qualified candidates from the labour market. During 2012 SRC managed to recruit 29 new staff out of the 70 posts that had to be filled. Promotion: 23 staff were promoted in 2012 of which 7 occurred due to upgrading of posts.

Staff turnover also increased slightly from 5 percent to 7 percent in 2012 compared to 2011 as can be seen in Table 2 below. SRC recorded 15 cases of resignations and 6 terminations of appointment during the year 2012.

2012 Turnover 2012 2011 Turnover 2011 2% increase in rate of turnovers from 2011 to 2012 when it comes to staff terminating employment with SRC

Resignation 15 7% in terms of termination of employment for 2012

13 5% in terms of termination of employment for 2012

Termination/Dismissal 06 01

Table 2: Staff Turnover for the year 2012 compared to 2011

Division 2012 2011 Increase in workforce

Revenue Commissioner’s Office

11 09 2

Reform Project Office 13 10 3

Domestic Tax 105 90 12

Customs Division 131 130 1

Support Services Division 36 26 10

Total amount of staff 296 265 10.5 %

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5.2 Budget execution and performance

For 2012 SRC was allocated with an Expenditure budget of SR 53.7 million (refer to Table 3). This budget is based on a prior needs assessment made by each Division and on an actualization of the previous year’s budget. SRC actually ended with a surplus of R 3.1 million on the allocated budget mainly attributed to staffing shortages. SRC faced difficulties in recruiting and most of the job positions offered remained vacant or were filled later in the year (refer to Table 2 below). As a result MOF froze SR.2million from the Personnel Emoluments vote and SR 0.7 million from the NHRDC Training vote after the Mid Year Review Assessment was done.

The Support Services Division is responsible for the budget execution (88 percent of the total expenditure) (refer to Chart 7). Expenditure corresponding to Wages and Salaries represents the bulk of the budget of 61 percent with 16 percent for Office Running Costs (refer to Chart 7).

Much has been done over the year to maintain office running costs and others at the minimum, but actually achieving this has been quite challenging, given substantial price increase of commodities and services (and adverse exchange rates seen in early 2012). SRC did implement some measures to reduce costs - firmer control measure for the use of mobile phones provided by the office, otherwise staff are required to refund any amount spent over and above the limit authorized and the outcome has been positive whereby this cost per mobile usage on average has decreased during 2012 compared to previous years. A three month stock of goods and stationery was also introduced and this has helped to ease the monitoring process, reducing the risk of unavailability and helping in better management of stock. It has also eased the workload as now with a current stock on hand there is just a need to replenish whenever the minimum required stock level is reached. Additionally due to national increase in fuel price in early 2012, new procedures were introduced in August 2012 for the use of vehicles and transportations and the drivers were closely monitored to prevent the occurrence of unauthorized trips. A remarkable reduction in fuel consumption, amounting to approximately SR10,000/- was recorded on a monthly basis starting from September 2012 as per chart 7 below.

Chart 7: Fuel consumption from the month of May to November 2012

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Table 3 and charts 8 and 9 below, show the breakdown of expenditure across the five divisions of SRC.

Table 3: Administered budget –expenditure for the year 2012

Chart 8: Expenditure budget consumption per division for the year 2012

Chart 9: Expenditure budget consumption per cost category for the year 2012

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Table 4: Training expenses incurred in 2012

As seen in Table 4 above and in Chart 10 below the Seychelles Revenue Commission was able to cover most of its training program for the year. Although, again constraints were encountered when expected trainings were cancelled or postponed by the organising institutions. It was therefore necessary, (in order to meet the training plan) to request for in- house training to be delivered by a local institution such as the Seychelles Institute of Management.

Chart 10: Spending for training per division for 2012

Overall, the Seychelles Revenue Commission has been able to implement and complete majority of the programs planned for the year under review. Although some had to be postponed due to high costs or other constraints, other new projects such as the partitioning of new office space, installation of air conditioning units, upgrading of equipment to facilitate the switch to ASYCUDA world were carried out with the available resources and funding. It is to be noted that with the constant rise in prices, in some cases many of the current year’s proposals had to be postponed to 2013.

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6. Performances

6.1 Revenue collection Targets Actual Performance Difference

Business Tax 769,623,524.55 815,777,633.68 46,154,109.13 5.7%

Goods & Service Tax 1,485,333,092.59 1,463,469,213.88 [21,863,878.71] -1.5%

Trades Tax 419,839,880.62 403,064,267.39 -16,775,613.23 -4.2%

Social Security &, Income & Non-Monetary benefits Tax

685,862,521.17 702,566,725.21 16,704,204.04 2.4%

Excise Tax 743,906,670.98 725,710,755.17 -18,195,915.81 - 2.5%

Other 261,040,821.20 312,283,397.91 51,242,576.71 16.4%

Total 4,365,606,511.11 4,422,871,993.24 57,265,482.13 1.3%

Table 5: Overall revenue collection 2012 against target Overall assessment The overall collection of Revenue for 2012 has resulted in an over performance of approximately 57 million or 1.3 percent of the target. The best performing taxes continue to be Business Tax, Income Tax and Other Taxes, which covers the different license fees, while GST, Trades Tax and Excise Tax have fared less favourably. The underperformance may be explained by the exemption of Trades tax of more items and the reduction in production in local beer due to factory problems.

6.1.1 Business Tax Revenue

2010 2011 2012

Companies 702,956,644 806,827,620 712,272,485

Sole traders 13,820,458 14,910,184 21,687,928

Partnerships 8,989,253 5,249,923 4,512,481

Trusts 39,220 58,017 92,829

Withholding tax 58,105,211 73,358,365 76,918,782

Total 784,062,944.91 900,773,904.68 815,777,633.68

Table 6: Total Business Tax revenue for the 2010-2012

When compared to 2011, the Business Tax collection for 2012 shows a decrease of 10 percent which may be attributed to the self assessment system currently in place where with this system, refunds to taxpayers are made upfront with audits conducted afterwards depending on the risk profile of the taxpayer. The 2011 good performance may largely be due to the late processing of BT returns (where a moratorium had been granted for submitting 2010 and previous years BT returns in November 2011) in order to give taxpayers enough time to get accustomed to the self-assessment system.

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6.1.2 Goods and Services Tax

2010 2011 2012

Local manufacture -alcohol 26,969,481 15,030,252 17,921,251

Local manufacture others 42,467,515 42,403,056 33,654,507

Petroleum 10,228,494 1,805,602 0

Tobacco 12,106,743 0 0

Professional services 27,311,806 32,107,349 27,808,952

Tourism 411,323,455 562,555,095 753,249,346

Telecom 97,458,152 95,507,238 118,020,654

Insurance 22,411,466 29,259,783 37,118,929

Imported goods 376,534,217 413,439,255 431,928,558

Rental income 24,026,201 23,759,626 34,494,074

Gaming Tax (Casino) 6,340,093 5,864,422 9,272,942

Total 1,057,177,622.90 1,221,731,676.72 1,463,469,213.88

Importation 376,534,216.62 413,439,255.00 431,928,558.38

Domestic 680,643,406.28 808,292,421.72 1,031,540,655.50

Table 7: GST Collection for the year 2010-2012

GST has increased every year since its implementation. GST on importation increased by 4.3 percent in 2012 compared to 2011 whilst GST on domestic sales increased by 21.7 percent during the same period. In total 16.5 percent more of GST was collected in 2012 compared to the previous year.

6.1.3 Trades Tax Revenue

2010 2011 2012

Alcohol - beverages spirits 29,438,878 43,693,518 38,050,014

Petroleum - mineral product 151,223,085 162,836,793 161,568,762

Textiles and textile artic 11,332,712 13,889,221 13,559,812

Motor vehicle aircrafts 63,446,383 68,667,973 63,814,953

Tobacco 1,527,345 467,630 1,130,296

Prepared food 19,388,190 38,747,915 31,838,784

Others 34,067,678 37,128,432 47,279,927

Levy(additional levies) 45,116,580 50,631,292 42,954,728

Documentary charges 2,423,558 7,678,452 2,866,992

Total 357,964,409.67 423,741,226.99 403,064,267.39

Table 8: Trades Tax collection for the years 2012 – 2012

Trades tax collection continues to drop year after year against what has been targeted attributed mainly to the progressive removal of trade barriers in most imported items in line with the country’s international trade commitments. However 2012 saw a reduction of 5.1 percent in Trades Tax collected compared to 2011. This can be explained by the removal of

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trades tax on a number of items namely coffee, tea, fish, cassava, fruit juice, pre-cooked bread, sweet potatoes and cut flowers.

6.1.4 Social Security (SS) and Income & Non-Monetary Benefits Tax Revenue (INMBT)

2010 2011 2012

Social Security

Private 232,542,863 10,968,259 909,695

Government 54,110,622 300,795 0

Income Tax

Government 70,737,530 141,801,511 166,004,107

Parastatal 29,682,166 67,352,904 77,934,741

Private 153,475,260 408,181,918 457,718,183

Total 540,548,439.88 628,607,607.53 702,566,725.21

Private 386,018,122.73 419,152,398.03 458,627,877.39

Parastatal 29,682,165.50 67,352,904.24 77,934,741.01

Government 124,848,151.65 142,102,305.26 166,004,106.81

Table 9: SS and INMBT per category for the years 2010-2012

Income Tax collected has increased every year since its implementation in 2010 for all 3 groups as per the table above. In 2012 there was an increase of 10.5 percent in revenue collected on employees’ emoluments.

6.1.5 Excise Tax Revenue

2010 2011 2012

GST.ETLP.ALCOHOL 132,725,498 215,520,467 183,220,091

GST.ETLP.TOBACCO 99,557,784 108,122,500 131,989,500

ETI.MOF.ALCOHOL (BEVERAGES SPIRITS 46,872,284 60,815,695 60,497,854

ETI.MOF.PETROLEUM (MINERAL PRODUCTS 241,548,466 283,336,209 288,472,765

ETI.MOF.MOTOR VECHS (AIRCRAFTS) 46,801,218 57,395,447 57,948,433

ETI.SRC.TOBACCO ( TOBACCO AND MA 2,355,757 2,149,255 3,582,112

Total 569,861,005.52 727,339,573.07 725,710,755.17

Excise Import 337,577,723.84 403,696,606.22 410,501,163.85

Excise Local 232,283,281.68 323,642,966.85 315,209,591.32

Table 10: Excise Tax collection on import and local production for 2010 – 2012

Revenue collected from excise tax has seen a slight drop from 2011 to 2012 of 0.2 percent, attributed primarily to the reduction in collection from locally produced beer where production fell by 2.7 percent as a result of a break down in the factory. Excise tax collected on imports has increased slightly by 1.7 percent.

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6.1.6 Other Tax Revenue

2010 2011 2012

SLA

Trade/Ind Licences 8,255,930 8,126,962 9,369,118

Licences and other licence r 5,108,624 5,087,934 4,352,501

Road tax & other licences 41,976,968 44,336,280 53,523,680

Telecommunications licences 61,825,792 61,998,262 66,065,709

Casino licences 2,433,334 3,099,500 3,766,666

Hotel licences 876,610 824,941 741,768

Liquor and toddy licences 205,795 219,176 265,877

EU fishing licence fees 81,580,045 57,371,788 25,314,840

EU vessel fees 0 0 56,302,012

Non-EU fishing licence fees 0 0 70,179,879

Non-EU vessel fees 0 0 0

Fishing licence fees 70,381 65,910 82,490

Processing fees-SLA 1,765,040 508,276 4,430

SLA .insurance fees -32,499 18,110 67,160

Publication 44,020 673,890 694,250

Sub Total SLA 204,110,042 182,331,029 290,730,381

Trades tax div(customs fees 996,699 2,956,833 3,458,003

Storage 153,026 280,661 498,436

Original voucher importer 2,516,085 3,294,849 4,590,101

Prepayment bill of entry 7,905,660 15,127,859 3,716,694

Pet bottles levy 3,382,899 7,832,919 808,575

Poultry levy 13,623,632 20,405,867 8,230,480

Levy cans 2,842,433 2,401,049 395,672

Court cost deposit -155,626 -144,942 -144,942

Total 235,378,048.49 234,486,124.34 312,283,397.91

Importation (levies) 31,420,432.70 52,300,037.32 21,697,959.03

Domestic (including license fee) 203,957,615.79 182,186,087.02 290,585,438.88

Table 11: Other Tax Revenue collection on importation and domestic for 2010 – 2012

A noticeable increase in other taxes collected compared to the previous two years can be seen in table 11 above. When broken down into its two main components, in 2012 there is an impressive increase of 37.3 percent on the domestic side over 2011 collection whilst a substantial decrease of 58.5 percent is evidenced on the importation side.

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6.2 Non revenue performance

6.2.1 Improve voluntary compliance and facilitate trade

In 2012, SRC designed a comprehensive compliance strategy aimed at striking the right balance between providing a service-oriented approach and risk based enforcement programs. The first pillar of this compliance strategy aims at promoting voluntary compliance with a strong focus on helping customers fulfil their obligations. To pursue this major objective SRC has designed and started implementing multiyear programs and action plans.

6.2.1.1. Improving service delivery Service standards—In 2012, in its efforts to improve the quality of its operations, SRC has introduced and published customer service standards based on international best practices. Performance from a qualitative point of view will be monitored using specific indicators. In the meantime progress in this area will be monitored through customers’ satisfaction survey to be launched once a year.

6.2.1.2 Simplify access to relevant business information

a) Public work stations - This project was rolled out in mid-2012 at Ocean Gate House for evaluation purposes. The Public PC allows businesses to submit their payroll online, access the SRC website;

access the tariff (HS Codes) (updated trade tax and tariff information); access to Microsoft Word + Excel to modify, view and print their documents on site, thus reducing turn-around time and through the SRC website, the ability for feedback to be collected into a central database for assimilation. b) SRC is aiming at improving its multichannel service delivery—A comprehensive set of measures has been implemented to improve: Electronic services:

- In addition to the contact manager service, functional mail boxes have been created to allow taxpayers to obtain information by e-mail (e.g. vat@src.gov.sc);

- A new portal is being created to expand the list of on-line services (online filing, online registration);

- A sensitisation campaign including on site visits has been completed to help taxpayers discover e-services and address potential technical issues;

- New options for on-line payments are being explored with banks; - Work started for the switch from ASYCUDA ++ to ASYCUDA World, which is web-based

system to be operational in the first quarter of 2013.

Telephone: - An Interactive Voice Recognition (IVR) is being installed to improve in-bound calls (shorten

the delays, provide the right counterpart, ensure that every call will receive and answer); - A new SMS service is being developed to generate alerts (reminders) or to send short

information messages on customers’ mobile phones.

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Face-to face - Provision Of Advice (POA) capacity has increased: new staff have been recruited and trained.

Client register

- SRC has also updated and cleaned up its client register to ensure data integrity, accuracy and reliability of active customers’ register and individual accounts;

- The Tax Identification Number (TIN) is the unique identifier for both tax and customs operations and the platform to link up CMS and ASYCUDA++ are in place. This linkage enables direct exchange of information between the two divisions.

6.2.1.3. A vast program of simplification has been launched with the aim to reduce costs and administrative burden.

In December 2012, a compliance survey was designed to measure direct and indirect costs. This survey will help identify areas where simplifications are critical.

In the meantime, however, SRC has taken the following steps towards simplification:

- Before VAT was introduced all internal processes have been streamlined to eliminate major bottle necks;

- The scope of electronic services has been broadened to cover BAS and VAT returns that can be filed electronically: as at the end of 2012, 238 taxpayers were already registered for the taxation e-service;

- E-registration is now possible through a virtual inter-agency one-stop-shop; - A small taxpayer regime proposal was submitted to and was approved by the Cabinet of

Ministers and will come into operation on 1 January 2013. The main features are (moving from 12 returns to an annual one, simplifying the tax computation by using the annual turnover as the unique tax base and applying on it a flat rate at 1.5 percent);

- Work stations (CMS and ASYCUDA) have been established at the main advisory centre on Mahe for taxpayers to fill their declarations, with the possibility of assistance being provided when needed.

6.2.1.4. A comprehensive program of education and assistance has been launched in 2012 to prepare for VAT introduction.

- Both a VAT guide and a VAT manual have been published and can be downloaded from SRC’s website;

- A set of 10 VAT leaflets explaining different rules or regimes have been printed and are available in all SRC premises and on the SRC’s website;

- More than 30 workshops targeting Businesses (notably VAT practitioners) meeting 350 taxpayers or their representatives have been conducted. Through this program, more than 60% of the future VAT taxpayers have at least received information on VAT mechanisms and VAT obligations;

- In addition over 18 face to face meetings were organized upon request to address VAT related specific or more complex issues.

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6.2.1.5. Consolidate partnership with Business community In 2012, SRC published its taxpayer charter, which clarifies “customers” rights and obligations and puts emphasis on key delivery standards. SRC has also enhanced dialogue with the business community. To prepare for VAT introduction, SRC held intensive consultations with businesses, tax agents and professionals to eliminate potential issues. As a result of these consultations a significant number of amendments to the VAT Act 2010 have been done such as amending accounting rules to allow the option to use either cash or accrual and also, broadening the scope of exemptions.

DESCRIPTION 2010 2011 2012

NUMBER OF TIN ISSUED 1418 1263 1766

NUMBER OF CURRENT TAXPAYERS LIABLE TO: Business tax 8941 9533 10140

Income tax - 8111 8836

GST - tourism/professionals/others 1021 1067 1112

GST-residential 1253 1253 1293

Excise tax 10 9 9

FILING RATE OF TAXES ON DUE DATE:

Business tax 19% 22% -

Income tax - 34% 34%

GST - tourism/professionals/others 72% 72% 55%

GST-residential 41% 92% 46%

Excise tax 86% 66% 54%

PAYMENT RATE OF TAXES ON DUE DATE:

Business tax Income tax

34% 34%

GST - tourism/professionals/others 81% 72% 55%

GST-residential 41% 92% 46%

Excise tax 86% 66% 54%

Table 12: Overall measure of compliance performance for the year 2010-2012

6.2.2 Improve detection and sanction of all forms of tax evasion and smuggling

The second pillar of the overall compliance strategy is enforcement. Risk-based enforcement programs (including tax audits, physical examinations of cargos, PCA and debts recovery) have been designed in 2012 to be implemented in early 2013. To improve both the effectiveness and productivity of its enforcement operations SRC has increased its capacity in the following areas:

- Risk analysis and intelligence units have been established or strengthened in both domestic tax and customs departments to enhance investigations and risk management;

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- Comprehensive programs of third party data gathering have been launched to identify major risks;

- External and internal information have started to be systematically cross-checked to detect potential discrepancies (underreporting, undeclared liabilities) and to establish profiles as often as possible;

- Operating procedures have been updated in line with international best practices and the new Customs Management Act (Customs) and are being reviewed to be upgraded to adapt the treatment to the new threats and forms of non compliance(audit, PCA);

- Cooperation with other international and national enforcement agencies has been formalised and developed. SRC has signed an MOU with SARS where the latter has already provided assistance and training in different areas including transfer pricing. WCO has organised a workshop and provided technical assistance on risk management.

6.2.2.1 Audit

In 2012 the Tax Division completed 342 audit cases against the 365 cases planned for the year resulting with an execution rate of (94 percent). The number of cases audited increased by 36 percent compared to 250 cases completed in 2011 and by 44.7 percent compared to 2010 with 235 cases audited. Out of the 342 audit completed during 2012, there were 90 comprehensive and 252 issue-oriented audits.

NUMBER OF CASES - AUDIT

Actual Planned Achievement (%)

Small 173 155 112%

Medium 121 150 81%

Large 48 60 80%

Total 342 365 93%

NUMBER OF CASES - ASSESSMENT

Actual Planned Achievement (%)

Total 627 550 114%

REVENUE (SR) - AUDIT

Actual Planned Achievement (%)

Small 9,754,008 10,000,000 98%

Medium 32,921,622 42,000,000 78%

Large 38,480,237 50,000,000 77%

Total 81,155,867 102,000,000 80%

REVENUE (SR) -ASSESSMENT

Actual Planned Achievement (%)

Total 12,826,445 13,000,000 98%

Table 13: Audit performance by segment against planned for 2012

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Tax Type Number of cases for

Small taxpayers

Revenue raised

SR

Number of cases for Medium

taxpayers

Revenue raised SR

Number of cases for

Large taxpayers

Revenue raised

SR

Business tax 45 1,739,693 23 1,112,639 10 15,114,477

G.S.T 33 2,849,288 17 5,584,152 9 4,317,325

S.S.C 58 4,373,763 47 23,524,228 12 7,893,005

Income Tax 36 791,264 35 2,536,123 10 8,704,610

Withholding Tax

1 0 1 201,981 6 2,450,820

Excise Tax 0 0 0 0 1 0

Total 173 9,754,008 123 32,959,123 48 38,480,237

Table 14: Audit performance by type of tax and segment for 2012

Type of Audit Business

Tax Withholding

Tax GST SSC Income Tax Excise

Tax

Comprehensive Number of audits

completed 31 6 15 25 14 1

Additional Assessment Value

12,390,092 2,132,616

1,874,813

280,229 6,824,670 0

Total Penalties & Interest

4,208,056 480,808

747,219

1,115,572 1,432,169 0

Amounts Collected 139,284

163

2,115,691

260,303 65,096

-

Issue Oriented

Number of audits completed 47 2 42 92 67 0

Additional Assessment Value

1,239,910

28,769

8,126,469

8,686,745 2,986,833 0

Total Penalties & Interest

128,751

10,608

1,964,763

25,708,450 788,325 0

Amounts Collected 778,967

39,377

1,186,084

862,466 459,850

-

Table 15: Audit cases per tax type and type of audit for the year 2012 Administrative assessments

In 2012, 627 administrative assessments of previous year tax liabilities (against 550 planned) have been completed. In 2010 and 2011 the administrative assessments represented 5422 and 2208 respectively. The introduction of self assessment explains the reduction in number of the administrative assessments.

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2012

2011

2010

Business tax Withholding

Tax GST

All taxes

All taxes

Number of assessments completed 619 4 6

2,208

5,422

Additional Assessment Value 11,432,175 21,738

272,570

Total Penalties & Interest 1,731,516 5,939 20,742

Amounts Collected 1,263,875 17,576 330,813

Table 16: Number of Assessed cases for 2010-2012 and revenue raised per tax type in 2012 Total performance of audit Gross revenue raised from both audits and administrative assessments was SR 93,982,311, (SR 81.1 Million derived from audit and SR 12,8 million from assessments). This was 18.3 percent below the target set at SR 115 million. During the year, the Audit section was not operating at its with 28 out of a total of 36 staff This somehow made an impact on the type and quality of cases that were forwarded to the audit teams. The planned target was on the basis that an additional 11 auditors were to be recruited in 2012.

As for the revenue yield for audit cases finalized in year 2010 it was SR 96,357,086 and 2011 it was SR 103,698,731.

Disputes and amendments A total of 109 disputed cases were completed by the end of 2012 and this included 10 objections and 99 amendment requests which resulted in a refund of SR 16,866,760. Out of 965 completed audit and assessing cases, a number of these cases were disputed against. By the year end, 11 of such cases were finalised which resulted in a tax refund of SR 91,137/- The balance of 98 amendment and objection cases and refund of SR 16,775,623 were either:

Prior years audit and assessing cases disputed against;

Overpayment of GST, Income Tax, Social Security Contribution, Goods & Services Tax due to application of incorrect rate;

Request for waiver of penalties. Collection of revenue raised by the Audit Section On a total of SR93.4 million of net revenue only SR 7 million has been collected resulting with a relatively low collection rate of 7.5 percent.

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Tax Type Gross revenue raised

SR

Dispute Cases Net collectible Revenue Collected

SR

Outstanding Debts

SR

Business tax 29,814,030 -62,097 29,751,933 1,882,126 27,869,807

Goods & Services Tax 12,969,075 -13,534 12,955,541 3,431,437 9,524,104

S.S.C 35,790,996 170,565 35,961,561 1,122,769 34,838,792

Income Tax 12,031,997 -3,797 12,028,200 524,946 11,503,254

Withholding Tax 2,680,477 0 2,680,477 57,116 2,623,361

Excise Tax 0 0 0 0 0

Total 93,286,575 91,137 93,377,712 7,018,394 86,359,318

Table 17: Collection rate for audit cases

6.2.2.2 Interpretation and Appeal

The Interpretation and Appeal Unit became fully operational in July 2012, and consisted of 2 officers. The Unit functions under the set objectives as listed below: Assist the taxpayers in interpreting the tax laws; Focus on queries ,objection and amendment issues that engage the interpretation of

the law;

Ensure the delivery of advice and quality of service is up to standards;

Issue rulings regarding interpretation of the tax laws to officers and taxpayers.

The opening stock at the inception of the Unit was 13 cases. During the rest of the year an additional 28 new cases were received bringing the total of interpretation and appeal cases to 41 for the year 2012. Of those cases 23 cases were dealt with by the end of 2012 as per the break down in the table 18 below. No. of Cases

Opening stock as at 01/06/2012 13

Business tax 7

Business tax in revenue tribunal 1

Goods and Service Tax 2

Goods and Service Tax appeal cases 2

Withholding Tax 1

New cases received 28

Business tax 19

Goods and Service Tax 8

Income and Non-Monetary Benefits Tax 1

Total Cases in the Unit in 2012 41

Cases Closed as of 31/12/2012 23

Objection cases closed 19

Allowed cases 9

Business Tax Allowed 8

Goods and Service Tax 1

Disallowed cases closed 10

Business Tax disallowed 9

Goods and Service Tax disallowed 1

Amendment cases 4

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Business Tax 1

Goods and Service Tax 2

Income and Non-Monetary Benefits 1

Closing stock (pending cases) as 31/12/2012 18

Revenue Tribunal 1

Court cases 3

Goods & Service Tax objections 5

Business Tax objections 9

Table 18: Number of cases received, closed and outstanding for the year 2012

As per the table below the 4 amendment cases closed in 2012, raised additional revenue of SR 484,914.96 of which SR 61,159.50 (12.6 percent) was collected. Of the objection cases disallowed additional revenue of SR 1,785,417.34 was raised however no additional revenue was collected in 2012 from that. Most of what was disallowed were for claims of depreciation on buildings, and depreciation claimed due to non-payment of 5 percent Deduction at Source. There was also a refund of SR 461,420.52 from the objections allowed. This brought the total collected to SR 1,808,911.78 of which 3.4 percent was collected in 2012..

No. of cases closed Revenue collectable Amount Collected

AMENDMENTS 4 484,914.96 61,159.50

Business tax 1 5,030.75

Goods and Service tax 2 475,984.88 61,159.50

Income and non-monetary benefits tax 1 3,899.33

OBJECTIONS ALLOWED 9 (461,420.52)

Business tax 8 (452,278.29)

Withholding tax 1 (9,142.23)

OBJECTIONS DISALLOWED 10 1,785,417.34

Business tax 9 965,525.19

Withholding tax 1 1,303,612.74

TOTAL 23 1,808,911.78 61,159.50

Table 19: Revenue raised and collected from closed interpretation and appeal cases in 2012

6.2.2.2 Collection from Customs

For 2012, Customs reported 134 incident cases of which 22 were from Air Cargo, 97 from

Seaport Examination, 13 from Inland Revenue and 2 from Warehouse. A total of SR

20,048,100.15 of additional taxes was collected plus penalties of SR 104,831.49. This gave a

total amount of SCR 20,152,931.64 additional taxes collected.

The Investigation Unit carried out 19 investigations which brought about a total of SCR

1,615,974.93 taxes collected, of which all cases except two, with penalty ranging from 100%

- 200% was imposed and paid.

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6.2.2.3 Collection enforcement As of January 1 2012 the opening balance of uncollected debt stood at SR 277,838,516.83, of which 90 percent is due from companies. During the year there was additional SR101, 491,814.81 of debt bringing the total debt to be recovered to SR 379,330,331.64 for the year 2012. However SRC managed to collect SR 68,134,113.00 of the debt leaving the closing balance of SR 311,196,218.63 at the end of 2012. This represents a collection rate of 18 percent. Of the total outstanding 59 percent is from social security arrears.

Opening

Balance No. of Acc

+ New outstanding liabilities

Total liabilities for 2012

Arrears collected

Closing balance No. of Acc

Collection Rate

Business Tax

77,298,539.44 588 60,902,223.13 138,200,762.57 46,102,952.83 87,780,800.51 378 33%

Social security /Income and Non-monetary benefits Tax

150,845,275.45 227 8,042,188.76 158,887,464.21 6,751,488.47 183,433,002.12 216 4%

Goods and Services Tax

18,541,766.26 69 272,377.67 18,814,143.93 7,160,374.94 14,471,418.85 89 38%

Withholding Tax

31,152,935.68 7 32,275,025.25 63,427,960.93 8,119,296.76 25,510,997.15 9 13%

Total 277,838,516.83

891 101,491,814.81

379,330,331.64 68,134,113.00 311,196,218.63 692 18%

Table 19: Outstanding debt as of end of 2012 Table 20 below shows the age of the debt with 89.3 percent of the total outstanding debt being over 12 months or 1 year old. . < 3 months 3 < > 6 months 6m < > 1y Over 1 year

Total Gross Arrears 311,196,218.63

311,196,218.63

311,196,218.63

311,196,218.63

Total debt by Age 3,111,962.18 4,667,943.27 25,577,796.35 277,838,516.83

If you have % 1% 1.5% 8.2% 89.3%

Table 20: Age of debt as at the end of 2012

6.2.3 Enhance our business capacity

6.2.3.1 Strengthening our internal organization Establishing strong headquarters—SRC is transforming its current Reform Project Office to its Headquarters (HQ). New directors and additional staff have been recruited. HQ will be responsible

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for providing guidance, designing strategies, programs and action plans, monitoring their execution, overseeing field operations and, measuring performances in all key areas. HQ will continue to be the catalyst to the on-going reform efforts. Segmentation—In line with the re –organisation of the Tax Division within SRC, the domestic tax structure has been revised by applying segmentation principles. To adapt service delivery to the taxpayer population, two separate units have been established to administer (a) large and medium taxpayers and (b) small taxpayers. a) In regards to large and medium taxpayers this segment comprises taxpayers whose turnover is above SCR 5 million and voluntarily VAT registered taxpayers. Large and notably VAT taxpayers, now have as a single counterpart - a specialised unit entirely devoted to providing advice, monitoring their filing and payment obligations, auditing them or enforcing collection. With this this new structuring:

- The processing of large taxpayers’ returns is accelerated and so is the treatment of refunds; - Information and advice are supplied by a dedicated and professional team well aware of

specific and sometimes complex issues to which large businesses are generally confronted; - Audit and enforcement teams can concentrate on high risk files and priority issues.

b) For small taxpayers a dedicated team is in charge of administering the new small taxpayer regime designed to simplify their obligations. Reorganisation with in Customs - In Customs, two dedicated Units, namely Post Clearance and Risk Assessment Units have been established to carry out its control strategy. The Units report directly to the Assistant Commissioner of Customs. An Excise Tax Unit has also been created under the Inland Revenue Section whilst 2 new units namely Manifest Unit and Export Unit have been created under the Seaport Enforcement Section. Internal Audit—An internal audit team has been established and staffed (4 SRC officers including the head of unit). The Head of the Unit has designed an internal Audit program for year 2013which was submitted and validated in December 2012, and is ready for implementation.

6.2.3.2 Implementing an Integrated IT system SRC pursues the objective of enhancing its Information Technology systems (CMS and ASYCUDA). Upgrading the IT system is critical to support and implement the on-going reform strategy. However despite its priority agenda, SRC is highly dependent on DICT for designing and conducting its IT strategy. Most importantly SRC lacks the autonomy of using its own system. (Example SRC relies on DICT to extract data, to establish lists, or use most reporting functionalities). Regular unsolved technical problems also impact negatively on the reliability of its data base while key measures are still behind schedule:

- A management information system (MIS) enabling performance measurement and decision making has yet to be designed and implemented.

- Key design weaknesses of CMS have yet to be addressed. Indeed, to help improve its IT system, SRC has to pursue its efforts to streamline its own procedures. In this particular area, most of the processes have been re-visited and upgraded notably to support VAT administration. A user manual has been designed and disseminated.

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In regards to SRC autonomy in working certain basic functionalities on its own, SRC needs to recruit a specialist and/or train existing staff. On a very positive side, major steps have been taken in developing automatic exchanges of data with other agencies, developing e-procedures and creating new interfaces. This project started in early 2012 and five agencies (Registrar of Companies, Seychelles Licensing Authority, Agency for Social Protection, National Population Database and Seychelles Pension Fund) were chosen in the document [EU Budget Support 3rd Variable Tranche]. This electronic link-up between agencies, involved in the business creation process, will minimize duplication of data, resource wastage and business start-up burdens. The current status is updated through the document [Internal - EU Fund - Work Breakdown].

6.2.3.3 Improve the legal framework The legal advisor recruited in the last quarter of 2011, has enhanced the legal function within SRC. Important work has been done on amendments to the VAT ACT 2010, to the Business Tax Act and preparing enabling regulations and rulings. Whilst there is still a fair amount that needs to be done to improve the legal framework, SRC lacks the resources given that there is only one legal person carrying out this exercise.

6.2.4 Develop a dynamic and professional workforce

6.2.4.1 Improve resource allocation Recruitment program— It remains a major challenge for SRC to be able to recruit qualified candidates from the labour market. SRC acknowledges that the needs are not always covered. A Technical Needs Analysis exercise to identify training needs for specialist areas and to consolidate the already identified ones for the generic areas within SRC started in June 2012, with the of an IMF TA consultant. This is a major exercise, and will continue in 2013 with the aim of identifying future needs (rightsizing exercise, job descriptions) and optimizing staff allocation (the right person/profile at the right place).

6.2.4.2 Increase employees’ competence skills and capability In total there were at the least 182 SRC staff who participated in some form of either local or overseas training with a total 101 staff participating in local courses whilst a total of 81 staff attended overseas training.

Local Training Overseas Training

Divisions Number of

participations % of

participations Number of

participations % of participations

Secretariat 4 4 10 12

RPO 6 6 15 19

Tax 51 50 19 23

Customs 35 35 32 40

Support Services 5 5 05 6

Total 101 100 81 100

Table 21: Training distribution per division for 2012

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6.2.4.3 Enhance performance management In order to promote and connect individual to overall performance a system of individual performance contracts has been developed and was launched as a pilot in the last quarter of 2012. Its implementation is to take place as of 1 January 2013. This system is supported by a new appraisal system. The system is designed to bring more fairness and transparency, using objective indicators and criteria. The system was initially developed by SIM personnel’s working closely with SRC management in the beginning of 2012. The highlight of the implementation process was the development of personal Performance Contract for all SRC staff mid 2012. The PCs which refer to staff’s particular duties and tasks undertaken on daily basis, which in itself is used as a record keeping tool, is linked to the SRC strategic plan, highlighting strategic objectives to be met during the year 2013. The system moreover caters for staff monitoring of achievement on a daily basis and targeted output of staff on different periodic time frame ranging from daily to monthly, quarterly and annual targets. A committee was formed so as to acquire in depth training on the implementation of the performance system so that SRC fully facilitates the implementation, development, monitoring and evaluation processes of the system. The committee is also mandated to provide ongoing support to the staff, in particular immediate supervisors, so that they treat the PC’s as a living document which will be amended as and when particulars affecting outcomes of the employee changes. This again ranges from rotation of employee to restructuring of the organization structure.

6.2.4.4 Promote career development To deter too frequent dismissal of qualified and senior staff, SRC has yet to develop a comprehensive and incentive retention program. Such a program can inspire from international best practices combining both financial and non financial incentives. Among non financial incentives tailor made career development plans can be introduced providing more visibility to staff in the long run.

6.2.4.5 Manage change and adapt to change To support the reform strategy and enhance staff ownership of the reforms, all SRC employees (managers and non managers) have been regularly engaged with major developments including:

- Design of the Business plan (mission, vision, core values, strategic objectives); - Design of the divisional action plans.

A new tool (the SRC internal Communication Centre (intranet) to improve internal communication has been developed and launched.

6.2.4.6 Develop an integrity oriented working atmosphere In parallel with the SRC’s strategic plan, SRC has taken major steps to promote ethics within the organisation. A comprehensive integrity action plan identifying key priorities was designed and

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approved in the second half of 2012. The plan was designed through technical assistant from the World Custom Organization, where an expert in integrity related aspects conducted a workshop with SRC staff who shared their ideas and views on the implementation and development of integrity based issues. Following the TA a working group within SRC was set up to refine the action plan to specifically address integrity issues and remedial possibilities, after which the Plan was presented to the Ministry of Finance. A sensitization campaign was also conducted to ensure that staff understands the important of good ethical behaviour at the workplace. Close to 100 percent of SRC staff attended presentations conducted in collaboration with the Ethics Commission. The interactive participation from all levels of staff also provided an insight of staff perception on what is considered as good ethical behaviour within an organization and also as SRC officers in view of the nature of work at SRC. In 2012, two senior staff members were attached to different Revenue Authorities namely the Mauritian Revenue Authority and Zambia Revenue Authority with the aim of familiarizing the implementation of an integrity tool – the Declaration of Assets - within these two administrations. Further the Director of Support Services was awarded a scholarship with WCO and Japan’s Custom Administration whereby the result of the six weeks attachment was the development of a Code of Conduct for SRC which is to be implemented in January 2013. The Code of Conduct is based strongly on the WCO Code of Ethics.

6.2.5 Promote good corporate governance

6.2.5.1 Develop strategic planning In 2012 SRC has made a major achievement in the direction of strategic planning. SRC designed and launched its 2012-2014 business plan. This Business plan provides the grounds, objectives and performance targets for SRC future actions in its core areas. In line with this Business Plan a comprehensive compliance strategy (2012-2014) has also been prepared and launched. This strategy provides programs and plans for improving compliance. These two documents published on the website have been shared with both employees and stakeholders. All programs and actions described in these two strategic documents are supported by performance indicators enabling a transparent and permanent measure of progress.

6.2.5.2 Enhance Integrity Efforts were intensified in 2012 to change the image/perception of SRC with regards to the integrity of its staff:

I. An integrity action plan identifying areas of priority was drafted and its implementation started.

II. An independent survey was commissioned to assess the level of corruption within SRC. III. A new Code of Conduct setting ethic standards based on the WCO code of conduct was

drafted. IV. Integrity topics was included in the induction programs for new staff joining SRC V. In collaboration with the Ethics Commission a series of talks/presentation on the importance

of having good ethics at work were conducted with a coverage rate of close to 100 percent of the workforce including senior management.

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VI. 15 cases have been detected and sanctioned in 2012 to show the commitment to zero tolerance on corruption within SRC. Adapted and escalated sanctions have been applied in the following circumstances:

Breach of trust/deception;

Corruption / Prejudice to employer’s undertaking;

Failure to follow work procedure;

Negligence / failure to follow work procedures;

Failure to comply with rules and follow instructions.

7. Way forward

Strength and weaknesses analysis

- Improve the corporate governance to achieve the integration of tax and customs within one single entity;

- Increase IT autonomy;

- Assess the reliability of CMS on the long run and identify possible alternative (if needed);

- Improve HR package to attract and retain qualified staff;

- Improve staff technical skills and managerial capabilities;

- Improve facilities (more space);

- Improve the legal framework (lack of visibility, measure of the tax losses due to incentives and exemptions, clean the Business Tax Act )

- Develop instruments to measure and help reduce the tax gap;

- Improve relation with customers (based on mutual confidence)

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ANNEX 1: CONFIRMED STATEMENT OF EXPENDITURE FOR 2012