This chapter details the eleven corporate strategic priorities, also describing the supporting activities linked to these priorities, the associated deliverables, measures and targets for 2009/10. In some cases, activities may be linked to more than one priority area, but in these cases the deliverables are associated with one of the priorities. The activities, deliverables, measures and targets described here constitute refinements to those detailed in the update of the Strategic Plan completed and submitted for Ministerial approval in February 2009.
The amendments to the Strategic Plan relate to developments that have occurred since February 2009.
A new administration assumed duty after the April 2009 National and Provincial elections. The President's State of the Nation address on 3 June 2009, highlighted the priorities of the new government as encapsulated in the ten priorities of the Medium Term Strategic Framework. Aside from general implications relating to the need for revenue to enable the government's interventions to address the economic and social challenges facing South Africa, this framework specifies initiatives which have implications for SARS's planning for 2009/10, as well as in later years. Two such initiatives, predicated on the co-operation of several government stakeholders, are the establishment of a Border Management Agency and the government's commitment to move towards a single integrated business registration system.
Since February 2009, the economic climate has also deteriorated significantly more than initially anticipated.
South Africa's deficit on the current account increased from 5.8% of GDP in the previous quarter, to 7% of GDP in the first quarter of 2009, above the forecast of 6%.
Exports dropped by 55%, and imports continue to decline with motor vehicles alone declining by 54% during June 2009.
The effect of lower imports resulted in a significant decline in the collection of customs duties and VAT on imports.
Consumer spending shrank by 4.9% on a quarterly basis, the sharpest fall in 13 years, as household disposable income continued to shrink, despite interest rate cuts. This decline in spending accounts for most of the observed downward trends in the collection of domestic VAT.
The decline in manufacturing and mining outputs, as reflected in an annualised shrinking of quarterly GDP by 6.4%, sets the scene for a similar decline in company income tax collections. Liquidations have increased by 45% year-onyear, reflecting a contraction in production and hence lower gross operating surplus as well as job losses, placing further strain on the collection of both corporate and personal income tax.
The number of property transfers has declined due to the economic climate together with more stringent credit regulations, translating into a 41% decline year-on-year in transfer duties collected.
Despite a sharp increase in the fuel levy, fuel levy collections have shrunk by 0.3%.
The OECD suggests that in times of economic hardships the incidence of non-compliance and aggressive tax planning will increase amongst taxpayers. Many wealthy individuals have reported huge losses as a result of the significant drop in asset prices and investment returns, creating further incentives to engage in aggressive cash flow management, negatively influencing the way many will likely manage their tax affairs.
We have seen how some of the non-compliant behaviour, as elsewhere in the world, has begun to manifest itself in the South Africa. The compliance climate has deteriorated. For example, final demands for outstanding VAT returns increased from 20.6% in 2007 to 26% in the current year. The experience of economic hardship is also reflected in the increase in deferred payment arrangements negotiated by individuals and small companies with respect to outstanding taxes. There has also been an increase in the number of VAT and PAYE returns being submitted without payment.
Our year to date revenue performance reflects the rapidly declining trend. As at 18 June we have fallen almost R10 billion below revenue and revenue is about R8 billion lower in terms of year-on-year performance. This trend is likely to continue.
In response, SARS has embarked on several initiatives aimed at securing the revenue to be collected and mitigate revenue risk. This has required that greater emphasis be placed on revenue yielding activities in order to direct resources to securing the revenue.
Major initiatives aimed at securing revenue and mitigating risks to achieving the revenue target (enhancing SARS's capability with respect to tracking, analysing and forecasting revenue; reinforcing and redirecting the Large Business Centre unit to assure compliance as well as provide service to the large business segment; refining the engagement with High Net Worth Individuals) have sharpened the focus of the strategic priorities to Secure the Revenue, Strengthen Compliance and Pursue Segmentation Strategy.
SARS's commitment to support the government's establishment of a Border Management Agency is associated with our priority to Improve Border Protection and Management.
SARS's commitment to support the government's development of a single integrated business registration system is reflected under our priority to Ensure Improved Service in line with the rationale provided for this initiative in the State of the Nation address.
There has been a tighter formulation of the intended sets of actions to be undertaken to Develop Human Capability and to Proceed with Modernisation.
In view of the challenges faced by SARS with respect to achieving challenging revenue targets within a tougher economic environment, a strengthened focus is required on estimating and collecting revenue. There is a need for deeper analysis of the revenue potential of the economy, by tax type and sector. This requires that revenue analysis and forecasting capability be improved. Internally, more accurate revenue accounting, improved payment processing and earlier detection of - and hence response to non-compliance - all become critical in the achievement of the revenue targets. Expanding the tax base and realising new revenue opportunities is also key to securing the revenue to be collected by SARS.
Scale up the use of electronic payment systems, through the promotion of electronic channels to taxpayers and traders, and simplifying the ease of use of these channels.
The primary output associated with securing the revenue is the sustained collection of revenue, which equals the target determined through the government's revenue requirements, each year.
An established Revenue Management Programme to track, analyse and forecast revenue trends in order to mitigate revenue risks earlier Achieve revenue target R 659.
Closure of the compliance gap enabled by improved revenue analysis Revenue collected R 12.
Compliance management efforts need to be strengthened, systematised and become more effective. SARS's approach to promoting compliance entails the use of education and outreach, service and responsible enforcement.
(Note: improving the quality of SARS's service is regarded as a separate priority in its own right - see priority 5.) SARS's compliance programme requires further refinement from a segmented perspective, and, in the light of the economic climate, ensuring that audit activities have both a positive compliance impact and a strong revenue focus.
As part of the compliance programme, an outreach and education programme is required, to increase the levels of awareness and understanding amongst various segments of taxpayers. Effective engagement with taxpayers, traders and intermediaries is the foundation to a positive interaction that encourages compliance. At a time when existing taxpayers may also be stressed by the economic climate, it is important to put extra effort into drawing new taxpayers into the tax base. Effective engagement depends on understanding customers, and thus communicating with them in ways that achieve the desired response.
Positively influencing the compliance behaviour of taxpayers and traders will translate into more complete registration of taxpayers and traders, the timely filing of tax returns and declarations, the provision of accurate and complete tax and customs declarations and full payment of revenues due at the time they are due.
Improved detection of commercial fraud and the administration of preferential trade schemes Stop success rate Audit success rate Customs risk management strategy developed Stop success rate: 30% Audit success rate: 50% Strategy by end trimester 1, 2009 3.
Facilitating trade and protecting South Africa's ports of entry with respect to the transit of goods remains a SARS priority.
The requirements associated with the hosting of large international events in 2009 and 2010 add to the volumes and complexities of work. The bar for managing risk will be raised through the prevailing economic climate. Centralised processing and assessment of declarations will provide an integrated picture of trading activity and a single picture of all traders, and thereby yield information that can be used to manage risk more effectively and respond to risk more rapidly.
In co-operation with other government role players, SARS will review and contribute towards Government's strategy to establish a border management agency based on its Border Control Co-ordinating Committee (BCOCC) and Customs Border Control Unit (CBCU) experience.
Improved border management and protection will provide for better quality service at borders, the reduction in import and export of illicit goods and the full collection of revenue due.
Revised Activities And deliveRAbles peR coRpoRAte stRAtegic pRioRity June 2009 4.
Given that SARS is entering a period in which resources available to the organisation to fulfil its mandate will be more constrained, it is important for SARS to optimise the use of resources that are available to it. This requires better management of operations, as well as improving productivity through working smarter and in streamlining processes. SARS's current approach towards aspects of its operating system such as capacity planning (see also priority 8), the budgeting process, the generation of and access to management information, performance analysis and reporting will be revisited.
The outcome of better operations management and focusing on improving productivity will be greater organisational effectiveness and efficiency.
Weaknesses that currently impact negatively on service provision need to be addressed, in line with SARS's values, and particularly given the current climate. A holistic service strategy is required, based on an understanding of the requirements of all the taxpayer and trader segments.
Improving the quality of SARS's service will promote timely revenue collection, through positively influencing taxpayer and trader behaviour.
Additional customer segment units Units established and resourced for: Practitioners Small businesses All segment units operational by March 2010 6.
Although modernised systems are progressively being phased in to supplement the legacy systems used for capturing and maintaining information on taxpayers and traders, the quality of data constrains SARS's ability to provide world class service and manage compliance risk effectively. Concerted effort is therefore required to improve data quality, as this in turn impacts on the collection of revenue due. The improvement in data quality will be approached through the simultaneous cleaning of legacy data, as well as the progressive modernisation over time of the systems used for managing the data, to include built-in quality measures.
The stabilising of SARS's operating systems will yield better service to taxpayers: greater efficiency in responding to queries, resolving queries first time and shortened turnaround time for the processing of all transactions, including assessments.
There is a need to continually review and strengthen SARS's governance framework, its leadership and management processes. An internal value system needs to be entrenched, in order to enhance good governance.
In addition to corporate governance within SARS, SARS's role in improving governance also includes the building of cooperative governance with other public and private stakeholders. An example of this is SARS's co-operation with other government role players, to streamline business registration obligations (see also priority 5), to provide an environment enabling investment.
Improving governance contributes to greater efficiency within SARS, with external benefits for SARS's reputation, through demonstrating that SARS delivers transparently on its mandate.
A culture of integrity Integrity promotion framework and plan September 2009 8.
SARS's mandate and its commitment to excellence in serving the taxpayer led to changes in its operating and leadership models, as well as a modernisation programme. To enhance the value of these changes, a focus on human capability development and individual lifelong learning strategies are needed. It is also imperative that alignment of human capability to the organisation's strategic delivery priorities i.e. revenue security, strengthening compliance, border protection and management and improved service, is realised.
Management strategy that informs, amongst others, workforce planning, talent management and people development. Furthermore, without a driving Employee Value Proposition that seeks to attract, engage and retain valuable talent, SARS will not be in a position to deliver on its priorities.
Developing human capability fosters engaged employees, and hence better organisational service towards taxpayers, traders and their intermediaries, as well as leading to gains in organisational efficiency and innovation.
Develop and implement an Employment Value Proposition to attract, retain and develop talent in strategically critical business areas.
SARS confronts significant challenges in its ability to sustain its performance. These challenges include the substantial increase in volumes of transactions, the pressure on manual processes, the imperative to sustain revenue collections, managing risk and non compliance and the need to deploy people and resources more efficiently. Fundamental to SARS's strategy is the modernisation of its tax, customs and risk business processes and associated technology. The modernisation efforts underway are already contributing and will further position SARS to operate at levels comparable to the best revenue and customs agencies in the world. The benefits of this modernisation process are many-fold and impact positively both SARS as an organisation and the taxpayers and traders that SARS interacts with. By automating previously manual processes, SARS is able to free up resources which can be redirected to more value added activities such as compliance, enforcement, taxpayer and trader service and outreach programmes.
Further improve both the PAYE and PIT systems: given the scale of improvements introduced over the past 24 months, the improvements this year will be more moderate in magnitude, but build on feedback received from both internal and external stakeholders.
Continue to focus on service delivery through improved contact centre facilities by completing the rollout of the Contact and Assessment Centres nationally (Western Cape and KZN). Included in the rollout, will be a major upgrade of the underlying telephony and transactional capability brought about by the technology upgrade.
Commence the multi-year customs modernisation programme which is not only intended to re-engineer the manual business processes, but replace the old fragmented technology platform with a new integrated solution. The modernisation programme will have a strong emphasis on operationalising risk management within the end to-end Customs processes.
Build on the successes achieved over the last two years in the Risk Programme. It will continue to refine the existing risk engines and roll out additional analytical based risk engines to other tax types, including, as indicated above, customs.
Increase the use of third party data, with multiple benefits including augmenting the degree of pre-population of returns, reducing manual errors and improving customer service and compliance.
Develop systems for more effective management of taxpayer/trader accounts and related payments. These solutions will also focus on automatically verifying taxpayers' banking details and improving the income tax refund process.
Commence work on modernising other business tax systems (e.g. Corporate Income Tax and VAT Risk Management).
The modernisation of core tax and customs systems, along with supporting systems such as account management and electronic payment systems, will lead to more efficient and effective processing of taxpayer and trader transactions.
Beyond improving taxpayer and trader service, these improvements will also increase compliance levels by reducing manual errors and increasing the use of third party data.
Modernisation of Customs Phased replacement of Customs' legacy systems by TATIScms which will, inter alia, expand the ability to handle electronic submissions, segment traders, enhance risk management and reduce manual workflow and paper based controls Initial components of new integrated customs software and re-engineered processes to be ready for pilot at one modality Phase 1 of new system ready to be piloted.
Developing a deeper understanding of taxpayer, trader and intermediary segments, their behaviours and needs, will inform engagement with taxpayers, traders and intermediaries, service delivery and compliance management. Access and service channels will need to be reviewed, adjusted and expanded on the basis of research into the behaviour and needs of each segment, and this segmentation research will serve also to inform SARS's operating model. The review will draw on the experience of establishing and operating the Large Business Centre.
The provision of customised services for taxpayer and trader segments will yield the ability to tailor more appropriate service offerings, as well as increase SARS's efficiency.
Enhanced HNWI business model Clearer business unit accountabilities Clearer segment definitions HNWI compliance programme Accountabilities and thresholds defined by October 2009 11.
In consolidating SARS's new operating model, there is a need to refine and ratify the model in the light of the current context, in order to address overlaps and duplication of functions. The alignment and entrenchment of functions and managers at an enterprise level is required. Segmentation needs to be more explicitly integrated into the operating model, including the establishment of customer segment units. This process is dependent, in part, on the research outputs from priority 10. Once new capacity plans have been developed, optimal deployment and utilization of capacity can become an ongoing improvement. Necessary adjustments commensurate with the acceleration of the shift towards electronic channels will be required.
The consolidation of SARS's new operating model will see gains in efficiency and effectiveness.