National Treasury & SARS 2019/20 Annual Performance Plans

Meeting report

The Chairperson invited the Deputy Minister of Finance to make opening remarks.

Finance Deputy Minister remarks
Dr David Masondo conveyed an apology from the Minister of Finance who was unable to attend. The plans to be presented by National Treasury and SARS could be seen as transitional in that they completed the work of the Fifth Administration and incorporated the priorities of the Sixth Administration which took over after the elections. He introduced the National Treasury Director General and the new SARS Commissioner, Mr Edward Kieswetter. He said Mr Kieswetter had already introduced several initiatives to restore the credibility of SARS.

National Treasury 2019/20 Annual Performance Plan
Mr Dondo Mogajane, National Treasury Director General, said the vision of the National Treasury was to serve as the custodian of the nation’s financial resources. It aspired to excellence in the quality of its analysis and advice and aimed to realise the full potential of South Africa’s economy.

Mr Mogajane listed a number of Bills which would be submitted to Parliament. He singled out three key pieces of legislation: the Public Procurement Bill; the Municipal and Fiscal Powers and Functions Amendment Bill; and the Conduct of Financial Institutions Bill.

Mr Mogajane outlined key areas on which the department would be focussing. These included:
▪ Further development of a comprehensive framework to strengthen the work of authorities overseeing financial market conduct.
▪ Development of retirement reform policies.
▪ Coordination of fiscal relations between the three spheres of government. Mr Mogajane said a key aspect was ensuring sound budgetary planning at the provincial and local levels.
▪ Optimally managing public debt and overseeing state owned companies to achieve policy objectives in a sustainable manner.
▪ Improving financial management and compliance with regulations across all spheres of government.
▪ Overseeing and improving government’s supply chain management systems. Cabinet was currently considering the Public Procurement Bill which would replace the current fragmented and confusing system of procurement regulation.
▪ Advancing South Africa and Africa’s economic interests through membership of institutions like the G20, the BRICS group, the African Union, the SADC economic region and the SA Customs Union.
▪ Administering various programmes in partnership with stakeholders. These included employment creation through the Jobs Fund; improvement of municipal finances through the Municipal Finance Improvement Programme; and assisting cities to create better spatial structures though the Cities Support Programme.

Discussion
Dr D George (DA) asked if there had been consequences for anyone for the reputational damage suffered by SARS. He asked what active steps were being taken to curb the country’s upward debt spiral. He asked what reason the Treasury had to believe that ongoing problems at state owned enterprises would be resolved. ‘What is different this time?’ he asked.

Mr G Hill-Lewis (DA) referred to comments the Deputy Minister was reported to have made about the monetary policy of the Reserve Bank. He asked for the Deputy Minister’s views on the independence of the Bank.

Mr Hill-Lewis asked if tax studies to be conducted by Treasury this year would include an assessment of the first year of implementation of the Health Promotion Levy, or so-called sugar tax. The tax had been raised in the latest budget round but he was not aware of a study into whether the levy had made any difference to public health in its first year of implementation. He asked if it was not simply a revenue-raising measure.

Ms N Abraham (ANC) asked what progress had been made with the Cities Support Programme and whether efforts to improve local government supply chain management were bearing fruit.

Mr S Swart (ACDP) asked if the proposed Public Procurement Bill would crack down on current practices which allowed for deviations from procurement rules. That lay at the heart of Eskom’s problems. He asked about more resources for the criminal justice system. While he understood there were budget constraints, entities like the Special Investigating Unit had the potential to raise billions of rands if they were better funded.

Mr W Wessels (FF+) said it appeared that efforts to improve financial management of cities were not working. Metros ignored National Treasury’s advice that they should not commit themselves to long-term debt. There was something seriously wrong with the current oversight model.

Mr N Paulsen (EFF) asked about a forensic report into National Treasury’s Integrated Financial Management System (IFMS) which had pointed to corruption and tender irregularities.

Responses
Deputy Minister Masondo replied that the economy was faced with structural challenges. The government had launched programmes to deal with them, but this required strong institutions. There was a whole range of interventions at these institutions and the government was beginning to find the right people to run them. For instance a new commissioner had been appointed to resolve the situation at SARS.

On the Reserve Bank, Deputy Minister Masondo replied that there was a distinction between the goal independence and instrument independence of the Reserve Bank. Nowhere in the world did a reserve bank set its own goals. In South Africa, the goal of the Reserve Bank was well articulated in the Constitution as being to maintain price stability in the interests of balanced and sustainable economic growth. The Bank had independence in what instruments it chose to achieve the inflation targets set by the government.

Mr Willie Mathebula, Treasury Acting Chief Procurement Officer, replied about the proposed Public Procurement Bill that currently there was no overarching legislation on procurement and officials had to deal with a host of sometimes confusing directives that had been issued over time. The Bill would eliminate this fragmentation.

Mr Ismail Momoniat, Treasury Deputy Director-General: Tax and Financial Sector Policy, replied that it was too early to assess the impact of the Health Promotion Levy. It took into account the broader policies of the Department of Health. At no stage was it said that the tax on its own would result in thinner people.

The Chief Director for Local Government Budget Analysis, Mr Jan Hattingh, outlined steps being taken to improve budget planning by local authorities. Problem areas had been pinpointed and progress was being made in addressing them.

The Acting Deputy Director General: Budget Office, Mr Ian Stuart, answered questions about the national debt outlook. The fiscal position was tough. The February Budget presented a set of proposals to stabilise debt at around 60 per cent of GDP over the medium term. However, new pressures had emerged. Tax revenue was R15 billion short of the estimate and there had been a large quarter on quarter economic contraction which would feed into the fiscal numbers.

Mr Mogajane replied that National Treasury was dealing with the IFMS issue. An advocate had now been engaged and charge sheets were being prepared which, in addition to disciplinary measures, could result in criminal prosecution.

South African Revenue Service (SARS) 2019/20 Annual Performance Plan
The new SARS Commissioner, Mr Edward Kieswetter, had made a point of meeting with 80 per cent of the staff during his first two months in office. He found a climate of fear and intimidation, palpable racial tension, high levels of distrust of the leadership of SARS and a growing impatience to see the implementation of the recommendations made by the Nugent Commission of Inquiry into SARS. Staff felt disconnected from the leadership of the organisation and many reported that they were doing meaningless work.

Mr Kieswetter said that there would be a sustained campaign to engage with staff, earn their trust and, as he put it, evangelise the higher mission of SARS.

The leadership of SARS had contributed to the prevailing culture through excessive use of disciplinary measures and by not resolving long-standing suspensions. Six hundred disciplinary cases were being reviewed. Sixty managers who had been declared supernumerary had been placed in useful employment and acting appointments had been confirmed.

External stakeholders
Mr Kieswetter said there was a need to restore external stakeholders’ confidence. SARS would engage large taxpayer groups. It would cooperate with key government departments such as the National Treasury, Trade and Industry, and Home Affairs. It would also cooperate with government agencies like the National Prosecuting Authority, Financial Intelligence Centre, Special Investigating Unit, SAPS and Auditor General.

A memorandum of understanding between SARS and the NPA was being finalised. Mr Kieswetter said investigations into tax compliance could sometimes lead to criminal prosecution.

Revenue Recovery
Mr Kieswetter outlined steps to be taken in recovering lost revenue. SARS would:
▪ Set up a focused revenue recovery programme. It would identify initial revenue leakages; pursue delinquent taxpayers and tax practitioners; and launch telephone outreach campaigns.
▪ Build capacity to crack down on illicit economic activities involving tobacco, mining and minerals and other illicit imports. Customs surveillance at ports of entry would be raised. 
▪ Improve capacity for dispute resolution and settlement.
▪ On efforts to ensure tax compliance, Mr Kieswetter said SARS had to make it easy for taxpayers, most of whom were honest, to pay their taxes. It was also necessary to ensure that there was always a credible threat of detection of non-compliance. An immediate issue was managing a debt of R174 billion owed to SARS. Of this, R38.5 billion was being disputed.

Mr Johnstone Makhubu, SARS Chief Financial Officer, briefed the Committee on the SARS budget. SARS had been allocated R9.5 billion to collect estimated revenue of R1.4 trillion.

Discussion
Mr I Morolong (ANC) asked if the tax incentive scheme aimed at reducing youth unemployment was achieving its objectives. There were suggestions that companies were claiming tax benefits for people they would have employed regardless of the tax incentives.

Mr Swart commented that it was disgraceful that SARS had been allowed to get into its present state. He commended the efforts being made to engage with staff. He referred to the tax shortfall of R57.4 billion in the past year and asked what impact the current economic contraction would have on revenue projections.

Mr Paulsen asked how many people in SARS were dealing with the illicit economy.

Ms Abraham welcomed the focus on restoring staff morale, saying the success of an institution did not depend on one person only but on the collective.

Mr Skosana asked why such a huge amount of tax was in dispute. There had been a number of complaints that SARS was slow in paying money owed to taxpayers. There were suggestions that SARS was holding back funds to make its revenue collection figures look better.

Mr Hill-Lewis asked how SARS saw its role in fighting corruption and said the organisation was perfectly positioned to investigate unexplained wealth by conducting lifestyle audits. He referred to a news report in which Mr Kieswetter was quoted as saying he was not averse to setting up a dedicated surveillance unit to assist with tax enforcement. This raised concerns because that should be the work of other agencies.

Mr Hill-Lewis said delays in customs and excise procedures at ports of entry were a concern. He would like to see a specific performance target for reducing waiting times.

Response
Mr Kieswetter thanked committee members for their good wishes. His was tough job made more difficult by the current climate in which it had to be performed.

On revenue estimates, he and his colleagues were resolute in their commitment to collecting the estimated revenue. “We will die trying,” Mr Kieswetter said. If in the future it became necessary to adjust the estimates, it would be done though a proper governance process. He noted that referring to the revenue estimate as a revenue target created confusion.

On the illicit economy, Mr Kieswetter replied that 54 skilled people were working on 15 projects that linked 800 cases as well as on seven special projects involving illicit financial flows. It was a huge area of work, involving tobacco, mining, metals, clothing and textiles and import and export industries.

On tax disputes, the time it took to settle them depended on the co-operation of the taxpayers in providing additional information on returns that had been submitted. There was a formal process to be followed if a taxpayer disagreed with SARS which, if no agreement could be reached, would go to court. These processes could take a long time.

On the slow payment of refunds, Mr Kieswetter explained that the only time SARS would delay payment was when declarations made in returns did not match information on the SARS database, which he described as very rich. Of 5.8 million individual taxpayers who submitted returns last year, 92 per cent received an assessment within 24 hours and most received repayments within seven days. On perceptions that refunds were held back to manipulate revenue figures, there was clear message within SARS that “we don’t fiddle” and that to do so would lead to dismissal.

Mr Kieswetter said SARS did have a role in fighting corruption. Its business was following tax risk, but this process could reveal wider webs of corruption. SARS would under no circumstances engage in clandestine surveillance.

Mr Kieswetter said there was huge potential for VAT and customs and excise fraud at ports of entry. SARS was obliged to seize suspicious goods and the time it took for them to be released would depend on the co-operation of the taxpayer in answering queries.

During the meeting, Mr Paulsen referred to a long-standing friendship between Mr Kieswetter and former finance minister Trevor Manuel who served on the panel that recommended his appointment as Commissioner. He wanted to know whether Mr Kieswetter had been headhunted for the post. The Chairperson asked the Deputy Minister to respond to the question and also to the question raised about whether there would be consequences for those responsible for the damage to SARS.

Deputy Minister Masondo replied that the appointment of the SARS Commissioner was the prerogative of the President. There was a report on the National Treasury website on how the process was conducted. Members could study it and determine whether there was any fault in the process. The Minister of Finance had recommended the appointment of a panel which in turn recommended to the President that Mr Kieswetter be appointed. The President was satisfied with the process and the outcome.

On consequences for the damage at SARS, the Deputy Minister replied that Cabinet had accepted the Nugent Commission report and its recommendations would be implemented.

The meeting ended with heated exchanges between some committee members and Mr Paulsen who maintained that his questions had not been answered adequately.