Sars presents its annual report to Parliament

Mark Kingon, acting commissioner of the South African Revenue Service (Sars), displayed in-depth organisational knowledge as he briefed Parliament on Sars’ 2018 annual report, delivering a no-holds-barred account of its performance in the year to March 31, 2018.

“We can’t afford mess-ups at Sars,” he said. “Sars is an important organisation for our country; it has to do what is right and correct in every circumstance.”

Recognising the current difficulties faced by Sars, he proclaimed: “We are going in the right direction, but we are facing choppy seas.”

Non-compliance with legislation

Performance bonuses were paid without the minister of finance’s approval, with irregular expenditure paid in relation to performance bonuses amounting to R4.3 million.

Sars also incurred irregular expenditure on two contract renewals amounting to R104 million because it had not implemented National Treasury’s new rules in time.

When asked by Parliament to explain, Kingon took it on the chin (even though he was not commissioner at that time): “We dropped the ball. We cannot plead ignorance”.

The services rendered under the contracts provide value, and Sars is in the process of having this expenditure condoned.

Tax Ombud

Sars is also in the process of dealing with the Tax Ombud’s finding on refunds. Ten cases have been dealt with, and a new system that will end the problems experienced with stoppers on refunds is being put in place. In addition, the value-added tax (VAT) and diesel refund accounts would be split.

Operational matters

Kingon noted the following:

• Sars has halted all non-core litigation in order to focus on its core mandate.
• Sars is still trying to shorten queues at branches by focusing on improved service delivery in other areas. Kingon is optimistic that ultimately taxpayers should be able to self-service and not have to contact a call centre or visit a branch.
• The primary building block of good compliance is good service: “If we serve better we will have a more compliant tax base.” Kingon also said that Sars is trying to get on top of its data and understands where the risks are.
• While there are concerns about the IT system, this aspect was misconstrued in the press; the Sars system is not going to collapse.
• Two critical IT issues are eFiling and the IT infrastructure. The current eFiling platform is reaching the end of its cycle and will be replaced with Html5 for the 2019 tax year. The IT infrastructure has to be refreshed. Sars is currently running on Windows 7, and new equipment will have to be installed so that it can run on Windows 10. This will be done on a phased-in approach over a number of years.

Major highlights include:

• 6.3% revenue growth year on year, with GDP growth of 1.3%
• 94% filing compliance
• 93.63% returns assessed within the first 24 hours of the receipt cycle
• Sars, which processes some R2 trillion per annum, is a target for fraudsters, and fraudulent claims amounting to R2.7 billion were prevented
• 17.2 million tax returns were submitted in 2018 (2017: 16.6 million).

Kingon referred to the employees at the coalface who deal with these matters on a daily basis, often without recognition, and said it was important for him to salute them for the work they are doing.

Illicit economy

Sars is making significant progress in dealing with the illicit economy and has established an illicit economy unit that is currently dealing with 58 cases. Kingon referred to the recent arrest of two officers who were attempting to facilitate trade in fuel where the duties had not been paid; the amount involved was about R3 million.

Primary concerns in the illicit economy are tobacco and fuel. Under-collection of taxes on fuel negatively impacts the Road Accident Fund.

The clothing and textiles sector is also a concern, not only because of the under-collection of duties but also because of the importance of protecting jobs in the economy.

Drugs and currency leaving the country continue to be major areas of concern.

Financial statements

• Total revenue accounts collected for the year, comprising taxes, levies, duties, fees and other monies collected, amounted to R1.3 trillion (2017: R1.2 trillion). These funds are transferred to the National Revenue Fund on a daily basis.
• Total revenue from the rendering of services, other income, and interest received, amounted to R554.7 million (2017: R1 191.2 million). In 2018 National Treasury transferred R10.2 billion to Sars (2017: R11.2 billion).
• Total expenditure for the year, made up mainly by employee costs of R7.5 billion (2017: R7.2 billion), amounted to R10.9 billion (2017: R10.8 billion).
• Executive remuneration amounted to R36 million (2017: R32.2 million).

For Sars, the year saw the appointment of a new commissioner (acting) as well as several new chief executives from outside the organisation; there was also the appointment of a new minister of finance; and then there’s the Nugent Commission of Inquiry, which has resulted in much of the organisation’s dirty laundry being aired in public.

Sars has been stripped to its core and it will take a lot of effort and support to build it back up to what it once was. Luckily for Kingon and South Africa, there are committed and loyal staff who will be able to knuckle down and attend to the core mandate. However, the evil cobwebs constraining them first have to be removed.

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