SARS Presentation to the Portfolio and Select Committees

SARS Presentation to the Portfolio and Select Committees on Finance 14 May 2002

Contents Introduction Strategic Framework SARS’ achievements Current Operations Understanding the Tax base SARS Compliance Model Changing Culture & Work Ethic Siyakha - SARS Transformation Programme SARS Budget Divisional Plans

Introduction Minister has dealt with External & Internal challenges Tax & Customs Challenges Core capabilities required in SARS Transformation Programme: Siyakha Budget Vote SARS will focus on details of deliverables for this fiscal year

Strategic Framework for next two years: Balancing continuity and change Sustain and Improve current Operations Change Compliance focus to tax gap Design and Implement Transformation Program Implement Cultural Change Management Program

SARS’ achievements Exceeded printed estimates by 6. 5% Implementation of tax proposals Siyakha KZN pilot roll out - physical/ process infrastructure/ teaming Increased compliance through Woodmead Project and outbound call centre Process efficiencies through Warrooms (49% increased returns processed - >1 000) Customs - better control over movement of goods and established anti-smuggling teams Service -established dedicated presence in all offices

Current Operations

Current Operations Improve Service to Taxpayers and Traders Improve Processing efficiencies (Warroom & EDI) Shift from “normal flow” to tax gap Improve profiling & targetting Increase skills base Measuring Performance Legacy systems still exist

Understanding the Tax base

Dual Economy Operating in a dual economy Formal & Informal economy & structural constraints to the tax base Tax base is narrow (about 6 million individual taxpayers) Low tax morality is legacy of a pervasive culture of non-compliance Cash economy poses a regulatory challenge raises issues of an appropriate tax system Balance service, education, enforcement

Segmenting the Tax base Income Source / Job Type / Un. Income employed Level Salary Geography 0 - 60 Employed Salary Turnover 60 - 120 - 300 - 500 > 500 < 300 - 2 mil 2 - 10 mil > 10 mil Former Homelands > 10 mil of assets 8 12 2 4 5 13 6 10 9 Townships City centres 2+ sources, at least 2 over 200 k 1 Rural Districts Suburban Areas High Multiple Income Net Worth Source Individuals Employed 3 7 11

Behavioural Segmentation

The “Strategic Revenue Analysis Project”: Project Design Tax Gap Module Deductive Analyses Integrated team of 5 staff Inductive Surveys Activation Module Segmentation of Tax Payers Integrated team of 5 staff Tools for Activation Long Term Revenue and Strategy Module Key Accounts & their Drivers Rbn How to close the Tax Gap? How big is the current Tax Gap? What is the future Revenue Base? Time Integrated team of 4 staff Models for Estimation

Revenue Analysis & Estimation Process Revenue Analysis & Estimation Rbn Time What is the future “natural” Revenue Flow? Macro-economic estimation based on status quo Evaluate policy changes & impact on revenues How much “extra” Revenue Flow from closing the gap? Policy Effects Special Activation Programs How big is the remaining Tax Gap? Estimation of Size & Test for Compliance Administration of initiatives SARS TREASURY

Distribution of the Economically Active People (Stats. SA Labour Force Survey) Of the 16. 39 million economically active people, less than 45% (formal sector) could contribute tax to the Fiscus (this excludes the informal sector). Millions of people Economically Active Population 2001 Note: *Pensioners include those formally employed and those self-employed Source: Labour Force Survey 2001; All Media Products Survey (AMPS) 2000

The Analysis Indicates That SARS Is Potentially Missing up 5. 9 Million Income Earning People… The informal sector represents the largest percentage of missing individuals. 5. 2 - 5. 9 mn 12. 2 mn Informal 6. 3 - 7. 0 mn 0. 7 mn Salaried < 65 yrs Salaried > 65 yrs Business < 65 yrs Note: The term ‘economically active’ here excludes the unemployed Source: Labour Force Survey, 2001; All Media Products Survey, 2000; SARS Analysis

Common objectives that directly impact tax payingbehaviour Monetary Objectives Low Pay what is due Do the “Right Thing” Get refund Peace of mind Tax paying Behaviour Minimize at all cost Get it out of the way Don’t pay tax at all Beat the system Low Likelihood of evasion Degree of compliance High Emotional Objectives High

Key drivers and barriers influencing Taxpayer behaviour Tax System Social Background Income Level Individual Compliance Cost Cultural Background Job Type Perception of Government Customer Service Citizenship/ Social Attitude Tax Paying Behaviour Channel Tax Related Knowledge/ Education Image of SARS Fear Gender-Patterns Media/Educational Campaigns

Tax Gap - Complexities of the PIT Tax Gap Foreign dividends Salary Understate Taxable Income Retirement Benefits Interest Rental Filing Self-employed profits Fringe Benefits (non-cash income) PIT Evasion Individual Evasion Overstate expenses / deductions Allowances Subsistence Uniform Travel Entertainment Other allowances Deductions Not filing Donations Medical Pension / RA Not registered for PAYE Employer Evasion Other Under deducts (with knowledge) Deducts Retains all Retains partial Registered for PAYE Simply not deducting tax Not deduct Incorrect issuance of IT 3’s This tree defines the exhaustive set of areas that require data to estimate the tax gap based on where the decision rights are held.

Tax Gap -Corporate Income Tax Evasion Underdeclare income (1, 12) Active Filing Understate income (2) Other income Declaring income as capital (5, 6, 7, 8) Recoupment Cash Dormant Corporate Evasion Not filing Sundry (3, 4) Inflation of expenses (7, 8, 9, 10, 11, 12) False deductions 2. Controlled foreign entities 3. Under-declare foreign income 4. Foreign dividends 5. Deferred allotment and shareincentive schemes 6. Incorporation of professional practices Depreciation Non cash Active Interest received** 1. Offshore structures (includes transfer pricing) Discounts/rebates Private expenses Overstate expenses (1, 12) Tax underpaid (13) Evasion Schemes: 7. Long-term insurance schemes (inflated premiums) Allowances Provisions (14) Assessed loss schemes Tax holidays 8. Short-term insurance schemes (inflated premiums) 9. Preference share financing schemes 10. Property schemes (could include CGT) 11. Structured finance schemes Dormant * Income earned on ‘grey’ money, which cannot be declared as it was taken out illegally ** Interest received and foreign exchange gains on Rand denominated outward bound loans 12. Transfer pricing 13. STC not paid 14. Under-valuation of trading stock

SARS Compliance Model

Intentional evasion and Revenue Yield Potential yield per case Intentional behaviour Resources, skills level, time required Number of inter-dependencies Incorrect filing SARS response Non-filing Non-registration

Not filing • Aggressive collections • Maintenance audits • Media Campaigns, educational campaigns, enhancing the tax system Not registered • Criminal investigations Unintentional behaviour • Investigative audits Filing incorrectly Enforce - Encourage Intentional behaviour Compliance Model

The SARS response to taxpayer behaviour

GEOGRAPHIC INFORMATION SYSTEM Comparison of lifestyle, 3 rd party information & SARS database

Example: Electronics Industry The Electronics Industry Initiative Analysis What was achieved? How was it done? Investigation Identification of electronics industry as appropriate target industry Developed hypothesis on evasion scheme and group of non complying subjects Analysis of Employment, Sales, Import&Export Statistics Analysis of SAR-data Cooperation within CLETG Information exchange between authorities Firmed up hypothesis evasion of customs duties by specific tax subjects Action Investigation on specific subjects within electronics industry Learning Formulation of convincing story Resolving the issue with subjects short-cutting lengthy audit procedures Admittance of guilt of alleged tax subjects “ 5 minute court sentence” Observations Selective action against suspicious offices Collection of poof for evasion Design of argument for resolving the issue Further subjects to follow up (40 families linked to forex scheme) Learnings across tax types Further schemes discovered Review of insights from convicted tax subjects Review specific materials for further evidence of evasion

Changing Culture & Work Ethic

Changing Culture & Work Ethic From bureaucratic mindset to service orientation Mobilising for participation in change Understanding SARS future direction & challenges Intensive internal communication

Siyakha Transformation Programme

Siyakha - SARS Transformation Programme SARS’ own Capability & Governance Infrastructure, Process, Technology People: Skills, Change, Culture Business Culture & Innovation Conception of Tax & Customs Administration Stakeholder relations

The Architectural Framework GOVERNANCE Physical INFRASTRUCTURE CRM Virtual BUSINESS LOGIC FIMS Empirical DATABASE Physical (Governance) CUSTOMS Interaction layer Analytical TAX BUSINESS RULES (Legislation) Business HRMS Electronic Communities KNOWLEDGE Cognitive EDS Virtual

Transformation Progress Implemented Siyakha Pilot Project in KZN Redesigned business process and created new physical infrastructure introduced teaming in the organization appointed new management in KZN and Gauteng

Siyakhaenhancement KZN design of process and infrastructure Customer centricity Synergy and integration in Tax and Customs functions An enterprise architecture approach Strong focus on innovations Programme and project management capability

Siyakhaenhancement: Defining scope and exploring possibilities Business context High level business process design High level enterprise systems integration design Technology architecture design Business case justification Implementation approach and roadmap

SARS Budget

Budget Allocations 2002/03: Operational Budget 2001/2002/2003/2004 Personnel Expenditure Administrative Expenditure Inventories Accommodation Prof & Spec Services Miscellaneous Expenditure Capital New Business Architecture 1, 604, 526, 933 583, 795, 361 94, 831, 875 147, 634, 246 483, 150, 656 6, 608, 000 154, 633, 930 1, 643, 509, 258 536, 563, 962 82, 456, 791 164, 245, 411 452, 167, 256 5, 292, 099 56, 478, 258 476, 582, 965 1, 716, 169, 920 572, 056, 640 86, 166, 031 178, 767, 700 464, 796, 020 5, 363, 031 58, 993, 341 493, 041, 317 Total 3, 075, 181, 000 3, 417, 296, 000 3, 575, 354, 000 MTEF Allocation % of Revenue 2, 863, 181, 000 1. 15% 3, 417, 296, 000 1. 29% 3, 575, 354, 000 1. 24% 249, 259, 926, 000 265, 521, 310, 000 288, 713, 100, 000 Revenue Collected

Budget Allocation: SARS TOTAL Classification Communication 2001/02 Budget 2002/03 Budget Increase/ (Decrease) 20, 755, 119 17, 169, 517 (17) 490, 660, 656 410, 429, 792 (16) 15, 893, 038 20, 000 26 158, 276, 228 186, 112, 138 18 1, 201, 642, 533 1, 131, 868, 964 (6) 238, 981, 871 238, 052, 706 (0. 4) Business Systems Design Centre 41, 899, 557 14, 691, 444 (65) Law Administration 54, 862, 620 63, 011, 847 15 Strategic Planning 23, 935, 113 80, 381, 835 236 Compliance 264, 133, 507 401, 681, 436 52 Customs 262, 543, 714 326, 478, 474 24 18, 764, 585 50, 834, 882 171 Finance Internal Audit Human Resources Processing & Branches Technology Services Tax Payer Service Siyakha 282, 832, 459 New Business Architecture Total (100) 476, 582, 965 3, 075, 181, 000 100 3, 417, 296, 000 11

Divisional Plans

Divisional Plans Strategic goals Optimising revenue yield Aligning business and technology Transform business processes and technology Responsible enforcement Improved taxpayer service, communication and education People first Effective governance Building relationships Consistent application of legislation

Divisional Plans Service

What has been achieved: SERVICE Creation of Service division to focus on Service strategy and delivery Creation of new Service Centres in KZN - per Siyakha rollout Creation of Service Centre front office in all existing ROR offices except Northern Cape Service KPI’s implemented in 90% of ROR branches Implementation of Monitoring unit to resolve complaints received by Commissioner and Minister’s offices

Focus Areas for 2002/03: SERVICE Optimise existing processes to support front office. Provide input on the tax simplification process Increase training & transfer of skills (multiskilling): technical skills client service orientation Performance management through service delivery and taxpayer satisfaction survey Improvement of service at Customs ports of entry

Focus Areas for 2002/03: SERVICE Migration to and entrenchment of a customer centric culture through: External service Increased understanding of the nature of taxpayer interactions at the frontline Interaction with compliance and processing to achieve timely and effective resolution of queries, requests etc. Offering multi-channel service options to suit taxpayer preferences Internal service Cultivate a service ethos internally through focused interventions

Focus Areas for 2002/03: SERVICE Implementation of ‘integrated branch office’ offering full service delivery across tax products, with enabling technology, supportive business rules and enhanced skills at the frontline in Western Cape Increased communication with stakeholders to reinforce a positive perception of SARS and the tax system in general. Launching of a complaints office to speed up resolution of outstanding administrative issues.

Focus Areas for 2002/03: SERVICE Contributing to base broadening through education and communication drives addressing the formal and informal sectors, in collaboration with compliance. Upgrading service infrastructure at customs offices and border posts

Budget 2002/03: SERVICE Classification Personnel Expenditure Administrative Expenditure Inventories Accommodation Prof & Spec Services Miscellaneous Expenditure Capital Total 2001/02 MTEF Baseline 2002/03 MTEF Baseline Increase/ (Decrease) % 12, 111, 684 1, 676, 161 528, 349 634, 176 3, 540, 649 36, 267, 049 3, 386, 710 1, 937, 521 1, 953, 400 5, 599, 202 299 202 366 308 154 273, 566 1, 691, 000 618 18, 764, 585 50, 834, 882 269

Divisional Plans Processing

What has been achieved: PROCESSING Tax assessment backlogs eliminated – additional war rooms (BFTN & JHB) Income Tax returns processed 3, 255 million. Reduction in SMR Account from R 15 bn to R 1. 57 bn Year end contingency arrangements - R 1. 4 bn deposited on Sat 30 March 2002 Implementation of payment limits at banks System changes Process changes (debit orders, cheques)

What has been achieved: PROCESSING Reduction in processing time of payments to 48 hrs SARS Bank 2 E-Filing introduced with VAT/PAYE & Provisional Tax Role out and stabilisation of KZN processing centre

Focus Areas for 2002/03: PROCESSING Introduction of additional quality control measures in assessment. Create central operations room to align operational divisional activities Introduce new systems maintenance management model (One point of entry & Prioritization) E Filing enhancements to include Income Tax returns

Focus Areas for 2002/03: PROCESSING Improve internal controls Revise and standardize operational policies / procedures Siyakha roll-out in Western Cape

Budget 2002/03: PROCESSING Classification Personnel Expenditure Administrative Expenditure Inventories Accommodation Prof & Spec Services Miscellaneous Expenditure Capital Total 2001/02 MTEF Baseline 2002/03 MTEF Baseline Increase/ (Decrease) % 886, 976, 237 148, 968, 115 60, 772, 082 18, 831, 095 837, 122, 889 138, 857, 330 58, 360, 468 32, 262, 842 61, 275, 294 27, 699 (6) (7) (4) 71 100 86, 095, 004 3, 962, 442 (95) 1, 201, 642, 533 1, 131, 868, 964 (6)

Divisional Plans Compliance

What has been achieved: COMPLIANCE 62% increase in audit results from prior year due to more focused, targeted compliance activities: Focus on risk profiling (“hit rate” more than doubled) Implementation of computerised risk profiling – SARAP - identification of high risk areas Performance management tracking Emphasis on field audits Introduction of integrated audits

What has been achieved: COMPLIANCE Additional assessments raised Increased transfer of skills through: R 4 b increase from the previous year Average assessment per audit R 7 500 000 Collections training – 100% coverage 90 courses presented in basic audit skills Basic Special Investigations course attended by all staff Woodmead approach -cash collected R 4. 3 b

What has been achieved: COMPLIANCE Collections: Contributed R 13. 2 b (exceeded R 12. 6 b target) Increased focus on customs debt reduction Implementation of collections outbound call centre 66 workstations (contribution of R 376 m to results) Successfully piloted co-sourcing of aspects of debt collection Piloted the Revenue Optimisation Strategy (ROS)Geographical Information Systems to assist in third party information matching thereby reducing the potential for non-compliance.

Focus Areas for 2002/03: COMPLIANCE Implement Compliance Model & Toolkit to guide compliance approach & strategies Siyakha roll out in W. Cape and Gauteng – implementation of teaming, integrated audits, integration of compliance components and establishment of a separate Compliance Centre Increase investment in skills development of compliance staff: Risk profiling training Incorporating KZN lessons learnt Training linked to career development, potential and goals

Focus Areas for 2002/03: COMPLIANCE Continue high risk sector specific investigations and audits Increase conviction rate of non-compliant taxpayers Expand implementation of electronic riskprofiling to remaining offices Increase emphasis of utilising SESSAM audit tool Reinforce results culture within audit and investigations through implementation of case management tracking system

Focus Areas for 2002/03: COMPLIANCE Collections: Tax base broadening Expansion of outbound call centre Fill capability gaps re legal skills Automate debt management system Focus on outstanding returns Implement ROS following results of successful pilot, use to inform compliance activities Collaborate with taxpayer service programmes to address the informal sector Focus on High Net Worth Individuals through life style questionnaire

Budget for 2002/03: COMPLIANCE Classification 2001/02 MTEF Baseline 2002/03 MTEF Baseline Increase/ (Decrease) % Personnel Expenditure Administrative Expenditure Inventories Accommodation Prof & Spec Services Miscellaneous Expenditure 166, 027, 626 24, 309, 290 2, 461, 371 34, 153, 111 8, 942, 911 4, 500, 000 206, 202, 813 27, 005, 342 4, 171, 482 123, 578, 611 22, 487, 988 24 11 69 262 151 (100) 23, 739, 199 18, 235, 200 (23) 264, 133, 508 401, 681, 436 52 Capital Total

Divisional Plans Customs

What has been achieved: CUSTOMS Policy and procedures Quality management documents and manuals placed on Website Valuation guide, and database installed Refunds Reference guide placed on website Cape system implemented in small ports like Lebombo and PE Cape and CCA 1 systems enhanced for EDI and transit processing

What has been achieved: CUSTOMS Client accreditation commenced implementation - Examples include Edcon with 600 suppliers, 19 clearing agents at JIA and discussions with organised road freight and forwarding business Warehouse Inventory Management system developed Informal Dispute Resolution mechanism implemented Paperless Cape system developed

What has been achieved: CUSTOMS Enforcement Post clearance inspection and anti-smuggling teams established nationally Customs mobile unit inspections in 16 ports Integrated compliance operations executed Post-Agoa implementation ratified by US Customs First joint investigation with EU on roundtripping in fishing industry executed (Olaf Mission) Revenue Yield Model - first cut completed indicating 6% gap in Customs duty and VAT on imports nationally.

What has been achieved: CUSTOMS Export controls introduced with dedicated teams Rail controls improved through submission of manifests to first port of entry and anti-smuggling operations Passenger controls improved through risk-based measures anti-smuggling interventions Risk-Assessment system enhanced through Compliance database linked to Suspicious Activity Reports

What has been achieved: CUSTOMS Personnel Development Management echelon overhauled nationally Teaming implementation completed February 2002 Technical management training (90%) and team leader training completed First 68 officers taken through revamped Basic Customs course

What has been achieved: CUSTOMS Infrastructure Border Control Improvement Programme established to execute NIDS functions Further upgrades and equipment provided under re-prioritised SARS budget (forklifts, baggage scanners, computers, inspection ramps) Regional & International Co-operation Host and participant in 5 Customs Advisory Working Groups to implement programme of SADC Sub-Committee on Customs Co-operation

What has been achieved: CUSTOMS Organised and hosted regional workshop on Customs Policy and Trade Facilitation in November 2001 Signed Memmoranda of Understanding with Mozambique, Netherlands, and Zambia Negotiations underway with Malawi, Zimbabwe, Hungary, Spoornet, Portnet, Acsa, SAA

Focus Areas for 2002/03: CUSTOMS Enhance management and officer skills - Approx. 1100 officers to be trained this Fiscal Year Enhanced Customs service culture Complete operational policy review Continue infrastructure upgrade Strengthen external compliance partnerships with SAPS, Home Affairs, Transnet, other Customs administrations and stakeholders Refine compliance strategy Enhance Customs integrity and good governance Enhance regional and international co-operation

Budget for 2002/03: CUSTOMS Classification Personnel Expenditure Administrative Expenditure Inventories Accommodation Prof & Spec Services Miscellaneous Expenditure Capital Total 2001/02 MTEF Baseline 2002/03 MTEF Baseline Increase/ (Decrease) % 197, 770, 175 20, 321, 737 9, 120, 188 6, 157, 336 15, 951, 318 239, 723, 644 23, 631, 724 4, 602, 620 11, 894, 612 43, 635, 460 21 16 (50) 93 174 13, 222, 960 2, 990, 414 (77) 262, 543, 714 326, 478, 474 24

Divisional Plans Law Administration

What has been achieved: LAW ADMINISTRATION Legislation Taxation Laws Amendment Act, 2001 Capital Gains Tax Revenue Laws Amendment Act, 2001 Strategic Investment Incentive Subject directors of private companies to PAYE Accelerated capital allowances - small manufacturing corporations Capital allowances for airport infrastructure Enabling Laws for: Duty at Source Registration and accreditation - Customs control over goods

What has been achieved: LAW ADMINISTRATION Second Revenue Laws Amendment Act, 2001 Unemployment Insurance Contributions Act, 2002 Double Taxation Agreements Refinement of Capital Gains Tax legislation Group re-organisation relief Customs - Enabling provisions for IDZ’s Negotiated & Re-negotiated 27 Customs & Excise Tariff Amendments 152 Rulings High level Income Tax General CGT Rulings 35 700

What has been achieved: LAW ADMINISTRATION Litigation Success rate Tax Court High Court - Customs - Non-customs Dispute Resolution Income Tax cases Vat cases 81. 8% 80. 7% 68. 0% 139 35 Training VAT training - Botswana, Lesotho, Zimbabwe International Tax Training - Malawi CGT Training

What has been achieved: LAW ADMINISTRATION Other Requests for Access to information Public Benefit Organisation (PBO’s) Applications for exemption 31 1 288

Focus Areas for 2002/03: LAW ADMINISTRATION Amend SARS Act Assist in development of Budget proposals Codify Budget and other tax proposals Investigate introduction of Tax Administration Act Re-commence Customs Act rewrite Enhancing legislative and policy capacity Evaluate effects of certain Acts on current SARS procedures and policies Preparation of policy guidelines Investigate advance rulings system

Focus Areas for 2002/03: LAW ADMINISTRATION Knowledge sharing database development, rollout & tracking Develop mutually beneficial partnerships with business community & other stakeholders Assist with training in other African countries Assist in successful utilisation of Special Boards (in Operations) Assist in Dispute Resolution process rollout Assist in closing the tax gap by exposing tax avoidance techniques

Budget for 2002/03: LAW ADMINISTRATION Classification Personnel Expenditure Administrative Expenditure Inventories Accommodation Prof & Spec Services Miscellaneous Expenditure Capital Total 2001/02 MTEF Baseline 2002/03 MTEF Baseline Increase/ (Decrease) % 31, 144, 127 4, 046, 488 3, 356, 221 16, 354, 276 250, 508 40, 406, 692 2, 772, 700 2, 791, 355 13, 079, 500 2, 892, 000 30 (31) 18 (20) 1054 711, 000 1, 069, 600 50 54, 862, 620 63, 011, 847 15

Divisional Plans Strategy and Planning

What has been achieved: STRATEGY & PLANNING Initiated tax gap project to quantify the revenue gap and activation strategies to close it. Data warehouse being set up for statistical & analytical purpose. Implemented Interim Performance Management Systems (IPMS). Formalised business planning process Participated in the WCO & its subcommittees Participated in the Doha negotiations of the WTO Hosted SADC Regional Customs Workshop. Hosted regional tax and customs study visits from neighbouring countries.

Focus Areas for 2002/03 STRATEGY & PLANNING Tax gap quantification and activation strategies. SARS 2005 Strategic Blueprint. Performance Management and the Balanced Scorecard. Strengthen relations with stakeholders. Benchmarking against international tax and customs administrations.

Budget for 2002/03: STRATEGY & PLANNING Classification Personnel Expenditure Administrative Expenditure Inventories Accommodation Prof & Spec Services Miscellaneous Expenditure Capital Total 2001/02 MTEF Baseline 2002/03 MTEF Baseline Increase/ (Decrease) % 16, 274, 485 5, 391, 073 575, 496 174, 286 534, 994 36, 040, 399 7, 734, 615 2, 821, 424 20, 364, 245 2, 467, 848 121 43 390 11 584 361 984, 778 10, 953, 304 1 012 23, 935, 113 80, 381, 835 236

Divisional Plans Finance

What has been achieved: FINANCE Procurement Ministerial approval of procurement reform obtained in April 2002 Own Accounts Unqualified audit opinion for the first time since autonomy. PFMA due dates for submission of 2001 audited financial statements successfully achieved for the first time since autonomy.

What has been achieved: FINANCE Administered Revenue Standards of Generally Recognised Accounting Practice (GRAP) promulgated by Minister of Finance in October 2001. The 2001 financial statements compiled in terms GRAP - “Except for” audit qualification obtained (previously disclaimers since autonomy) This opinion is due to perceived lack of controls within the assurance process - not a reflection of inadequate accounting records. Revenue Balancing Unit ensures that all reconciling differences are explained & followed up.

What has been achieved: FINANCE Own Accounts / Administered Revenue Significant progress in strengthening working relationships with the Auditor-General through both top level liaison & the establishment of working groups The issue of skills development and training reinforced through the appointment of financial managers and personnel in business areas and training of finance personnel.

Focus Areas for 2002/03: FINANCE Procurement Enhance finance capacity Procurement reform implementation Agreeing on stakeholder reporting requirements (content and timing) Developing & implementing integrated financial information management system (FIMS) – phase I Enhancing key relationships Developing policies and procedures

Focus Areas for 2002/03: FINANCE Own Accounts Enhance finance capacity Benchmarking & recommending improvements to all non-staff related expenditure Agreeing on stakeholder reporting requirements (content and timing) Developing & implementing integrated financial information management system (FIMS) – phase I Developing & implementing standard budget process and cycle (budget model) Enhancing cash management methodology and processes Enhancing key relationships

Focus Areas for 2002/03: FINANCE Administered Revenue Enhance finance capacity Agreeing on stakeholder reporting requirements (content and timing) Developing & implementing integrated financial information management system (FIMS) – phase I Enhancing key relationships Developing policies and procedures Facilities & Asset Management Assessing the potential for outsourcing

Budget for 2002/03: FINANCE Classification 2001/02 MTEF Baseline 2002/03 MTEF Baseline Increase/ (Decrease) % Personnel Expenditure Administrative Expenditure Inventories Prof & Spec Services Land & Buildings Miscellaneous Expenditure 22, 870, 769 313, 348, 582 1, 256, 445 123, 953, 686 20, 240, 020 2, 108, 000 40, 831, 226 313, 411, 880 1, 450, 664 22, 260, 110 24, 670, 100 2, 000 79 0 15 (82) 22 (5) 6, 883, 154 5, 805, 812 (16) 490, 660, 656 410, 429, 792 (16) Capital Total

Divisional Plans Human Resources

What has been achieved: HUMAN RESOURCES Facilitated staff redeployments Agreement with Unions on Siyakha People Placement Protocol KZN people rollout completed Western Cape & Gauteng management appointments completed New job grades verified for all employees Implemented ACCA qualification program

What has been achieved: HUMAN RESOURCES Rationalise employee health insurance Establishment of task team to rationalise medical aid schemes Medical aid equalisation - over next 3 years Employee health insurance (Life cover) underway Implemented employee assistance programme Implemented & rolled out in most of the regions Eastern Cape & Head Office to follow soon. 400 managers & other stakeholders trained

What has been achieved: HUMAN RESOURCES Upgrading the level of Management training All team leaders & managers in KZN and Western Cape trained All customs team leaders & management cadre trained. The INSEAD partnership intervention for senior management team The GIBS programme - 30 senior managers attending executive development programmes The leadership development programme (LDP) developed about 40 employees Introduced an Interim Performance Management System (IPMS).

SARS by Race & Gender

Focus Areas for 2002/03: HUMAN RESOURCES Develop a staffing plan by 01 July 2002. Develop a SARS succession plan Produce Policy and Procedure Manuals Established HR policy site on the Intranet various policies developed & posted Review implications of new service programme (enhanced Siyakha) on the Siyakha Protocol Launch SARS College by 1 June 2002 Negotiate & implement employee health insurance Consolidate and evaluate effectiveness of employee assistance programme

Focus Areas for 2002/03: HUMAN RESOURCES Establish dedicated recruitment function Enhance, upgrade and roll out People. Soft Develop decision matrix for HR matters Implement attendance management system Reconstitute union-management governance structures Roll out new discipline and grievance procedures Risk management and internal control

Focus Areas for 2002/03: HUMAN RESOURCES Revise management competency assessment tools portfolio Re-engineer HR administration processes Develop and formalise staff policies and rules Review career ladder processes and related policies Implement performance based and comparable remuneration Consolidate and improve employee benefits

Budget for 2002/03: HUMAN RESOURCES Classification Personnel Expenditure Administrative Expenditure Inventories Accommodation Prof & Spec Services Miscellaneous Expenditure Capital Total 2001/02 MTEF Baseline 2002/03 MTEF Baseline Increase/ (Decrease) % 129, 116, 140 5, 317, 237 1, 650, 408 9, 392, 800 3, 304, 775 172, 840, 221 2, 669, 539 929, 924 8, 006, 568 754, 325 34 (50) (44) (15) (77) 9, 494, 868 911, 561 (90) 158, 276, 228 186, 112, 138 18

Divisional Plans Technology Services

What has been achieved: TECHNOLOGY SERVICE Supported Siyakha implementation – Rollout and upgrade of infrastructure and enhancements to business systems Business impact study and strategy completed for Disaster Recovery Contributed towards EDMS/Contact centre proof of concept Completed network (ATM) backbone roll-out plan Information Security (INFOSEC) - developed security policies for personnel, Documents, Logical security and System process security

What has been achieved: TECHNOLOGY SERVICE Acquired new Methodology software Developed system for the collection of UIF and integrating functions and forms with PAYE and SDL Implemented system for Capital Gains Tax Implement Disaster Recovery Plan

Focus Areas for 2002/03: TECHNOLOGY SERVICE Upgrade hardware and migrate to Windows 2000 software Implementation of new development environment (JAVA) Upgrade mainframe environment (inc. storage capacities) Server replacements Complete network (ATM) roll out Implement storage area network (SAN) Support new service programme (enhanced Siyakha)

Focus Areas for 2002/03: TECHNOLOGY SERVICE Review of SITE system Review of provisional tax payments Develop single registration function Establish central database Integration of registration for revenue, customs and excise Data clean up and matching and link of clients Implement business rules in order to maintain the single registration database Implement a single view of the client - personal details and all taxes and duties the client is registered for (Tax Identification Number)

Budget for 2002/03: TECHNOLOGY SERVICE Classification Personnel Expenditure Administrative Expenditure Inventories Accommodation Prof & Spec Services Miscellaneous Expenditure Capital Total 2001/02 MTEF Baseline 2002/03 MTEF Baseline Increase/ (Decrease) % 4, 964, 304 2, 226, 864 1, 946, 532 196, 103, 065 6, 248, 911 2, 271, 560 2, 234, 325 217, 112, 973 50, 485 0 26 2 15 11 100 33, 741, 106 10, 134, 452 (70) 238, 981, 871 238, 052, 706 (0. 4)

Divisional Plans Internal Audit

What has been achieved: INTERNAL AUDIT Improved Internal Audit capabilities and capacity through recruitment and training Improved internal processes - audit manual Increased visibility and service to the organisation Commenced with process to implement an Integrated Electronic Risk Management Solution in the organisation

What has been achieved: INTERNAL AUDIT Increased awareness of governance and Internal control in the organisation Conducted focus audits on risk areas Conducted audits jointly with anti-corruption unit Performed audits as requested by management Pre & post implementation review of SIYAKHA

Focus Areas for 2002/03: INTERNAL AUDIT Proactive involvement on initiatives including SIYAKHA 2 Full implementation of risk management pilot roll-out Roll out of COSO framework and control selfassessment (CSA) Improve on the audit capabilities through people development and recruitment of suitable skills

Focus Areas for 2002/03: INTERNAL AUDIT Strengthen the audit process and approach adopted to assist organisation - automated work process Involvement on new system development Provide a value added service to SARS by focusing on critical areas (initiatives in divisions) Provide a consulting role and help in the design and improvement of Internal controls (e. g. SIYAKHA 2)

Budget for 2002/03: INTERNAL AUDIT Classification Personnel Expenditure Administrative Expenditure Inventories Accommodation Prof & Spec Services Miscellaneous Expenditure Capital Total 2001/02 MTEF Baseline 2002/03 MTEF Baseline Increase/ (Decrease) % 12, 572, 276 2, 998, 171 94, 020 49, 500 68, 000 16, 603, 992 2, 005, 226 159, 726 498, 600 65, 500 111, 071 666, 956 500 15, 893, 038 20, 000 26 32 (33) 70 9070 (0. 04)

Divisional Plans Communications

What has been achieved: COMMUNICATIONS Tax Education Campaign arranged countrywide roadshows on CGT Placed CGT advertisements in print media Developed & Published various educational materials Participation of senior staff on radio programmes Exhibitions The Pretoria, East Rand, Pietersburg, & PE Shows

Focus Areas for 2002/03 COMMUNICATIONS Taxpayer Education Customs / Trade information Internal Communication Media liaison

Budget for 2002/03: COMMUNICATION Classification Personnel Expenditure Administrative Expenditure Inventories Accommodation Prof & Spec Services Miscellaneous Expenditure Capital Total 2001/02 MTEF Baseline 2002/03 MTEF Baseline 2, 921, 133 15, 123, 649 2, 244, 992 37, 992 236, 000 2, 162, 727 12, 286, 436 2, 245, 000 37, 004 191, 354 20, 755, 120 17, 169, 517 Increase/ (Decrease) % -35% -23% 4%

THANK YOU FOR YOUR SUPPORT