MINISTRY OF FINANCE
26 OCTOBER 1995
THE REFORM OF CUSTOMS AND EXCISE AND INLAND REVENUE
On 18 October 1995 the Cabinet approved that a reform process to
restructure Customs and Excise and Inland Revenue and establish an
autonomous revenue services entity, to be known as the South African
Revenue Services (SARS), could now begin in earnest.
The recommendations made to the Cabinet follow the recommendations of
the Katz Commission and subsequent detailed research done locally and
"There is an international precedent for revenue reform. The
challenges facing South Africa are not unique. Reform, tried and tested in
Australia, New Zealand, Malaysia, Indonesia, Singapore, UK, Canada and
elsewhere was studied. The advice of experts on the reform of tax
administration was sought. This is a well researched issue," Minister of
Finance, Mr Chris Liebenberg, said today.
The Joint Standing Committee on Finance, the Portfolio Committee On the
Public Service and the Public Service Commission, were consulted prior to
the recommendations being made to Cabinet. There has been much speculation
in the media as to the relationship the new autonomous revenue service will
have with the Public Service. Mr Liebenberg said that, contrary to recent
reports, the new service would be within the discipline and control of the
"Cabinet has accepted that the case of a Revenue Service has to be
looked at differently. The proposals will allow us the flexibility, within
the Public Service, to be able to match the client with our personnel and
The principles, agreed by the Cabinet, on which the reform is to be
based are the following:
- The administrations of Customs and Excise and Inland Revenue be
amalgamated into a single revenue services entity, which will be able to
take advantage of operational synergies.
- The service be run along business lines to ensure efficient and
professional services to its stakeholders.
- A Board of Directors be appointed by the Minister of Finance to control
the proposed entity and be responsible for developing and monitoring its
- A Chief Executive Officer be appointed and be responsible for the
management of SARS.
- The Department of Finance to continue to undertake research and policy
definition on taxation and the present Tax Advisory Committee be retained
to coordinate and provide advice to the Ministry and the Department of
Finance on tax policy.
- Administration of the tax laws remain vested in the Commissioner(s)
- The Service be subject to audit by the Auditor General and be required
to account for, and report on, the collection of revenue according to the
procedures and requirements approved by Treasury.
- The operation of SARS be transparent and accountable and, through the
minister of Finance, report to Parliament on its operations, budgets and
any other matters required by the Minister and Parliament. Accountability
for performance be entrenched at all levels within the entity.
- The Board of Directors to have control over those key resources
necessary to run the business of the service.
- Funding of the envisaged revenue service, in keeping with international
trends, be financed on a formula determined by the minister of Finance, in
conjunction with the Board of Directors, subject to approval by the
Treasury Committee and Cabinet.
- The Board of Directors pursue a personnel policy which will include
appropriate affirmative action, educational support programmes, recruitment
targets, development programmes and flexible skills deployment to match the
rapid changes in the private sector and economy. Discussions with the
Minister of Public Service and Administration and with the Public Service
Commission are continuing to establish how this could be accommodated
within the discipline and control of the Public Service.
"At the crux of the proposals is the split between philosophy and
policy on the one hand, over which the Minister and the Department of
Finance will continue to preside, and administration and implementation on
the other hand, which will be operated on a much more businesslike basis
under the auspices of the Board and the Chief Executive" said Mr
The benefits of reforming the revenue services:
- the main benefit sought from the reform process is to achieve
effective revenue collections. An improvement in revenue collection would
enable the government to consider a reduction in tax rates down the
- to reduce fraud, corruption, money laundering, tax avoidance schemes
and costly court cases.
- to stop illegal exports, such as endangered species and dangerous
imports such as drugs and arms.
- to establish efficient and effective organisations that are readily
accessible to the public and client friendly.
- to introduce skilled professional staff, and provide them with career
development and the technology and flexibility of rapid organisational and
personnel adjustment to be able to take on the client on an equal footing.
This is especially necessary now that South Africa is being increasingly
integrated into a very competitive and sophisticated international business
- to introduce technology that would enable revenue collection to move
from being a paper-intensive, largely manual process towards being an
automated, paperless process.
- benefit to the region: if South Africa manages to successfully reform
its revenue collecting services, it could have a beneficial impact on the
"The principles of the reform process of Inland Revenue and Customs
and Excise have been agreed upon. This was a major step forward. Government
has been faced with the problem of a deteriorating Revenue Service for over
ten years, but now we have Cabinet support and commitment to proceed with
this enormous task. The details of how this is to be implemented still
need further refinement and development, as well as commitment and co-
operation from current staff. The first and most important step in the
programme, therefore, is to discuss and negotiate the terms of the reform
with the personnel and their representatives."
It was found in the research on international examples of reform that staff
were kept informed of the process every step of the way. In the light of
this, today marked the first in-house broadcast by the Ministry and
Department, to staff countrywide. More than 4000 employees took part in a
live television discussion with the Minister and Deputy Minister of
Finance, the Director General of Finance and the Commissioners of Customs
and Excise and Inland Revenue.
"This will be the first in a number of methods we will use to keep
our staff in touch with the process."
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