It gives me great pleasure to announce that the SARS has met its revenue target of R280.1 billion which was set during my budget speech on 26 February 2003.
The South African public and government can once again take note of the very positive revenue performance of SARS and its continuous improvement of the compliance climate in SA.
Total gross tax revenue collected by SARS amounted to R281.6 billion, which is R1,5 billion above the revised 2003 Budget estimate of R280.1 billion. Revenue collections exceeded the 2002 Budget revenue estimates of R268.5 billion by R13.1 billion.
The surplus of R1.5 billion is largely explained by larger than expected corporate payments and unanticipated early transfer of R700 million. This transfer was due to flow in on the 1st April 2003.
|Variance - Budget estimate versus. preliminary collections||R'000|
|Preliminary collections 2002/03||281,596,461|
|Budget estimate 2002/03||268,471,310|
|Preliminary increase in collections||13,125,151|
The revenue performance for the fiscal year under review is attributed to:
The efficiency gains have been driven by operation activities that have included the broadening of the tax base on Individuals and Companies by, among other things:
PRELIMINARY OUTCOME OF SPECIFIC TAXES
PERSONS AND INDIVIDUALS
The principal drivers of personal income tax during the fiscal year were higher than expected wage settlements, increased property income and the inclusion of company directors in PAYE. Wage increases in turn were driven by higher than expected inflation figures. Against the revised estimates income tax from persons and individuals ended approximately R800 million above the target of R93.2 billion at R94.0 billion.
CORPORATE INCOME TAX
Annual growth in gross operating surpluses and the active adjustment of provisional payment amounts to reflect actual profits led to favourable corporate income tax receipts during the fiscal year. This was further enhanced by compliance initiatives in various sectors, among others, the financial sector.
Corporate income tax contributed to the majority of the variance between the revised estimate and the preliminary outcome. Corporate receipts exceeded estimates by more than R1 billion ending at R55.85 billion (against the revised estimate of R54.85 billion). In addition, mining leases of R200 million were received due to assessment.
VALUE ADDED TAX
VAT collections were R 450 million below the revised estimate. Preliminary figures indicate a slowdown in domestic as well as customs VAT payments during March.
CUSTOMS, EXCISE DUTIES AND FUEL LEVY
An amount of R9.5 billion was collected from customs duties, R11.3 billion from excise duties (both on target with the revised estimates) and R15.3 billion from fuel levy (R100 million above the revised target).
CHALLENGES FOR THE COMING YEAR
The sustainability of performance in revenue collection will again be dependent on the combination of macro-economic performance and improved compliance activities and operational efficiency.
On the new fiscal year, SARS will focus on strengthening initiatives to improve the levels of compliance with tax and customs laws, as well as the quality of service to the public.
These efforts will be accompanied by the implementation of the Siyakha transformation programme in the Western Cape and Gauteng and the consolidation of operational efficiency gains already attained.
TAX BASE BROADENING
South African statistics indicate that there are 2-3 million economically active (some of whom will be below the tax threshold) entities that are not registered for tax. In this financial year, SARS will focus on bringing these elements into the tax net by comparing databases that reflect economic activity with internal databases of registered taxpayers.
SARS compares its internal data with external data like Deeds office, NATIS (National Traffic Information System), IBR (Integrated Business Register) and credit bureau information. GIS, Geographical Information Systems enhances the data matching process and thereby makes it more efficient. In unfolding this initiative, SARS will also focus on specific economic sectors.
The unregistered entities will be contacted via a SARS call centre, requesting them to register. Unregistered entities participate in the formal and informal economy, and due to non-registration, are able to gain a competitive advantage over their law-abiding rivals. Increasing compliance, levels the playing field and contributes to a fair business environment.
SARS auditors and investigators are encountering numerous instances of transfer pricing being used to move profits out of South Africa. In order to minimise their tax liability, multi-national enterprises shift their profits into tax jurisdictions which have lower effective tax rates. They do this through over pricing wherein profits are transferred.
Many tax jurisdictions have transfer-pricing legislation to protect the erosion of their tax base. South African legislation requires that transactions of South African taxpayers with non resident connected persons have the same characteristics and are concluded on an arms length basis as they would be if they were entered into with independent or 3rd parties. In a nutshell, the legislation aims to impose a hypothetical market between South African taxpayers, and the non-resident connected persons (offshore group companies).
SARS has recently recruited more transfer pricing specialists, increasing its capacity from one to ten persons. This was supplemented by training from the OECD and from UK tax authorities. Much experience has been gained in this complex field that will enable SARS to improve the present situation.
Recent lessons from investigations at a big port of entry in South Africa show that there are numerous instances of under-declarations, incorrect use of tariff lines and the importation of counterfeit goods. Customs agents, importers, exporters and corrupt customs officials are involved in schemes to undermine the fiscus. Intensive and extensive tax and customs investigations have begun and will continue to be a focus area.
In the new financial year SARS will allocate more resources to these investigations which will expose high levels of fraud.
Tough action is going to be taken against agents who participate in these schemes, including limitations to their ability to practice. Firms, which have been the beneficiaries of these schemes, will face stiff penalties. Customs officials who have been bribed will face immediate dismissal - we will not tolerate corruption in any form.