MINISTRY OF FINANCE
MEDIA RELEASE

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 internationally.

"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 Public Service.

"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 technical skills."

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 administrative policy.
  
• 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 Liebenberg.

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 line.
  
• 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 world.
  
• 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 entire region.

"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."

STAFF INVOLVEMENT

"This will be the first in a number of methods we will use to keep our staff in touch with the process."