South Africa

While having to engage with the taxman may conjure up feelings for some of going to the dentist to have a tooth pulled - the South African Revenue Service (SARS) has played a crucial role in where South Africa is today.

As the country turns 30 years old under a democratic dispensation, it reaches this milestone with the existence of institutions like the South African Revenue Service (SARS).

State capture may perhaps be the first thing to come to mind when thinking of the revenue service;  closely followed by how unfair it may feel to pay taxes.

“What became increasingly clear as the Nugent hearings continued and was further underlined during the Zondo Commission proceedings which got underway in August 2018, was that the capture of SARS was part of a wider plan to capture the state,” said the revenue service in its anniversary book  to commemorate 25 years of its existence.

While it did go through a grim period characterised by what it termed as “a significant loss of talent, marginalisation of staff, complete collapse of governance, as well as a lack of trust by citizens,” SARS still managed to make it through the rough years.

At a recent media briefing to release the preliminary revenue outcome for the 2023/24 financial year, SARS said state capture left the organisation in “distress and severely compromised.“We embarked on a journey to re-imagine the organisation. SARS is succeeding in its strategic intent of building a tax and customs system that is based on voluntary compliance and sharpening its capability aimed at deterrence of wilful non-compliance,” it said at the briefing held in Pretoria.

It added that the process of rebuilding entailed broadening the tax base, instilling, and improving a culture of voluntary compliance and fiscal citizenship as well as data and technology to optimally deliver “on our mandate and working with all stakeholders in the tax ecosystem and fostering trust and confidence on SARS.”

It was imperative for SARS - of which its higher purpose is to enable government to build a capable state, foster sustainable economic growth and social development that serves the wellbeing of all South Africans -  to overcome this hurdle.

More so, for an institution that has collected R21.6 trillion in net tax revenues since its inception.

“The R21.6 trillion tax collections represents a compound growth of 9.9% per year since the inception of SARS in 1997. This has funded the South African democracy and touched the lives of millions who would be destitute without government support and services. We, who have the privilege to work at SARS are justly proud of these achievements because these efforts contribute directly to nation-building and sustain our democracy,” SARS Commissioner Edward Kieswetter said.

This as tax revenue collections have increased from R114 billion in 1994/95, at a compounded annual growth rate of 9.9% and an average tax-to- gross domestic product ratio of 22.2%.

Speaking at the 25-year celebrations of the existence of SARS in October 2022, President Cyril Ramaphosa said the encouraging progress of rebuilding SARS was evidence that it is possible to rebuild “ourselves from the deep damage we suffered during state capture.”

Evolution

While some taxpayers intentionally do not look at the tax portion of their payslips, paying one’s share of tax is vital in closing the very real inequality gap that continues to exist in the country.

And thanks to innovation made at the revenue service, it has become far easier for taxpayers to pay their taxes.

The days of completing a paper-based tax return are all but gone.

That laborious exercise has been replaced by a sleek process where most citizens are now able to receive a pre-populated tax return that can be completed and submitted online in a matter of minutes, thanks to eFiling.

But just how did we get to where we are today?

SARS was formed out of the amalgamation of the segregated revenue services of the apartheid-based Bantustans, as well as the Departments of Inland Revenue and Customs.

Following the historic elections in which South Africans of all races could vote in April 1994, work to build a better country for not just a few but for all, went into full steam.

“The new democratic government inherited a moribund economy deeply in debt and an inefficient Revenue and Customs system that was incapable of providing the tax needed by the democratic government to meet the developmental needs of all its people. In particular, the democratic government faced the challenge of ratcheting up service delivery to address the socio-economic backlogs in education, housing, health care, water supply, electricity supply and sanitation, amongst others,” noted the revenue service in its anniversary book.

In 1995, the then democratic Cabinet approved a two-step approach to the administrative autonomy of what would become SARS.

That process entailed the moving of the directorates of Inland Revenue and Customs and Excise out of the Ministry of Finance to the South African Revenue Service. The birth of the revenue service came in October 1997.

SARS - which is not only mandated to collect all revenues due and ensure compliance with tax, customs and excise legislation -- was formally established as an organ of state within the public administration, as an institution outside the public service.

Following that, government had the job of instilling a culture of tax compliance which was lacking in the country.

Change was needed and over the years, several steps were taken to “broaden the tax base, amongst others, these included legislative changes, service improvements, compliance strategies and enforcement actions,” said SARS.

Examples of the steps taken include the closing of legislative loopholes for abuse, tax amnesties (1995 and 1996, foreign exchange amnesty of 2003) and the introduction of Capital Gains Tax in 2001.

Modernisation

What was also a challenge for the leaders at SARS at the time, was “the fact that all processes inherited from the past were still manual and paper based” with returns having to be mailed to individual taxpayers.

Previously, filing one’s tax return involved the filling in of a minimum 12 pages to be tax compliant.

To reduce the paper-based processes, a new income tax system (NITS) was implemented in 1999. Increasing online business transactions, enhancing productivity as well as creating a more stable income tax system by reducing human intervention and improving data integrity were the main objectives of the new system.

“It was not until the launch of the Modernisation Programme in 2007 that SARS would finally be able to overcome the paper challenge,” it said.

In 1998, South Africa began collecting VAT at Southern African Customs Union borders. According to SARS, prior to 1994, these ports of entry were mainly managed by the South African Police, the South African Defence Force and Home Affairs (mainly for political control) and no revenue was collected.

Although a number a changes had been introduced after 1997, the revenue service found itself to be still “bureaucratic” and issues such as inadequate service to taxpayers and no standardisation of processes were still bugbears.

This led to the establishment of the Siyakha programme – which is isiZulu for “we are building”. The programme was set up to improve the performance of the organisation and to standardise and centralise key processes.

Its main objective was to radically transform SARS into a modern revenue authority aimed at creating a service culture that focused on the needs of the taxpayer, based on the principle that good service would facilitate tax compliance.

“The significance of Siyakha was that it would lay the foundation for the automation of processes and the modernisation programmes which began in 2007,” said the revenue service.

Around 2004, the Filing Season initiative was born and over the years it became one of the biggest, regular annual engagements that an organ of government had with citizens, apart from the national, provincial and local government elections.

As the years went by, SARS saw a “massive growth” in its taxpayer base and an increase in compliance, resulting in the receipt of high volumes of paper returns and supporting documents which still needed to be processed manually.

“As the organisation approached its tenth anniversary in an era of rapid technological advancement, the pressure mounted for a move from manual and paper-based processes to digital transactions," said the revenue service in its book.

In the modernisation years between 2007-2014, some of the key milestones SARS reached include the introduction of eFiling in 2007 which was at first for the submission of personal income tax returns.

It was then rolled out in phases for Company Income Tax, VAT, Dividends Tax and Transfer Duty amongst others.  It was critical to reducing the volume of paper that hampered efficiency, service and compliance.

“Other enhancements introduced in 2007 relating to the submission of Personal Income Tax returns included redesigning the return to two pages, using third party data verification and introducing scanning of returns in branches.”

“In 2008, SARS ramped up the changes, including the pre-population of returns on eFiling, based on third-party data supplied by employers. Employers could submit information to SARS through the new e@syFile channel developed by SARS and provided to employers free of charge,” it said.

The following year, more than three million individual taxpayers used eFiling, experiencing a massive improvement in ease, convenience, and improved turnaround times, especially in the payment of refunds.

The number of taxpayers visiting SARS branches began to drop and the number of printed returns reduced, “which meant a huge saving for SARS and represented a major environmental benefit.

“Today, almost 100% of all returns are filed electronically. The changes introduced in 2007 not only delivered benefits to taxpayers, but improved SARS’s ability to become more effective in detecting and deterring non-compliance and fraud. It allowed SARS to change its approach to monitoring compliance, from gatekeeper to risk manager,” said the revenue service.

The revenue service noted that by the end of the 2010 financial year, there was a significant increase in the use of electronic channels by taxpayers. An 82.6% growth was achieved in the electronic submission of returns as a result of processing efficiencies and automation.

South Africans also benefit from the existence of the Office of the Tax Ombud (OTO) that was established in October 2013 to enhance the tax administration system.

Prior to the establishment of this office, there was no independent channel of independent redress for taxpayers who had exhausted the normal complaints mechanisms. The office is independent of but funded through SARS.

Last year, the OTO celebrated a decade existence.

Indeed, the revenue service forms an important part of our democracy. -SAnews.gov.za

159 views