1

South African Revenue Service

Annual Report 2006

2 Revenue Collection

3 Macro economic Indicators 2004/05 & 2005/06

Prelim actualFeb 2006Feb 2005 Oct 2005Oct 2004Actual

4.2%

4.9%

1,559.6

4.1%

4.5%

1,562.4

4.2%

4.1%

1,528.6

4.1%

5.1%

1,419.9

2004/05

4.7%5.1%CPIX (metropolitan and urban)

4.4%3.9%Real GDP growth

1,542.21,456.8GDP (R billion)

2005/06Macro economic indicators

Fiscal year

Prelim actualFeb 2006Feb 2005 Oct 2005Oct 2004Actual

3.9(4.2)

4.31,518.9

6.74.98.04.8

12.610.95.0

3.9(4.2)

4.71,523.3

6.95.69.25.96.7

10.14.9

4.0(3.1)

4.41,497.1

4.74.07.04.74.75.94.3

4.3(3.4)

5.61,386.7

6.56.98.87.52.514.14.5

2004

4.1(3.5)

5.1(2.7)

CPIX (metropolitan and urban average for the year)Current account balance (percentage GDP)

5.31,510.0

4.91,433.7

GDP deflatorGDP at current prices (R billion)

5.94.68.64.36.86.44.4

3.92.98.24.53.75.93.9

Percentage change unless otherwise indicatedFinal household consumptionFinal government expenditureGross fixed capital formationGross domestic expenditureExportsImportsReal GDP growth

2005Macro economic indicators

Calendar year

4 SARS Compliance model

5

Operational Highlights

6Elements of the SARS business model

Inspect,Examine,

Audit

Information & Communication Technology

Strategic Enterprise Management & Performance Management

Corporate Support – Operations, Legal, HR, Finance, Knowledge Management

Educate

Registration/Licensing

CustomerInterface

Filing

Risk Profiling

Payments, Refunds

&Receipts

Assessing

DebtCollection

Objectionsand

Appeals

InvestigateChannels

TelephoneFace-to-faceElectronic,

Fax,Post

Engage

TradeFacilitation

& Border

Inspection

Legal Rulings

Litigation

Accounts

Queries,Communication

andComplaints

Operational Management & Shared Services

7 SARS Volumetrics

8 Operational Highlights

• 9,5% growth in the register at an average of 11% over the last three years

• 7,1% annual average rate increase of Tax submissions processed

• 8% growth in full containers Twenty Foot Equivalent Unit (TEU) landed at South African ports and a 5% growth in international travellers that passed through the international airports

• 3.2 million call centre queries handled

• 4,2 million visitors to SARS branch offices

• A 79% success rate in risk-based audits compared to last year’s 56%

• 1 181 Criminal cases finalised - increase of 82% against the previous year

9 Filing Season 2006

10 Handling more workload with same capacity

Over the past 3 years, our tax assessment workload has increased between 8% and 11% per year …

…Whilst our processing capacity has reduced….… and keeping our eye on quality and risk.

11 Highlights - Customs

5%14,064,00813 351,875Travellers

8%979,838902,809Full Containers Landed (TEU)

Increase2005/062004/05

174%180,73565,933Exports

40%90,37664,651Imports

Increase2005/062004/05Intervention

R450,9m846R232m331R343m444

ValueNo. SeizuresValueNo. SeizuresValueNo. Seizures

2005/062004/052003/04

R93,5m228,1m1,056R63m140m533R35m82m88

ValueQtyNo. Seizure

ValueQtyNo. Seizure

ValueQtyNo. Seizure

2005/062004/052003/04

12Protecting Border Posts

• Cargo Examination Rates

174%180,73565,933Exports

40%90,37664,651Imports

IncreaseFY 05/06FY 04/05Intervention

2.9%7%Export Success Rate

17.2%10.1%Import Success Rate

FY 05/06FY 04/05

• Cargo Examination Success Rates

• Anti-smuggling activities

31,8%35%18965958Patrols and other activity

10,2%15%10,544103,653Rummages / Searches

1,2%10%2728222,862People and bag searches

Actual Success rate

Target Success rate

Number of Success

TotalExamined

13 Debt Classification

R 6,819,641,965 Clean debt in WIP

R 6,425,090,787 Debt not due

R 89,913,357 Awaiting write-off

Appeals

Objections R 14,183,500,071

Debt under dispute

49 Months +

24 to 48 months

Suspense

Estate

Untraceable

R 38,718,638,635

Doubtful DebtDebt

R 66,236,784,815 Revenue Debt

14 Small Business and Tax Amnesty

• Policy changes to promote small business– Raising the turnover threshold from R5m to R6m– SDL exemption for small employers with payroll of R500 000 and less– Vat return filing every 4 months instead of 2 months– Small retailers VAT package– Scrapping of RSC levies

• Administrative changes– The small business Amnesty Unit Call Centre established & website set-up– All SARS Taxpayer Service staff trained at Branch & Regional level– Small business amnesty unit set-up to manage the amnesty process

• Marketing and Outreach– A National Outreach programme being rolled out incl. Imbizo’s, Campaigns,

Media coverage, walk-abouts and tax amnesty education• Provisional Statistics

– 6101 Enquiries received at Branch offices– 950 Applications received– 7 273 Calls received at the Small Business Amnesty Call Centre

15 Small Business Tax Amnesty Walkabouts

16 SARS Large Business Centre

• R89.7bn Revenue• R7.9bn Audit Results • R4.1bn Debt Collected• 369 Personnel Headcount• Establishing of the High Net Worth Individual Unit• Appointment of Taxpayer Relationship Managers

17

People Highlights

18 Top People indicators

• Total staff establishment : 14 800 – 13 978 Permanent establishment (includes all staff who are contracted directly by SARS) – 822 All staff that are employed via a third party - generally temps and seasonal workers

• Personnel cost as a % of Expenditure– 2005/06 = 59,2% compared to 58.1% in 2004/05

• Vacancies - 972 vacancies (from January to Sept 2006)

• Appointments– 2004/05 = 892– 2005/06 = 1 671 (includes conversion of 564 temps)– 2006/07 = 763 ((includes conversion of 77 temps)

• Nett staff turnover– 2004/05 = 0.5%– 2005/06 = 1.79%– 2006/07 = 2.5%– SA norm = 5% - 8%

19 People highlights

• People Development Highlights and Challenges– R95 513 000 spent on Training and Development during 2005/06– 4,28% of payroll (SA norm 3% - 4%)– Average Training spend per employee approx R6500.00 for 2005/06– 86% of Training budget spend on Assessing (32%), Taxpayer Service (31%) and

Enforcement (23%)

• Career Development Programme (CDP)– Approximately 8600 employees received an adjustment of between 0.5% - 2.5% to their

remuneration.– To date 5200 employees were assessed

• Graduate Recruitment Programme– To date 120 graduates were placed in core business areas– 98% of those graduates placed successfully into permanent positions in SARS following

the normal recruitment process.• Equity

– Black representation in SARS staff has increased from 44% to 61% in 4 years– Compares very favourably to the 60% target set by the Public Service.

20

Transformation

21

50%

40%

30%

20%

10%

0%0 2 4 6 108

Bureaucratic, inefficient and “silo’d” by tax type

and system

IT enabled, process and focused organisation

Process enabled, team based organisation

• Flatter more empowered organisation• Efficient, standard scale processes• Dedicated taxpayer services function• Dramatically improved enforcement &

service• Better trained and motivated staff

• Better/integrated planning processes

• Leverage IT to gain efficiencies and further reduce processing times

• Service and enforcement tailored to market segment needs

Effic

ienc

y G

ains

Timeframe - Years

Transformation Timeline

Siyakha

Modernisation

Old SARS

1996 2001 20031999 2006

22

SARS Financials

23 Financial Highlights: Unqualified Audits reports

• Administered Revenue for the year ended 31 March 2006

• Own Accounts for the year ended 31 March 2006

24

SARS Challenges

25 Revenue challenge

Revenue targets 2006 - 2008 (R billion)

Fiscal yearBudget

Review 2005Budget

Review 2006 Actual2005/06 372.8 417.1 417.3 2006/07 414.2 456.8 ?2007/08 453.7 501.7 ?

Revenue expected to grow by 9.5% to 11% between 2007 and 2009.

26 Challenges

• Values and culture in SARS• Sustaining and expanding compliance culture• Taxpayer non-compliance : trusts; construction etc• Increasing volumes / limited staff• Service

– Linking front line staff with business systems• Process automation and risk management• Increasing visible audit Coverage• Customs

– Visibility & skills– Increase Capacity : eg Enforcement – International commitments– SACU / SADC : integration

• Skills & management capacity

27

Thank you for your support

28 Total Tax Revenue 2005/06

29 Tax Product contribution to revenue yield: 2005/06

30 Growth in the e-Filing registration and submissions:

172%R55 530 748 449R20 398 526 334 R4 100 831 760 Value of payments

124%1 271 005566 366118 376Number of payment transactions

212%1 496 865479 527 136 795 Number of returns submitted

79%500 913279 417191 396Total Number of registrations

% Change2005/062004/052003/04Transactions

31 Protecting Border Posts

2,9%4,9187%Export Success Rate

17,2%12,84910,1%Import Success Rate

Success rateNumberSuccess rate

2005/062004/05

1,2241,278Number of successes

4,4592,051Number of audits conducted

2005/062004/05

6,7%180,7352,714,296Exports

4,3%90,3762,100,990Imports

Examination rateInterventionsTotal BOE

32 Employment Equity

44% 50% 53% 56% 61% 60%75% 68% 60%

56% 50% 47% 44% 39% 40%25% 32% 40%

0%

20%

40%

60%

80%

100%

Mar

ch-0

2

Mar

ch-0

3

Mar

ch-0

4

Mar

ch-0

5

Mar

ch-0

6

EXC

OA

mbi

tion-

06

EXC

OA

mbi

tion-

08

DO

LSu

bmis

son-

08

Publ

icSe

rvic

eTa

rget

-09

Black White

• Black representation in SARS staff has increased from 44% to 61% in 4 years• Compares very favourably to the 60% target set by the Public Service.

33 Gender equity

67% 65% 64% 65% 65%40% 50% 59%

33% 35% 36% 35% 35%60% 50% 41%

0%20%

40%60%

80%100%

March

-02

March

-03

March

-04

March

-05

March

-06EXCO A

mbition-06

EXCO Ambitio

n-08DOL S

ubmiss

ion-08

Female Male

• Female employees represented the majority of employees at skilled level (66%)• Black women accounted for 50% of women at top management level, 45% at senior management

level, 51% at professional level, 52% at skilled level, 58% at semi-skilled level and 100% at unskilled level.

34 Facilities Infrastructure Improvements

35Gauteng South Campus

GROUND FLOOR PLAN

Assessment Filing

36

1 2 3 4 50

10

20

30

40

50

60P

erce

ntag

e G

ain

in E

ffici

ency

Year

Starting Point

Organisation and Process Redesign

Radical Business Redesign

IT Enabled Reengineering

Phase II Phase IIIPhase I

Transformation Timeline: Five Year Progression

37 Promoting Good Governance: Highlights

• Ethics Office – The declaration of interest policy rolled-out to all levels of the

organisation – All senior managers have submitted their declarations of interest– SARS gift policy has been implemented– Ethics Assessments– Country-wide Ethic Workshops

• Anti-corruption– 366 Cases finalised– 105 Prosecuted– 39 Employees dismissed as a result of fraud and corruption

• The internal audit unit completed a total of 73 planned audits, 21 ad hoc audits and 16 consulting assignments

38 Budget / Expenditure & Allocation

39 Budget / Expenditure & Allocation