Howard Barrell
Question: where can Minister of Finance Trevor Manuel invest R1-million of government money and realistically expect a return of R10-million within a year or two?
Answer: in the South African Revenue Service (SARS).
Since the SARS became a semi-autonomous government agency under the Department of Finance in 1997, it has been one of the institutional successes of the post- apartheid era.
In the last available tax year, the SARS collected R4,6-billion (6%) more in personal and individual taxes than Manuel had expected.
The SARS also collected more value-added tax (VAT) than targeted – despite a slowdown in consumer spending. The number of people registered as taxpayers rose by more than 12%, and the number of tax defaulters whose returns were outstanding dropped by nearly 9%.
This performance has been the product of an extraordinary institutional transformation. Strategy at the SARS has been rewritten. Management has overhauled its structure and personnel policies. The SARS also pays market-related salaries and performance incentives. All this has been made possible by the SARS’s departure from the civil service.
The contrast between the performance of the SARS and many government departments has prompted a few civil service managers to ask how the autonomy granted the SARS might be adapted to their departments.
With improved revenue collection has also come an incipient change in South Africa’s tax culture, says Pravin Gordhan, the SARS acting commissioner, who took over this week from Trevor van Heerden, who is retiring.
An improvement in tax collections is seldom popular. But it spreads the tax burden more evenly. It discourages a government from thinking that, to increase revenue, it must impose higher tax rates – which, again, only the conscientious would pay.
“We’re beginning to create a new mindset among people,” says Gordhan.
Gordhan says the SARS has had to develop its ability to monitor the most sophisticated financial deals and to draw into the tax net many once marginalised, often poorer people. It has also recently taken over responsibility for customs collection and appointed Nthikeng Letsoalo as programme manager for customs transformation.
The SARS strategy to get more people to pay their taxes rests, Gordhan says, on three legs. First, it has to improve the service it provides. New computer systems and auditing software will soon enable the SARS quickly to interrogate the accounts of any individual or business. The SARS is integrating previously separate operations such as pay-as-you-earn and VAT. And it wants a situation where each taxpayer will have a single tax number and a single file.
In short, the SARS is trying to cut the “compliance cost” for any taxpayer. At present, a small business person, for example, “has to fill in 65 forms – which is wrong”, says Gordhan.
The second leg is tax education – telling people “they have obligations alongside their rights in South Africa”, says Gordhan.
And the third is to “show our teeth” – to prosecute those involved in tax evasion or fraud, says Gordhan. Here, the SARS is beefing up its capacity. Its new general manager (special investigations) is Ivan Pillay, formerly in state intelligence anda no-nonsense, skillful front-line ANC operative, according to former colleagues.
“There is a climate of criminality out there, and we have got to put our foot down,” says Pillay. His strategy involves trying to “work smarter” by, among other things, identifying “risk areas” and then focusing resources on them. And, once people are caught and convicted, the SARS is naming and shaming them, ensuring their cases get publicity to bolster deterrence.
Pillay’s department has also set up a new anti-corruption unit, headed by Gene Ravele, another former ANC operative. Ravele explains: “Some cases of tax fraud and evasion involve internal SARS players. In some cases, SARS employees have been bribed to change records they have access to; in others extortion has been involved. That’s where my unit comes in. We hit people involved with criminal charges and internal misconduct proceedings.”
The change of culture among the SARS’s 12 000 staff has been profound. Human resources head Judy Parfitt, formerly at Volkswagen, explains the agency’s pyramidic civil service structure – with 17 levels, each with about four legs, ranks or notches – has been levelled out to 10. This has improved communication, flexibility and innovation. Career paths have been mapped out for 80% of SARS employees.
And the SARS is modernising its pay incentive system. The scheme of a few years ago allowed for a bonus of up to half an employee’s annual salary – irrespective of an employee’s contribution to improved performance. The SARS is now developing ways to reward good performance by smaller units of the SARS and individuals.
“Promotion is now results driven – not by qualifications or length of service,” Parfitt says. This emphasis has run well alongside “robust” affirmative action. “SARS has been largely a white and female organisation. As we have begun to change this, the merit principle has not been sacrificed – that’s a myth. A lot of the black people who have joined over the past year have been incredibly good.”
Much of the credit for the nitty-gritty in the SARS’s turnaround goes to Stan Shrosbree, general manager (operations), who lived through the frustrations of the civil service. Where change at the SARS has succeeded, he believes this is because “people have bought into it and are part of it”.
SARS staff give credit for the broader strategic vision to Van Heerden, former deputy finance minister and now Deputy Governor of the Reserve Bank Gill Marcus, and to Gordhan.
Asked what “transformation” means to him, Gordhan said: “Changing the operational processes, infrastructure, people’s skills and competencies, the technology they use and their organisational culture.”