Two years after the introduction of a new operating model at the South African Revenue Service (Sars) in 2014, it became clear that the revenue authority has regressed and that its once enviable reputation has been badly tarnished, the Nugent Commission of Inquiry into Tax Administration and Governance has heard.
President Cyril Ramaphosa appointed the commission in May after an announcement in his State of the Nation Address that he will take steps to stabilise Sars, restore its credibility and strengthen its capacity to meet revenue targets. The commission resumed its public hearings on Tuesday.
Sars group executive for research, Dr Randall Carolissen, told the inquiry that tax buoyancy – the performance of revenue growth in relation to economy growth – has retreated from an average of 1.2 prior to 2016 to 1.
“Taxpayer compliance continue to slip with the number of outstanding returns growing to about 57 million.”
Carolissen said Sars’s debt book grew from roughly R85 billion since 2015 to about R135 billion (latest available figure). At the same time, its credit book moved from R40 billion in April 2013 to R55 billion at the end of 2016. It spiked to over R70 billion in April 2015 (at highest point).
The contribution of the large business centre to total revenue also slipped from 34.8% in 2015 to 32.2% in 2017. The large business has become fragmented as part of the new operating model.
While Carolissen acknowledged that the economic climate and policy changes also affected revenue collection, and not only a slippage in compliance and internal inefficiencies at Sars, he said there were indications that the model has put Sars backwards from a revenue perspective.
He said contrary to the motivation put forward for the review of the Sars operating model, the revenue authority enjoyed recognition as a world class institution and a premier choice of employment.
It emerged during Carolissen’s testimony that consultancy, Bain, proposed four new operating models to Sars Commissioner, Tom Moyane, but that the model that was finally implemented deviated from Bain’s proposals. It is not yet clear why this happened, but Carolissen said there should be people at Sars that could provide insight into the decision.
“That is the problem,” Judge Robert Nugent, who chairs the inquiry, replied. “There are, I’m sure, people in Sars who are able to answer that. The question is whether they are going to tell me and my colleagues.”
Nugent said it was a major hindrance to the commission that people felt they would pay a price for testifying.
The judge said he feared that they would have to conduct more and more in camera anonymous hearings but stressed that it was important to find an answer to the question.
Carolissen believes Bain should have distanced itself from the drastic departure from their proposed operating model options or cautioned against the implementation thereof as it violated at least one design principle – that of balance in the organisation.
Asked whether he believed Sars should continue with the current operating model, Carolissen said he would rather return to the previous successful strategic path and complement it with skills that would be relevant to Sars in the digital age and allow for some renewal.