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Address by Peggy Nkonyeni ANC (MP) on the debate of the Revised Fiscal Framework in the National Assembly

07 November 2018

Tax revenues are critical to the functioning of any democracy, even if this fact might have previously been taken for granted by many citizens. Lower tax collections have serious consequences and can impact everyone, whether it be through lower expenditures on education or health, or through increases in tax rates to make up for shortfall. The ability of a government to borrow at reasonable interest rates is also dependent on its ability to collect taxes.

The ANC supports efforts by President Ramaphosa's government of rebuilding important state institutions. Part of the processes includes the Commission of Inquiry into Tax Administration and Governance by the South African Revenue Service. This follows President Ramaphosa's announcement in the 2018 State of the Nation Address that he will take steps to stabilise SARS, restore the credibility of SARS and strengthen its capacity to meet revenue targets. Announcing the terms of reference for the commission, President Ramaphosa said "Both the Minister of Finance and I are keenly aware of the need to demonstrate to the people of South Africa that the tax revenue collected from their hard-earned income is being used wisely, productively and for its intended purpose. We remain accountable to the people of this country". The ANC supports the President's decision to terminate Commissioner Tom Monyane's contract following the recommendation by the SARS Inquiry Commissioner retired Judge Robert Nugent. We also support the National Treasury in its efforts to strengthen financial management through: assisting SARS to regularise VAT refund payments and rebuild capacity

The Revenue collections up to the end of September 2018 have grown by 10.7 per cent compared to the same period last year. Latest estimates, however, suggest that the full year tax collections will be R27.4bn less than expected, of which R20bn reflects increased VAT refunds, and R7.4bn reflects lower corporate tax and personal income tax. The portfolio committee has asked SARS to explain how the R24.7bn revenue shortfall came about- given that SARS is monitored per quarter. The ANC is seriously concerned about the withheld VAT returns and welcomes the Minister's acknowledgement that "this has hurt the cash flow of a number of companies, including small businesses" and his statement that the Acting SARS Commissioner has "committed to processing the outstanding VAT refunds as quickly as possible." We support the request by the Standing Committee on Finance for a report on this at its next quarterly meeting with National Treasury and SARS.

We are seriously concerned by the fact that SARS might have been misleading the Committee in its persistent denials that it was withholding VAT returns to inflate its achievement of revenue targets. We support the Committee's stance to await the final report of the Nugent Commission before taking this matter forward.

The tax revenue shortfalls over the past few years have partly been due to the fact that the economy has been growing slower than had been projected. However, we cannot ignore the potential impact of a reduction in the effectiveness of tax administration. Tax avoidance and tax evasion will be on the rise in any economy which is growing more slowly and where taxes have been increased. A strong, capable and effective revenue authority must be there to limit those activities and make sure the correct amount of revenue continues to be collected. The calls on the National Treasury to improve its oversight role over SARS and assist it in comprehensively addressing the current governance challenges to maximise revenue collection and restore its credibility as a key institution that should always uphold its reputation.

Given recent events around SARS, the current leadership have a huge task ahead of them to regain trust and confidence from the South African public. We call upon the SARS Acting Commissioner, Mr Mark Kingon, to addressed challenges facing SARS which include stability of leadership and staff morale. That is because to be able to regain public confidence SARS must have employees ready to ensure that when citizens raise concerns these are addressed efficiently and speedily with demonstrable results.

We support efforts by current SARS management to enhance efficiency and provide a better service to large businesses, as they are considering reinstating the Large Business Centre that will deal with tax affairs of all major companies. This has benefits for large, medium and small business. Large businesses with complex tax affairs will receive dedicated focus and support, while the bulk of SARS officials are freed up to pay more attention to servicing medium and small businesses.

In relation to the administration of international trade across our borders and the collection of much-needed revenue, we call upon SARS to continuously enhance its operations by:
* Providing a seamless and responsive service to all our citizens;
* Enhancing processes and leveraging technology to make it easier for compliant clients to discharge their fiscal responsibilities;
* Comprehensively addressing non-compliance and illicit activities that pose a risk to South Africa's economic and physical security.

All economic activity whether or not it is legal is subject to taxation. The impact of activities within the illicit economy is a real threat to the country and its impact is huge. The illicit economy ranges from the underground economy, which operates outside of the rules and regulations of the country, to organised crime. Sometimes, well respected companies partake in illicit activities too. The United Nations estimates that money flowing to organised crime outstripped all the money that the developing countries could devote to long-term development. South Africa is losing a large portion of its GDP every year, to the illicit economy. This has mainly been in the form of smuggling of tobacco products, counterfeit textiles, drug manufacturing and smuggling, illicit mining of gold and diamonds, ivory smuggling and the poaching of endangered species like abalone and rhino.

Every South African may help stem growth of the illicit economy if you:
* Refuse to buy counterfeit goods or contraband cigarettes;
* Report poaching incidents to SARS, the Police and the Department of Environmental Affairs;
* Report informal trade in precious stones such as diamonds to SARS and the Police.

The cooperation between financial institutions, public, law enforcement agencies and government agencies are critical in dealing with illicit financial flows. The Financial Intelligence Centre - which is housed in the National Treasury - is a significant tool for monitoring the financial sector. But it's limited to monitoring the formal financial sector. The financial sector has a high level of compliance with the Financial Intelligence Centre Act. The act, and recent amendments, give the Reserve Bank significant powers to monitor transactions and require banks to report suspicious transactions. The legislative framework also creates room for greater cooperation among the three institutions - South African Revenue Service, the South African Reserve Bank and the Financial Intelligence Centre - to connect the dots and pick up patterns regarding money laundering, tax evasion, or fraud.

The 54th ANC Elective Conference resolved that:
"Government must urgently crack down on tax avoidance and illicit capital outflows"

The ANC's vision for South Africa is that of a "society based on democratic values, social justice and human rights" and a "democratic and open society". As the current President Ramaphosa emphasises the democratic values of transparency and accountability. We also happy that National Treasury has regained the top spot in the 2017 Open Budget Index survey, reflecting the honest intent to reflect how public money is raised and allocated. Transparency and certainty are well-understood as characteristics of a good tax system. The tax administration act sets out precise methods and standards for tax administration to be fair, transparent, equitable and predictable.

In closing, President Ramaphosa, opening the investment summit, said "We have replaced the leadership in several state-owned enterprises, ensuring that we have people with experience, integrity and the relevant skills who are now leading the development and implementation of sustainable business models"

Honorable members I thank you

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