Kieswetter: Lack of funds hobbling efforts to rebuild SARS in line with Nugent report

Edward Kieswetter. Picture: Getty Images
Edward Kieswetter. Picture: Getty Images
  • SARS is rebuilding capacity to improve on its ability to fulfill its mandate of revenue collection, members of Parliament have heard.
  • However, these efforts will be undermined without adequate funding, says Commissioner Edward Kieswetter.
  • SARS should be allocated around R14 billion, but its funding has been hovering around R10 billion for the past six years.

The current process of rebuilding capacity at the South African Revenue Service will not succeed without adequate funding, which is lacking, Commissioner Edward Kieswetter has said.

The head of the revenue agency was speaking during a briefing to Parliament's Standing Committee on Finance, on Tuesday. SARS and officials from National Treasury updated the oversight committee on the progress made in implementing the Nugent Commission recommendations.

President Cyril Ramaphosa in 2018 had appointed the commission, led by retired Judge Robert Nugent, to look into administration and governance at SARS. Later that year it handed its final report to the president, among the recommendations included the removal of former commissioner Tom Moyane as well as that the agency recover legal costs and expenses incurred by him, Fin24 previously reported.

In his update to Parliament, Kieswetter said SARS had issued letters of demand to Moyane for what it believes it is owed. But Kieswetter noted that the work required in rebuilding SARS extends beyond just implementing the recommendations of the Nugent Commission.

'SARS is committed to doing its part'

SARS has particularly been focused on improving integrity across all its functions, in a bid to restore public confidence in the institution. "SARS can't function without public confidence and trust. If the public lose confidence in government, they lose confidence in SARS. SARS is part of government, it must be a whole government approach to gain public confidence. SARS is committed to doing its part," Kieswetter said.

But he raised concerns that these efforts would not succeed with the current funding measures. The agency will be meeting with National Treasury officials and Deputy Finance Minister David Masondo on Tuesday afternoon to engage on funding challenges.

Kieswetter attributed the limited funding of SARS to concerns of its integrity and its ability to spend money wisely. However, if this trend continues, it will compromise SARS' ability to deliver on its primary mandate of revenue collection. SARS should be funded around R14 billion, as opposed to the current levels around R10 billion, he explained.

As per international best practice, a "good revenue authority" is to be funded 1% of its revenue. By comparison SARS is funded 0.73%.

"There is money under collected in the economy, due to criminal activity and declining compliance levels," said Kieswetter. Addressing weaknesses in SARS will be critical in quelling non-compliance. "It would be quite an unfortunate situation if SARS could not give effect to its mandate because of an inappropriate funding arrangement," he said.

"Every cent allocated to SARS comes back with a multiplier of between 10 and 100."
- Edward Kieswetter

While Kieswetter said he understood the whole of government is facing resource constraints – the role of SARS is different as it is a revenue centre. "Every cent allocated to SARS comes back with a multiplier of between 10 and 100,"' said Kieswetter. "Not to ensure adequate funding of SARS places a huge compromise on fiscal integrity," he added.

At current funding levels SARS is battling to replace critical skills essential for its functioning and maintain its technical infrastructure, among other things. Kieswetter said the fact that there is no funding certainty from National Treasury also made it difficult to plan ahead.

"The underfunding of SARS has resulted in a material negative impact on institutional integrity of SARS and its capability to give effect to the revenue collection mandate," said Kieswetter. This has consequences for the fiscal integrity of South Africa.

At last year's medium-term budget policy statement, government allocated SARS an additional R1 billion over two years. But Kieswetter said that these additional funding announcements must be viewed in the context of broader funding trends – on a nominal basis this addition was almost flat and in real terms reflected a decline. 

Masondo, who also attended the briefing said that the funding of SARS is critical. "Without the funding of SARS, it will not be able to do many of the things we ask SARS to undertake," Masondo said. He added that while government understood SARS is not a "cost centre" and that investments in SARS are an investment towards generating revenue, government is still "seriously constrained".

He said conversations this afternoon will be held within the context of the financial situation of the country. Treasury will also be open to discussing what support SARS may need to fulfill its mandate.

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