Chairperson, hon Minister, Deputy Minister and hon members, the legislative mandate of the SA Revenue Service in terms of the South African Revenue Service Act, Act 34 of 1997, is to collect all revenue due and show maximum compliance with tax and customs legislation, to provide a customs service that will maximise revenue collection, protect our borders and facilitate trade.
It is generally accepted that, as a result of its transformation, Sars has played a positive role in the economic growth of the country. Amongst other things, Sars collects a variety of taxes such as personal tax, corporate tax, secondary tax and other taxes. Over the years great strides have been made in realising its legal mandate and achieving its outputs.
Its successive reports have provided evidence of a progressive increase in revenue collected and a general improvement in efficiencies and effectiveness in all areas relating to its mandate. An example of such evidence appears in their strategic plan for 2010-13, namely that over the past six years the revenue collected by Sars has grown faster than the economy has. From 2002-03 to 2007-08 Sars increased collections while tax rates were reduced. As we go forward, this is indeed important for the country's development trajectory.
In its Medium-Term Expenditure Framework 2010-11 to 2012-13 Sars has identified the following seven strategic priorities: to drive revenue realisation; to deliver now and ensure sustainability; to drive productivity, service quality and cost efficiency; to fully deliver on the customs mandate in a way that is aligned with government's stated intentions; to clarify the Sars operating model by streamlining governance and strengthening its leadership so as to implement segmentation and strengthen the business model; to enable Sars personnel to perform at their peak; and to deepen key external relationships to enhance reputation and results.
The Sars mandate and its Medium-Term Expenditure Framework priorities, in particular as they relate to tax, trade policies, compliance models and customs, have to be examined against the ANC's goal of a developmental state and its key priorities for the medium-term period.
The SA Revenue Service as an institution is an important capacity for the building of an efficient and effective developmental state envisaged by the ANC. Central to a developmental state is the capacity and ability to intervene, hon George, in the economy, using the strategic policy and institutional levers at its disposal to effect change. The ANC's conceptualisation of a developmental state is that it will guide national economic development and mobilise domestic and foreign capital and other social partners to achieve the goal of ensuring that all South Africans, especially the poor, experience an improving quality of life.
It will therefore have attributes that include, amongst others: the capacity to intervene in the economy in the interest of higher rates, growth and sustainable development; effective sustainable programmes that address the challenges of unemployment, poverty and underdevelopment with requisite emphasis on vulnerable groups; and mobilising people as a whole, especially the poor, to act as their own liberators through a participatory and representative democracy. Within this context Sars, therefore, has to play an important role in the mobilisation of the resources that will enable a developmental state to achieve its goals.
These have guided the development of the ANC National Executive Committee's Medium-Term Economic Policy with the following priorities: accelerating growth and investment and improving productive capacity; strengthening rural development, land redistribution and agrarian reform; integrating the economy and redistributing resources more equitably; improving the national youth service and national youth development; expanding the Public Works Programme; improving and strengthening the education system by introducing a national health insurance system; and strengthening the social wage. Of fundamental importance is to ensure that the strategic objectives of Sars, as espoused in its Medium-Term Expenditure Framework, are consistent with the ANC priorities.
The achievement of these priorities is dependent on our ability to collect revenues and manage customs in a manner that promotes trade as well as protecting the country's borders. In support of the priority of growing the economy and creating decent jobs, it is important that Sars demonstrates through its programmes a new way of doing business. There has to be greater emphasis on better co-ordination with all other relevant stakeholders in the economic transformation cluster. This will ensure harmonisation between different economic policies and instruments in support of an integrated economic development approach.
The current progressive tax policies have to articulate the new growth path policy imperatives. We all agree that the 2010-11 tax proposals, in their implementation, will support the ANC's agenda of stimulating the economy, protecting it from the impact of recession and growing it, while at the same time addressing the plight of the poor majority.
Another measure to benefit the poor that has been outlined by the department is to treat all retirement and retrenchment lump sum payments equally. This will have the impact of placing increased cash in the hands of retrenched workers for short-term relief and to improve their potential to engage themselves in some income-generating activities.
These proposals will, however, have more of an impact if they are coupled with the management of inflation and interest rates. Therefore, this requires greater co-ordination between the Treasury, Sars and the Reserve Bank together with the Ministry of Economic Development.
Although there is evidence of a recovery from the devastating recession that engulfed the world and our country, a positive impact on revenue collection is likely to take longer to realise, especially for corporate taxes. However, over the past years the Treasury and Sars have become more effective in tax collection and administration, hence, over the years there has been an underestimation of revenue and overestimation of expenditure. While underspending may be the result of lack of capacity, constantly underestimating revenue leads to problems with regard to spending, borrowing and driving economic activity.
The ANC's call to work together is especially relevant in the area of revenue collection. For individuals and companies the decision to pay what is due in terms of taxes is not only a function of ability or inability to pay based on means, it is also a function of behavioural culture and values. Historically, South Africa has had a culture of noncompliance and avoidance when it comes to due tax payments. These behaviours, if not programmatically addressed within Sars strategies, will undermine our efforts to increase our revenue through tax collection and by expanding the revenue base.
The government's new measures to limit salary structuring opportunities, to tighten company car fringe benefit rules, to tax employee deferred compensation and insurance packages as fringe benefits and to enhance anti- avoidance schemes by closing some of the identified sophisticated tax loopholes must be supported. Since some of these practices emanate from behavioural cultures, there will be a need to couple punitive measures with education and establishing closer contact with taxpayers by Sars as part of its plan of doing business differently.
The past few years have witnessed progressively lowered personal taxes, which has largely brought relief to the poor, whilst at the same time broadening the tax base and achieving better revenue collection. It is expected that, even in the current global slow down, this trend should continue in order to cushion the poor even further.
In an environment where Foreign Direct Investment, FDI, is necessary for development, there has been an overreliance on competitive corporate tax cuts, rather than a reliance on FDI tax incentives, property rights, institutional and political stability. While some have argued that the best way to attract FDI is via lower corporate tax revenues, this should be seen in the context of South Africa's development objectives and the fact that FDI is not only reliant on the presence of tax cuts.
Taking a long-term perspective, South Africa needs a tax system that attracts the type of investment that leads to companies investing in productive infrastructure and is reliant on the stability of institutions and governance. This avoids short-term and speculative investment.
The FDI by its nature is long-term and likely irreversible, thus a variety of factors such as potential increases in the market size, wage rates, taxes, property rights and institutions affect the attraction of FDI. Therefore, policies need to focus on the state driving growth in the market, increasing social security, strategically directing investment in labour-intensive production.
It has been shown that political stability and property rights are more likely to attract FDI than corporate tax cuts. Additionally corporate tax cuts could be avoided in favour of tax incentives and stability.
In-depth investigation is necessary to establish how to improve on these incentives, for example, FDI in South Africa has largely contributed to capital-intensive industries, which means that FDI investment has been horizontal rather than vertical. Therefore, larger tax incentives towards labour-intensive production methods with a range of interventions to change the variables mentioned above could lead to the type of FDI that meets South Africa's developmental objectives.
One of the key priorities of the ANC is to intensify the fight against crime and corruption, also to promote a better Africa and a better world. Most importantly, the ANC commits government to work towards regional economic integration in Southern Africa on a fair, equitable and developmental basis to promote SADC integration based on a developmental model that includes infrastructure development, co-operation in the real economy and development of regional supply chains.
To support these priorities Sars' systems need to be transformed in a manner that is consistent with what other institutions such as Home Affairs, Foreign Affairs, the Police, Justice and Trade and Industry are doing in terms of policy changes. There needs to be greater co-ordination between all these role-players to deal with corruption and improvements in trade within the region and on the continent. The ANC supports the Budget Vote. I thank you. [Applause.]