The Use of Advanced Analytics in Tax Administrations Dublin, Ireland

Transcription

1 The Use of Advanced Analytics in Tax Administrations Dublin, Ireland SARS Modernization Program: Improved Organizational Performance and Value Delivery Randall Carolissen (PhD) Group Executive Revenue Analysis, Planning and Reporting November CONTENTS Economic landscape of South Africa SARS Profile South African Taxbase SARS Compliance Model Modernization Program A Differentiated Operating Model Segmentation Risk management Outcomes and Benefits Societal Gains Summary and Conclusion 1

2 Main Economic Indicators South Africa key Economic Indicators Historical high Historical low Current GDP growth rate 7.1% Dec % June % Unemployment 31.2% March % September % Debt as a % of GDP 42.3% Dec % December % Budget balance % of GDP - 6.8% % 2008 (Surplus) 5% Tax revenues declined from R billion 2008/2009 to R598.7 billion 2009/2010 (R26.4 billion or 4.2%) before rising to R R672.2 billion 2010/11 2 SA ECONOMIC LANDSCAPE 3

3 Tax revenue collections (Rbn) Tax:GDP ratio (%) GDP Growth (%) INDUSTRY CONTRIBUTION TO GDP GROWTH Although Manufacturing and Mining constitutes only 15% and 5% of total economy, both industries consistently account for the largest shifts in GDP growth. Finance the biggest contributor at 20% to the economy, following the global recession assumed a lesser contribution to the growth in GDP. Construction has, except for 2009Q1, contributed very little to overall GDP growth Government, at 14% of economy, contributed to GDP growth during and post financial crisis. Despite the contribution of agriculture showing a consistent decline from 4.2% in 1993 to 2.5% in 2010, its impact on GDP growth is still significant Q1 Q2 Q3 Q4 2009Q1 Q2 Q3 Q4 2010Q1 Q2 Q3 Q4 2011Q1 Agriculture Mining Manufacturing Construction Trade Transport Finance Government Other Industry contribution to quarterly GDP, 2008Q1-2011Q1 4 SARS Profile In terms of the South African Revenue Service (SARS) Act (no. 34 of 1997), SARS is mandated to Collect all revenues due Ensure maximum compliance with tax and customs legislation Provide a customs service that will maximize revenue collection, protect our borders and facilitate trade Tax revenue collections Tax:GDP ratio Decline in tax revenue of 4.2% 28.0% 27.0% 26.0% 25.0% 4.7 million efiling registrations 13.1 million assessments processed R13, 4 billion debt collected % 23.0% 8,8 million Taxpayers on register Tax Revenue collected R674 billion 15,307 employees 5.9 million calls received 3.7 million Taxpayer visits % 21.0% 20.0% 320,000 imports and exports processed 2,8 million declarations processed per month 3.4 m outstanding returns finalised 1,4 million inbound and outbound passengers processed OPERATIONAL PERFORMANCE 2010/11 Revenue growth from R114bn to R674bn over the past 16 years (CAGR ~ 12%) 5

4 < Number of taxpayers R million R millions SARS Profile: COMPOSITION OF REVENUE Growth in tax collections is a result of a combination of inflation, economic growth, high commodity prices, improvements in tax administration and tax compliance. Due to stronger CIT collections as well as significant tax relief for fiscal drag the relative contribution of PIT shrank from 40% in 1994/95 to 34% in 2010/11. Despite the fact that CIT tax rate decreased from 30% in 2004/05 to 28% in 2008/09, relative contribution increased from 12% in 1994/95 to 20% in 2010/11, with some contraction during recession. Contribution of VAT remained steady at an average ratio of 25%; in 2010/11 the year-on-year growth in domestic VAT collections was muted. Subsequently a strong recovery in import VAT well lower VAT refunds with introduction of risk engine CAGR of 11.8% / / / / /11 CAGR = Compound Average Growth Rate PIT CIT VAT Fuel levy, customs & other 6 S.A. Taxbase: PIT distribution mimics Gini Coefficient The skewed distribution of personal income in South Africa (Gini co-efficient in 2009 of 0.679) is reflected in tax statistics of The distribution is on 4.6million liable taxpayers. SA has approximately 5m individuals with taxable income below R60k who is not required to submit tax returns. This group is not included below. 55% of assessed PIT is paid by 9% of assessed taxpayers Number of taxpayers Tax assessed (R million) Taxpayers assessed for 2008 tax year Taxable income group 7

5 to 1 million 1 million to 2 million 2 million to 3 million 3 million to 4 million 4 million to 5 million 5 million to 6 million 6 million to 7 million 7 million to 8 million 8 million to 9 million 9 million to 10 million 10 million to 20 million 20 million to 40 million 40 million to 60 million 60 million to 80 million 80 million to 100 million 100 million to 200 million 200 million + Number of taxpayers R millions S.A. Taxbase: CIT reflects concentration of economy Over 50% of the income tax assessed (222 of the assessed) is paid by large companies with taxable income exceeding R200 million. Contributions of CIT revenue in 2008/09 came mainly from the Financial (29%), Manufacturing (27%) and Mining (13%) sectors Number of taxpayers Tax assessed (R million) Roughly (no. of companies): ⅓ have taxable income < 0 ⅓ have taxable income = 0 ⅓ have taxable income > Taxable income group Taxpayers assessed for 2008 tax year 8 SARS Compliance Model Deter and catch non-compliant taxpayers. Credible, legitimate and firm enforcement, with appropriate sanctions, will discourage tax evasion. Focus on making compliance easier for taxpayers by improving service and reducing the administrative burden. Risk Assessment Effective Segmentation Environmental Knowledge and Understanding Customer Awareness Education Broadening tax base by educating the public about their tax obligations. It s recognised that there is a low awareness of responsibilities of fiscal citizenship.

6 ..which will be achieved through our compliance philosophy which links our actions to the degree of taxpayer/trader compliance.. and which we will achieve by increasing efficiency resulting from our Modernisation programme

7 whilst Segmenting the tax base to find High Leverage points Pareto s analysis of wealth distribution Future SARS differentiated approach Useful many 100% 80% 100% 20% 80% SARS focused on processes with the highest leverage i.e. PIT, PAYE An End-End approach was taken Phase 1 focussed on processes in PIT, PAYE that account for 20% of the complexity, but 80% volume Increased specialisation Improved targeting of high revenue generating taxpayers/ traders Streamline middle Optimise and reduce effort on processing medium revenue generating taxpayers/ traders Vital few 20% Population Wealth The idea of focusing on leverage points surfaces in two other ways when we seek to improve processes: critical paths and bottlenecks. Joiner 3 3 Increase outreach Efficiently enlarge footprint to increase awareness and compliance amongst SMMEs and the informal sector Juran showed 12 that Pareto s Principle applied generally Source: J. Juran Jurans Quality Control Handbook 1974 Modernization: Key Principles In pursuit of maximising taxpayer and trader compliance through targeted Service, Education and Enforcement a Modernisation Programme built on three strategic pillars was initiated in 2007 to: Develop a differentiated operating model to free resources to improve taxpayer and trader service, enhance risk detection and enforcement while managing increasing volumes more efficiently and effectively; Deliver on government priorities including the administration of the proposed social security system and enhancing border protection, whilst maximising synergies with our core tax and customs systems; and Strengthen the organisational foundation by leveraging technology to ensure sustainable delivery. 13

8 Modernization: New Paradigms 14 Modernization: Segmenting the Tax Base Affected employer segments SARS universe (CIPRO and SA population) Intermediaries Individuals Businesses and SOEs Special 1 Tax practitioners 3 Complex 6 Large NGOs, PBOs, 9 government departments 2 Traders (Trade intermediaries) 4 Standard 7 Formal business 10 Employer as agent 5 SITE and below threshold Informal 8 business SOURCE: Team analysis 1 5

9 IT Framework Risk Manage Framework Legislative Framework Administrative Framework Legislative Framework Modernization: From Gate Keeper to Risk Manager TRADITIONAL GATEKEEPER STYLE RISK MANAGEMENT STYLE Application for Legislation provides for a one size fits all approach to compliance management Onus for achieving regulatory compliance placed on Individuals and businesses Application of a legislation provides for flexibility and tailored solutions to enable risk approach Responsibilities for both SARS and taxpayer in achieving regulatory compliance Sanctions for non-compliance One size fits all compliance strategy Control and Enforcement focus Unilateral approach and Inflexible procedures Focus on assessing the veracity of transactions Focus on real-time intervention and compliance Lack of/ineffective appeal mechanisms Strategy dependent upon level of risk Balance regulatory control and trade facilitation Dual enforcement/client service focus Consultative, cooperative approach integrity of trader systems and procedures Focus on post-transaction compliance assessment Effective appeal mechanisms Indiscriminate intervention or 100% check Control driven focus Focus on identifying non-compliance Focus high-risk areas, minimal intervention low risk Information Management and risk analysis focus Identifying both compliance and non-compliance Legislative provisions provide the individuals and businesses with electronic reporting, storage and authentication options, enables SARS to rely on source generated data Appropriate communication and information technology infrastructure to provide for automated processing Source: World Bank 16 Modernization: Establish Strong, Sustainable capabilities From To From To Push Pull Multi page static forms 12 page static forms Single page dynamic forms Paper / Manual Single page integrated dynamic form Human intensive manual processes, non-value adding activities Gate Keeping Automated workflow processes, value adding only Risk Engine Manual data capture Digitization Manual paper channels Scanning High volume, low yield Risk Managed Limited validation Targeted volume, high yield 3 rd Party Data Paper processing & data capture Digital/Self service channels efiling / E@syfile Taxpayer declaration/ manual capture 3 rd party validation Pre-population / Verification 17

10 Modernization: Reducing Cost of Revenue Collections 18 Modernization: Increased Efficiency shifting to electronic channels Return Submission Return Submission Total Volumes 2006/ /2011 % Electronic Submissions Total Volumes % Electronic Submissions % Growth in Total Volumes PIT % % 15% IRP % % -14% CIT < 1 % % 8% PAYE < 1 % % 15% IRP5 Certificates < 1% % 159% VAT % % -4% CUSTOMS Decl % % -16% Total % % 54% Electronic Payments Electronic Payments 2006/ /2011 % Growth PIT Register PIT R 6,076,671,685 R 18,058,128, % CIT R 96,923,265,294 R 142,085,661,443 47% PAYE R 102,591,048,826 R 233,115,685, % VAT R 94,913,969,602 R 195,869,749, % Register 2006/ /2011 % Growth PIT Register % Penalties Penalties 2006/ /2011 Taxpayers affected IT88 Payments - R Outstanding Returns Received Operational Audits In 2010 SARS processed 92% of submissions electronically compared to the US Tax Agency s 59.1% SARS participated in an International Tax Benchmarking Study by the HMRC and achieved performance in the top quartile Operational Audits 2006/ /2011 % Growth Audits Finalised 299, ,739 68% Contact Centres Contact Centre 2006/ /2011 % Growth Calls Answered % 19

11 PAYE Personal Income Tax (PIT) efiling and easyfile Survey Personal Income Tax (PIT) Benefit Income Tax returns received manually Returns processed electronically Returns processed via BFE Returns received via Efiling Returns assessed within 24 hours 100% 7% (38% reduction in paper from 2008) <1% 92% (56% increase from 2008) 0% 36% (33% increase from 2008) <1% 57% (65% increase from 2008) <1% 95% (56% increase from 2008) Modernisation: improvement in % e@syfile: Finalist in 2008 in both North America and Europe in the Adobe Max awards for innovative use of Adobe technology I am super impressed with your delivery of the 2009 tax season. My husband submitted his tax return via e-filing and within 6 days he received his assessment and refund. A job WELL DONE to SARS!!!! Bridgette Myburgh I would like to congratulate SARS on an EXCELLENT job done with regards to service. It is never difficult to get through to the call center. The agents know what they are doing and are friendly. The website is in my opinion of international standard. It is easy and efficient. Well done. This is exactly what South Africans need. Easy, efficient and help from the government Tax Season survey results for e@syfile, efiling and Branch Offices Results efiling 75.51% Service points (Branches) 72.45% e@syfile 86.00% Roxanne Khan 20 Modernisation: Exponential Improvements CHANNEL Benefit Income Tax returns received earlier in filing season ,000 returns after 9 weeks 1,280,000* returns after 9 weeks Income Tax returns received at the end of filing season ,820,000 3,855,000* Income Tax returns processed via e-filing Income Tax returns processed via data capture Income Tax returns processed via BFE 35,000 1,000,000 1,314,000 2,170,000* All returns 1,000, ,000 27,500* 0 500,000 1,052,000 1,403,000* Scanning of returns 0 1,000, , ,900* PROCESSING Average assessing turnaround time (working days) days days days 1.9 days* Benefit Submission of IRP / EMP 501 reconciliations Submission of IRP5 tax certificates 206,000 recons 240,000 recons 11,500,000 certificates 15,200,000 certificates Just a short note to thank SARS for the absolute professional manner in which my tax was conducted. Speedy, efficient and my payment was extremely prompt Josephine Pearl Prabinowitz * Actual s data for PIT returns at the end of the 2009 filing season Nov 2009 (Week 23) 21

12 Societal Gains o Using Technology and Analytics SARS leapfrogged peers and address explosive growth since democracy o Advantage of building good fiscal citizenship support establishment of good societal norms o Single view of taxpayer, allow for economic profiling o Integrate 3 rd party data sources, improved intelligence o Improvement in employment and furtherance of IT, despite relative low internet penetration of 14% in 2011 (World 30.2%), cellphone 101% o Improved Revenue collection providing fiscal space during recession o Improved policy analysis in Treasury and in other Government departments 22 Summary and Conclusion Modernization built on segmented and risk management platforms, extensively employing technology to effect a step change in Operational Efficiency. To ensure a successful outcome it required: o Tax Activism moved political hostile taxpayers and low tax morality to responsible fiscal citizens o Careful change management whilst reinforcing job security through no retrenchment policy. o Address the resultant human capital gap through massive investment in upskilling. o Continuous Engagement throughout the project with stakeholders, intermediaries and taxpayers. o Education and buy-in of taxpayers o Championing and visible commitment from all levels of management. 23

13 THANK YOU! South African Revenue Service Tax statistics National Treasury of South Africa 24