Border Management Authority Bill Presentation by National Treasury to the Portfolio Committee on Home Affairs 16 August 2016
Delegation National Treasury Ismail Momoniat, DDG: Tax Policy and Financial Sector Regulation, Ismail.Momoniat@treasury.gov.za George Tembo, Public Finance, George.Tembo@treasury.gov.za Empie van Schoor, Legislation, Empie van Schoor@treasury.gov.za SARS officials present Jed Michaletos Kosie Louw Mpho Mashaba Mark van den Broek 2
NT and SARS support objectives of Bill NT and SARS support objectives as outlined in par 1.1 on the Memorandum on the Object of the Bill NT and SARS supports need for integrated & coordinated border management that facilitates secure travel and legitimate trade This objective is critical to the functioning of the economy and for economic growth How we achieve this is the key question, and must be achieved without risking or fragmenting the existing tax system? 3
NT and SARS support integrated and co-ordinated operational approach. Border management involves many players, and must operate as an integrated seamless operation for its users At least 21 departments /entities currently, like Home Affairs (immigration), SARS/NT/dti (revenue, goods control and trade facilitation), Health (disease control), Agriculture (protecting our ecosystem from invasive plants etc), Police (prevention of crime, human trafficking, smuggling, drugs etc), FIC/SARB/NT (exchange control, money laundering), Defence (protecting sovereignty) Key Question: How best do we ensure better integrated and co-ordinated approach to operations related to border management? Borders are critical to deal with the flow of people (primarily home affairs) and the flow of goods (primarily SARS) Some flows like that of services and capital may bypass physical borders, and operate in cyberspace Treasury and Home Affairs are currently engaging on operational implications to ensure Bill does not lead to unintended consequences and fragmentation of tax administration and collection 4
BMA Bill: Details included and not included BMA Bill aims to establish a Border Management Authority BMA Bill is a framework Bill so does not spell out what functions/resources to be transferred, but only provides for a framework and end-vision It is accepted that the end-vision will only be achieved in five to ten years time. Details on how to get to the vision not dealt with in the Bill Some, but not all, detailed info is spelled out in various studies GTAC study conducted for DHA Note Well: This is NOT a Treasury study, but a GTAC study Socio Economic Impact Assessment conducted for DHA by external service provider Davis Tax Committee report Important that all above documents are taken into account by parliamentary hearings when considering the Bill Bill (as is the case with all bills) and current documents do not deal with following type operational details: Which staff from which department/entity will be moved to BMA What assets and liabilities will be moved from departments/entities to BMA Budget for BMA Treasury has not received specific details to enable it the implementation plan, costs, budget etc 5
NT presentation today on Bill wearing only tax and revenue hat NT presentation will not deal with budget challenges, nor with PFMA challenges, until we have more detailed information At this stage, NT cannot assess whether costs will increase or decrease, e.g. remuneration levels NT focus TODAY will focus only on tax policy and revenue framework Currently, tax policy and tax admin done by Treasury and SARS, under Min of Finance NT primarily responsible for policy, SARS for collection/tax administration Constitution authorises that only the Minister of Finance can introduce customs or excise duty or levy, as it can only be imposed in terms of a money bill 6
What is our tax and revenue framework? Tax revenue collection is one of the most essential elements of any sovereign state, as it provides for how the government will fund its activities Tax administration and collection are governed by Tax Administration Act, 2011 One of the first decisions in 1994 by new democratic government was to establish the Katz Commission to deal with very weak tax system Announcement made in first democratic Budget 22 June 1994 by Minister of Finance Derek Keys First and most urgent report of Katz Commission was to establish SARS as a separate entity from the then Department of Finance Inland Revenue and Customs and Excise units within Department of Finance were merged to take advantage of synergies between them and formed the basis of the new SARS SARS Act passed in 1997 after which SARS was established on 1 October 1997 Customs/excise are forms of taxes, so covered as part of general tax framework SARS was created as a UNIFIED customs/excise and tax service in order to respond to inefficient and fragmented collection value chains 7
What is our tax and revenue framework? (cont) The Katz Commission recognised the critical point made by international expert Milka Casanegra de Jantscher that; In developing countries, tax administration is tax policy We cannot split the setting of a tax or levy from administration and enforcement, given that any gaps lead to tax evasion and avoidance NT/SARS work jointly to determine tax policy proposals and drafting of legislation, as is done annually through Tax Laws Amendment Bill and Tax Laws Administration Bill Annual tax money Bill and s75 Bill are really one bill, and only split because of Constitutional technicality on what is a money bill and what not SCOF considers both bills through ONE process Only Minister of Finance can table a money bill in terms of the Constitution 8
SARS progress over customs administration over last 20 years Reduced paper 40 million pieces of paper reduced to 800 thousand Move from manual to electronic: Moved from manual and electronic receipt of declarations to >6 million declarations processed electronically Service delivery and trade facilitation Real time processing response time reduced to 7 seconds on average Number of days to import goods halved Port throughput for imports reduced from average of 2 hours in 2006 to 89% passing through within 22 minutes Port throughput for exports reduced from average of 1.5 hours in 2006 to 94% passing through within 17 minutes Better risk controls: From manual risk screening of declarations according to available capacity on or after arrival of goods to 100% automatic screening of electronic declarations in advance Revenue collection: 1994/95 = R113.8 billion (R16.4 billion collected by Customs & Excise) 2015/16 = R1.0697 trillion (>R300 billion collected by Customs & Excise) Ito World Bank logistics performance index 2016 SA is now ranked 18 of 160 countries for customs (previously 42)
What is the linkage between Tax and Customs? Customs collects multiple revenue streams in terms of tax and customs legislation and is integral to protecting the overall tax basis Control over VAT supply chain from VAT collections on imports (Customs & Excise Division) through to VAT refunds domestically to intermediate businesses (Domestic Revenue) or on export (Domestic Revenue & Customs and Excise) and ultimate collection of VAT from domestic consumers (Domestic Revenue) Management and control through common systems platforms Import and export values, including adjustments and mispricing, have both customs and tax impact Trade-based illicit financial flows require dual customs and tax oversight from revenue and goods control perspective
Customs modernisation reform by SARS SARS has focused for almost 20 years on establishing the necessary internal integration to delivery on its mandate of administering the revenue collection and the movement of goods In 2003, SARS Customs began to re-write the South African Customs legislation to Give effect to Revised Kyoto Convention (RKC) and other binding international instruments, Establish a sound, clear and logical legislative framework that would enhance and speak to the many other legislative instruments that rely for their implementation on customs control New Customs Control Act, 2014 and Customs Duty Act, 2014, and the Customs and Excise Amendment Act, 2014 were passed by Parliament in 2013 and in July 2014 These Acts will only come into effect when preparations are completed, on a date yet to be determined by the President The rewrite of the current Customs and Excise Act, 1964, was a huge task that took several years to complete. For that reason it was decided to split the customs and the excise aspects of the task and to complete the project in various phases It was decided to start the process by drafting two Customs Bills, namely a Customs Control Bill and a Customs Duty Bill. Drafting of the Excise Duty Bill must still commence. 11
SARS preparations on new Customs Acts SARS is currently preparing for the implementation of the new Customs Acts Main attention is currently on extensive systems development required to further enhance and modernise current platforms, divided into three work streams- Automated registration and licensing system Advance and Arrival Reporting of goods and passengers New Automated and modernised customs declaration system Developing training material and Training and preparing its staff Working with Dept of Trade and Industry to finalise customs rules Re-write of Excise Act planned for next year 12
How does BMA take into account Davis Tax Committee and other recommendations? It is important that the BMA documents clearly outline how the recommendations of the DTC are taken into account? DTC recommends the powers of SARS and BMA be kept separate (BMA not to be assigned current powers of SARS with regard to revenue, collection and control of goods) DTC recommends that the BMA should focus on more on other issues at ports of entry, eg illegal immigration and human trafficking It is also important for BMA documents to spell out whether it will deviate from the Katz Commission recommendations made 20 years ago? How does BMA take into account the SEIS study and the GTAC report? An approach involving mandatory coordination and integration of operations and systems is less costly, quicker to implement, provide quicker results and also supported by SEIS study, than one involving the dismantling and re-integration of existing institutions 13
How we could deal with DTC concerns? DTC concern could (for eg) be taken into account by including following proposed additional exclusion under Clause 2(3): (3) This Act does not apply to (d) the Customs and Excise Act, 1964 (Act No. 91 of 1964) and any tax Act as defined in the Tax Administration Act, 2011 (Act No. 28 of 2011), including any subsequent amendment thereto or replacement thereof. Other changes affecting SARS could be included in annual Tax Administration Laws Amendment Bill as and when agreed to ensure integrated and coordinated approach 14
What does an integrated approach mean? An integrated approach can mean different things It should at least mean an integrated operations and seamless operations at our borders Integration should require relevant organs of state to integrate SYSTEMS and OPERATIONAL PLATFORMS via interlinked, seamless and cohesive systems and workflows aimed at eliminating duplication and redundancies and optimising activities Sharing of appropriate information Should it mean integrated institutions? This is not possible in some cases, for example, the BMA cannot constitutionally incorporate the functions of the SANDF. Should SARS be required to split customs function, with the BMA taking over processing environments that are dedicated for goods only? How wide should the ambit of BMA be? Will BMA cover customs passenger halls in airports where people with their luggage come out? Will BMA deal with customs commercial cargo processing areas at ports that handle containers, cars, oil etc, as well? 15
SARS approach to customs/excise operations SARS believes that revenue and customs operational value chain must remain intact, any break in this chain will introduce significant risks The revenue collection function of customs cannot be separated from administration function, because SARS needs the following - Nature of the goods to do the correct tariff classification Type of goods to place the correct value on it to calculate the duty Origin of the goods to determine correct tariff in terms of international trade agreements SARS needs to be able to control goods to validate risk or potentially detain/seize goods if required, for example liens for debt SARS deals with the movement of goods and the persons moving such goods, both at and away from ports of Cargo processing environments are generally separate from people processing environments, and goods brought as accompanied luggage is relatively small Different players at different ports, and for different purposes Currently there is co-ordination between different players, but it is not legislatively mandatory (though the Constitution generally requires organs of state to cooperate, collaborate and coordinate) BMA Bill will make co-ordination/integration mandatory at our borders 16
Structured border coordination is in place Current co-ordination mechanisms between SARS, DHA and other departments/entities has evolved over last 20 years Not explicitly legislated for, but all players aware of the need to co-ordinated and work together at border posts (and border lines) History: Border Affairs Coordinating Committee (BACC), 1996 - SAPS; National Inter-Departmental Structure (NIDS), 1997 - SAPS. Primarily focused on supporting National Crime Prevention Strategy with a particular focus on transnational crime, border control and Ports of Entry Border Control Operational Coordinating Committee (BCOCC), 2001 - SAPS (2001-2004), DHA (2004-2006); SARS (2007-2014); DHA (2014-present). Primary focus to provide co-ordination support to all organs of state operating at the border and facilitating inter-agency cooperation on border management matters; and Inter-Agency Clearing Forum (IACF), 2010 - Initially co-chaired by DHA and SARS, currently chaired by DHA. Primary focus was on FIFA 210 Soccer World Cup preparations, but structure retained as an oversight and consultation mechanism 17
Structured border coordination (cont) Approach: Border management activities co-ordinated on a non-statutory basis, but under the principles of Cooperative Government in Chapter 3 of the Constitution; Organs of state took lead on matters relating to their specific mandates, with cooperation and coordination facilitated by lead agency; and Entirely voluntary, with no obligation to participate in or agree to joint initiatives, take on board input from other organs of state or commit to consolidated workflows and operations at ports of entry or along the border. Previous proposal to remedy perceived limitations of voluntary coordination approach: 2008 Draft Integrated Border Management Strategy: Force inter-agency cooperation and compliance through legislation. Through an Act of Parliament regulate cooperation and coordination of the organs of state on border matters and establish a structure as a statutory body with communications, command and control powers in order to operate and coordinate border management activities 18
Example of mandatory coordination in statute National Intelligence Coordinating Committee (NICOC): Established and empowered in terms of Section 4 of the National Strategic Intelligence Act Membership constituted of various organs of state Specific functions provided for, including coordination and interpretation of intelligence supplied; coordination and prioritisation of intelligence activities; Advising on intelligence policy and functions; Formulation of national strategic intelligence policy for Cabinet approval; Coordination of flow of strategic intelligence between departments; and Recommendations to Cabinet on intelligence priorities. Does not gather intelligence operationally State Security Agency required to provide logistical, technical and administrative support 19
NT view on Border Management Bill Border Management bill is a FRAMEWORK bill that spells out a vision What do we legislate for now, and what and who will decide on key decisions along the road Is it only one Minister or will it involve other Ministers who have an interest? Bill should be clear whether it applies to SARS or not, or what activities will it affect or not Not providing details on SARS creates UNCERTAINTY for SARS and customs administration Any legislative changes to SARS should be done via the annual TALAB bill Shift of functions or staff at some point in the future must be with the concurrence of both the Minister and Commissioner Current bill makes this the sole decision of the Minister of Home Affairs Any legislative changes to SARS should be done via the annual TALAB Bill just prior to such decisions are to be taken 20
Home Affairs and Treasury are still engaging in consultation process over BMA National Treasury (with SARS) are engaging with DHA on BMA Bill Treasury and SARS (but at request of DHA) did not participate actively in NEDLAC process Large area of agreement Revenue collection is sole responsibility of SARS BMA has no intention to take responsibility for revenue collection Information sharing between SARS and BMA is critical to an integrated approach Integration of systems can be achieved through better co-ordination Areas where we are still engaging on Clarifying revenue collection role of SARS in BMA law (and vice versa) Integration of institutions versus integration of systems and operational platforms Whether it is necessary to transfer any staff from SARS, and the impact of any staff transfers on the integrity of the revenue and customs value chain 21
Way Forward NT and SARS committed to an integrated and co-ordinated approach, which is based on mandatory co-ordination and integrated operations but not institutional integration or fragmentation of SARS or tax administration Need to take into account SEIS and DTC assessments Objectives of the BMA Bill can be achieved by improving coordination by legislating it Consultation process between National Treasury and DHA will be concluded within next in next two to three weeks Key objective is no fragmentation of tax administration and revenue collection BMA Bill must provide certainty to SARS, and we should only legislate any changes to SARS functions via the annual TALAB bills Proposed clause will give effect to this approach NT will approve budget and PFMA applications once more operational details are provided by the BMA project 22