Innovation Hub 1Innovation Hub

28 & 29 November 2019

Version 2

The SARS Innovation Journey

Presentation at the 13th Annual Public Sector Innovation Conference

Speakers: Paulo Carreira(SARS Innovation Hub)

& Sello Mtshali

(SARS IT Innovation and Strategy)

Innovation Hub 2

SARS at a glance

Innovation Hub 3

SARS’ Mandate

SARS derives its mandate from legislation (SARS act No. 34 of 1997)

To make provision for the efficient and effective administration of the revenue collecting system of South Africa.

1. Tax Administration Act, 20112. Income Tax Act, 19623. Customs and Excise Act, 19644. Value-Added Tax Act, 19915. Transfer Duty Act, 19496. Unemployment Insurance

Contributions Act, 20027. Skills Development Levies Act, 19998. Mineral and Petroleum Resources

Royalty Act, 20089. Securities Transfer Tax Act, 2007

10. Diamond Export Levy (Administration) Act, 2007

11. Merchant Shipping (International Oil Pollution Compensation Fund) Administration Act, 2013

12. Empl0yment Tax Incentive Act, 201313. Merchant Shipping Administration and

Contributions Act, 2013

SARS administers a diverse range of legislation

Innovation Hub 4

USE DATA FOR INSIGHTS, RISKS

& IMPROVED OUTCOMES

MODERNIZE SYSTEMS TO

PROVIDE SEAMLESS

ONLINE DIGITAL SERVICES

DEVELOP AN ENGAGED, AGILE

& DIVERSE WORKFORCE

CREATE AWARENESS,

CLARITY & CERTAINTY

WORK WITH & THROUGH STAKE

- HOLDERS TO IMPROVE TAX

SYSTEM

MAKE IT EASY & SIMPLE TO

COMPLY

MAKE IT HARD TO NOT COMPLY

USE RESOURCES EFFICIENTLY TO

DELIVER QUALITY

OUTCOMES & EXCELLENCE

BUILD CREDIBILITY,

PUBLIC CONFIDENCE &

TRUST

SARS’ strategic objectives for 2024

Core Business

Future Core

Business

Enabling

Outcome

Innovation Hub 5

SARS by the numbers

Source: SARS Annual Report 2018-2019 (31 March 2019)

2019/2020: R1.42-trillion, revised to R1.37-trillion

2018/2019

13,200 employees

Innovation Hub 6Source: SARS Annual Report 2018-2019 (31 March 2019)

A view of SARS’ tax base

Innovation Hub 7

Central Processing Operations

(Tax)

Customs Processing

Hubs

Audit(Tax and Customs)

Debt (Tax and Customs)

Contact Centre

(Tax and Customs)

(4)

Branch Operations

Tax(53)

Mobile Tax Units

(15)

Self Service/A

TM

Suit-cases(60)

AssistedSelf

Service

CustomsBranches

(64)

Sea Ports(11)

Airports(13)

Land Border Posts(27)

Rail

Excise Branch Offices

(13)

Audit(Tax and Customs)

Debt (Tax and Customs)

An overview of SARS’ deployment model

SARS Head Office

Approx. 12300 employees

Innovation Hub 8

The SARS Innovation

Journey

Innovation Hub 9

Siyakha Transformation

Programme

Building the foundation

• Diagnostic

• Concentrate high volume work

• Standardise and baseline processes

• Address infrastructure

• Train and redeploy people

1999 - 2003

Preparation for the Modernisation

Programme

Building Capacity

• Create a process engineering (design) and Information Management competency

• Invest in technology

• Secure change partners

• Enhance operational management capabilities

2004 - 2005

Customs &Excise

Tax

Service

Support

Risk

Modernisation Programme

Enabling our processes through

technology

• Determine a scientific fact base

• Adopt 80/20 prioritization

• Listen to the voice of the customer

• Automate processes

• Use an iterative approach

2006 - 2014

“5x5 “

Operating ModelProgramme

Enterprise Restructuring

• Diagnostic

• Enterprise Operating Model Restructuring

• Continuation of the modernization programme

2015 - 2018

Key

focu

s ar

eas

Them

e

Vision 2024Programme

Disruptive Innovation

• Reprioritisation of modernization efforts in alignment with the SARS 2024 strategy and objectives

2019 - Current

SARS’ change journey since 2000

Innovation Hub 102000 2001 2005 2007

Perc

enta

ge G

ain

in E

ffic

ienc

y

Year2015

Operating Model Programme2015 - 2018

Fact base

Siyakha Phase I: DiagnosticJan 2000 –

Jun 2000

Siyakha Phase II: KZN Pilot detailed

planning & Implementation

Jul 2000 - Dec 2001

Siyakha Phase III – VI:

Regional implementations

2002 – 2005

SARS Modernisation Programmes2007 – 2014

Organisational Concentration and

Process Enhancements

IT Enabled ProcessReengineering

Pilot

SARS’ change journey looked at differently (1999 – Current)…

Operating Model Restructuring

SARS 2024

2015

SARS 2024 Programme

2019 - Current

Building the foundation Focus on restructuring

Build Modernisation Capacity and Introduce Automation

Disruptive Innovation

Build capacity

Innovation Hub 11

Diagnostic based on

data analytics

Selection of

projects based on the 80/20 principle

Design Build Transfer

Design and Build Operationalisation Analysis and Selection

Scoping

Phasing & stabilization

of newly implemented

processes

Baselining of processes

and continuous

improvement

Narrowing the scope Laser focus on deliveryEver broadening nature

of implementation

SARS’ iterative approach to innovation

Internal and external co-creation

Innovation Hub 12

753

2004

1. eFiling2. PIT and PAYE

reform3. Return Scanning4. Automated

workflow5. Call Centre6. IVR7. Document

Tracking

1. Single registration2. CIPC integration3. Customs core system

replacement 4. DHA modernisation5. Complaints

Management6. Tax practitioners

registration7. CIT modernisation8. MobiApp

1. SAP financial modules for own and revenue accounts

1. PIT return pre-population using 3rd party data

2. PIT and VAT risk engine

3. Electronic signature pads

4. Branch Queue Management System (BQMS)

1. VAT modernisation2. Customs risk engine3. Tax Clearance Status4. Trusts modernisation5. ETI6. EDI gateway for

Customs 7. FATCA exchange of

information8. Biometric

authentication in Branches

2007

2010

2013

2015

SARS change journey: 2000 - current

2016

1. Audit workflows (PIT, VAT, PAYE, Trusts, CIT, etc.)

2. Disputes (NOO and NOA)

3. Debt workflow4. Automated

Exchange of Information

5. Customs NCAP (RCG)

1

2000

1. New ITS system

1. Automated assessment

2. eFiling redesign

3. PIT on new MobiApp

4. Customs NCAP (RLA) registration

5. MPRR on nSAP

2019

Innovation Hub 13

Our modernisation results: Tax

SARS did more with less

Source: SARS Strategic Plan 2016-2017 – 2020/21

Highlights

1. X12 electronic volume increase

2. PIT Filing - 94% return processed in 5 seconds in 2016 vs. 180 days in 2006

3. PAYE volumes – 11m to 31.3m

4. 55.48% refunds paid within 48 hours in 2016 vs 3% in 2006

Innovation Hub 14

Our modernisation results: Customs

We made SARS more efficient

Source: SARS Strategic Plan 2016-2017 – 2020/21

Highlights

1. 6.05m declarations in 2015 vs. 1.9m in 2006 (x3)

2. Average of 2 hours in 2006 vs 89% in 22 minutes in 2015

Innovation Hub 15

Our modernisation results: 2019 Filing Season results as at 22 November 2019

Source: SARS Strategic Plan 2016-2017 – 2020/21

1. 1 431 764 less returns received in 2019 (4,296,731 returns in 2019 compared to last year’s 5,728,495).

2. 65.36% of all returns received this year have come via the digital channels

3. 868 471 auto-assessments were issued.

4. PIT Ops Audit inventory is 68 762 lower year on year, with significant increases in hit rates.

5. 49.75% reduction in service complaints

6. 41.08% reduction in disputes

If you have not done so already, please don’t forget to file your tax return by 4 December 2019.

Innovation Hub 16

Lessons learnt1. Innovation is hard work and can’t only be done between 8:00 and 16:00, Monday to Friday.

2. Innovation must be strategic and driven from the top by accountable business leaders/owners. SARS innovates the most when it has stable political and institutional leadership

3. The creation of dedicated internal innovation capabilities and the securing of competent long-term innovation partners greatly enhances the chances of innovation success. Procurement should not be on the innovation critical path.

4. Innovation requires on dedicated, diverse, highly skilled, and well paid resources, with competent managers/leaders who are not afraid to make decisions with an enabling governance framework.

5. Use data to identify and understand the real business problems (root causes), where to start innovating and to help making prioritisation decisions (80/20).

6. Design for the future (true innovation, as opposed to incremental improvements); large transactional volumes; multiple smaller phase (not big bang); usability (customer experience); and from the perspective of the customer/user. Involve all stakeholders in the conceptualisation of the designs upfront.

7. Collaborate or co-create with external stakeholders/partners (incl. customers) in the design, development and testing of innovative solutions.

8. Bring employees and customers on the innovation journey by making them part of the solution and not the problem.

9. There will always be innovation non-believers, but most people actually want to embrace innovation.

Innovation Hub 17

The SARS of the Future

Innovation Hub 18

“Government is the ultimate monopoly. And monopolies, as any economist will tell you, often

breed complacency and a lack of innovation.”

Gavin Newsom, Governor of California

“When the rate of change outside is more than what is inside, be sure that the end is near.”

Azim Premji

Innovation Hub 19

A smart, modern SARS with unquestionable integrity, trusted & admired

1. Stakeholders are engaged ethically and beyond reproach 2. Use technology and data to build an intelligent organization 3. Evolve our staffing model towards high value knowledge & service work4. Become an Employer of Choice with a high performing, engaged

workforce

SARS’ vision for 2024

SARS exists to serve the HIGHER PURPOSE ofenabling Government to build a democratic state that fosters sustainable economic

growth and social development in the interest and wellbeing of all South Africans

Internally, we

1. Achieve substantially our strategic intent of Voluntary Compliance 2. Benchmark against the best among our peers internationally 3. Regain public trust and confidence 4. Provide the financial resources for Government to deliver

Externally, we

Innovation Hub 20

While the SARS corporate strategy is informed by national directives, the divisional strategies and enterprise performance evaluation, this consists primarily of incremental improvement initiatives, in contrast with the innovation strategy that is informed by global innovation trends and imply radical changes that influence the corporate strategy.

Radical changes based on innovation trends

Incremental improvements based on performance measures and

strategic objectives

Enterprise Performance Evaluation

National Directives

Innovation Strategy

& Foresighting

SARS Corporate Strategy

Divisional Strategy

What is the role of innovation in SARS?

Innovation Hub 21

Prog

ress

Time

Present day

Trajectory based on past growth rate

Trajectory based on present growth rate

Trajectory taking exponential growth rate into account

Accurate prediction

Future SARS

Inaccurate prediction

Incorrect prediction

Predicting the future SARS requires a new way of thinking

Innovation Hub 22

Artificial Intelligence

Additive Manufacturing

Augmented Reality

Automation

Blockchain

Cloud Technology

Demand for Customisation

Digitization & Big Data

Geospatial Technology

Globalisation

Industry consolidation

Internet of things

Knowledge Worker

Change drivers affecting SARS

Innovation Hub 23

Change drivers affecting SARS

Regulatory landscape Resource scarcity

Sharing Economy Social Media

Urbanisation Industry redefined

Changing nature of work

Competition for Talent

Concentration of wealth

Mass migration

Next Gen Workforce

Innovation Hub 24

Taxation at source

Mega-trends affecting SARS

Big data

Auto derive and asses

Customised digital offerings

Globalisation of Tax and Customs

Future worker and work environment

Future of government services

The changing nature of production

Hyper connected smart devices and social media

Innovation Hub 25

International drive towards real time taxation at source based on hyper-connected electronic transactional information and payments. (electronic invoicing, digitization of currencies, crypto-currencies, moving to a cashless economy, sharing economy).

• The periodic nature of tax will gradually phase out and the focus of taxation will change from direct to indirect/consumption tax over time.

• Real time access to financial transactional information in electronic format will make the deduction of tax at source a manageable reality. It will require changes to the SARS tax framework.

• Gradual shift from direct to indirect taxation

• Real time access to information challenges the legacy view that taxation should be reactive and periodic in nature for most tax products.

• The historic view that most taxes need to be periodic in nature was a natural consequence of the administrative effort it took to compile return information and submit it with the corresponding supporting documents.

• This view is now challenged by the availability of information and the ease of processing. Tax is becoming a close to real time function.

Disruptive Impact Additional Information

Mega-trend: Taxation at source

Innovation Hub 26

• Data is becoming the oil or digital gold of the new world resulting in a high level of tax transparency.

• Knowing and understanding the taxpayer/trader using AI and automation becomes critical in servicing, and managing taxpayer/trader risk. The cash (and shadow) economy stands in the way of the availability of perfect information to SARS

“Big data is at the foundation of all of the megatrends that are happening today, from social to mobile to the cloud to gaming.” – Chris Lynch

SARS relies on complete and truthful declaration of financial transactional information by the entity.

SARS relies on data and requires no additional information to be declared or submitted by the entity.

No

avai

labl

e in

form

atio

n &

dat

a Perfect information &

data available

Manually intensive operations

Extensively automated operations

SARS is progressing over time to arrive at extensively automated operations

Disruptive Impact

Additional Information

Data comes in many forms. It may be structured or unstructured, and it may be generated by organizations themselves or obtained from third parties. Big data refers to the huge and increasing volume of the data now available, as well as the variety and the velocity at which it can be processed.

Mega-trend: Big Data

Click information button to view additional sides on Big Data

Innovation Hub 27

• The OECD highlights four key ingredients that are necessary for successful pre-population of citizens’ tax returns: comprehensive third-party reporting systems; high-integrity taxpayer identifiers; effective use of technology; and a compatible legislative framework that, for example, does not include high levels of deductions that are not visible during the pre-population process.

• Improvements to the amount and quality of data available should not only be used to better identify non-compliant taxpayers for targeted audits, but also to reduce the rate of false positives, so that compliant taxpayers are less frequently subjected to the cost and inconvenience of an audit. Improving taxpayer services should also extend to easier compliance processes, helpful customised advice and greater real-time transparency over tax affairs.

• Key features: Pre-population of taxpayer returns using near perfect data, SARS auto - assesses returns based on third party data and e-Audits for salaried taxpayers

• The tax world is moving from ‘taxpayer/vendor submits and SARS checks’ to ‘SARS issues the assessment based on data collected and taxpayer/vendor confirms/queries the assessment’ - a fundamental shift.

True digitalisation has to be revolutionary, considering not only how taxpayers do their filing, but what is taxed, and how SARS can leverage big data to complete, verify and audit taxes without filing being done. Pre-populating returns with information gathered from second and third parties fundamentally changes the structure of trust and the direction of review, with taxpayers and practitioners now working to review and challenge the work of SARS.

Disruptive Impact

Additional Information

Mega-trend: Auto derive and assess

Innovation Hub 28

• Users want an easy to use, technology (usability) enabled engagement that saves costs and time that they can relate to. Super consumers are at the head of the adoption curve, have higher expectations and have an incredible influence on the rest of the users, which tend to perceive them as experts and value their opinions. This class of users are on the rise. Super consumers demands education, products with embedded behavioural design and are empowered to customise and personalise their tax experience.

• Digital methods are known to be substantially cheaper for governments to operate than the various analogue or partially-analogue methods. One Australian estimate showed that for every AUD1 spent on digital service provision, the same service would cost AUD16 to process over the phone, AUD32 to deal with by post and AUD42 in person (digital channels are 16x cheaper).

• On the other side of the efficiency equation, digitalisation can aid in reducing tax avoidance and evasion, by providing additional tools for analysing tax data and identifying omissions.

• Super consumer taxpayers/vendors/traders want a simplified approach to tax/customs and want to be treated as partners with differentiated, personalised service and support.

• Value for taxes statements

Disruptive Impact

Digital offerings are the specific solutions and services that deliver on a company's digital value proposition. The benefits of a successful digital transformation include growth in revenues, undying customer loyalty and perceived level of service, and the ability to continuously deliver on the SARS mandate and corporate strategy through technology.

Additional Information

Mega-trend: Customized digital offerings

Innovation Hub 29

The rise of economic interconnectedness between countries requiring improvements in information and data sharing, international cooperation, governance and legal agility (globalisation, partnership model, regulatory landscape, industry consolidation, International Audits).

• Tax systems, and particularly international taxation arrangements, can struggle to keep pace with globalisation and market liberalisation. Most of today’s tax arrangements were developed in an era when tax authorities could rely upon exchange controls, highly regulated capital markets and technological constraints to protect them from the negative fiscal effects of global activities.

• The rate of international economic change is outpacing our ability to adapt.

Disruptive Impact

Additional Information

Mega-trend: Globalisation of Tax and Customs

• These barriers to cross-border activities protected tax authorities from the full implications of the interaction between national tax systems. While corporations globalised, tax authorities remained constrained by national frontiers.

• Key features: Sharing of information, Global taxation of entities and competition for taxation

Innovation Hub 30

The changing nature of work will fundamentally impact the ability of Revenue Authorities to source and retain increasingly scarce talent (4IR skills, multiple short-term contracts, continuous learning, multiple simultaneous employers). The future working environment will require increased flexibility (remote work and location).

• The future SARS worker will differ from the current one and we need to start upskilling and employing new and scarce skills.

• The general trend will be for more technical and data orientated skills. The routine and mundane or repetitive work will be increasingly automated and this will require resources to be more flexible and multi skilled to perform functions as, when and where needed.

• It will be required that all employees buy into a continuous learning philosophy. With an ever changing environment, learning is not once off and continues indefinitely.

• SARS needs to build and sustain a workforce adept in advanced data analysis, possessing and a blend of business, mathematics, and computer science expertise

• Key features: Competition for talent, new types of knowledge worker and reskilling of existing workers, new contracting models and work on tasks model and agile workspaces or working from home

Disruptive Impact

Additional Information

Mega-trend: Future worker and work environment

Innovation Hub 31

Digital identity management, data and AI will enable governments to increasingly become more pro-active and efficient through consolidated ‘single view’ government service delivery. There is only one channel…a digital channel.

• Effective identity management and a complete single view of customer becomes non negotiable…

• A single view of customer compiled from internal and external data feeds to form comprehensive view of the client. Some governments are legislating to extend their powers to obtain information from an ever wider range of sources. The UK Government, for example, extended HMRC’s data-gathering powers to include business intermediaries and electronic payment providers — similar to what is seen in Australia.

• Provide proactive or preventative government services (i.e. Debt)

• Artificial intelligence will become the new user interface to SARS, but requires the correct information architecture to be in place.

• A governmental digital identity to bind all governmental services together has become increasingly popular with all the digitally advanced nations in the world.

Disruptive Impact

Additional Information

Mega-trend: The future of government services

Innovation Hub 32

• This includes concepts like rapidly expanding e-Commerce and 3D printing, changing global tax jurisdictions, super fluid markets, industry redefined, rebalanced global system and global supply chain.

• Changes to the global economy is posing new challenges to revenue authorities around the world and requires changes to the current tax frameworks.

• Key features: Changes in value chains and business models. Example - Existing industries will decline (i.e. petrol/diesel vehicles – Carbon Tax) and other new ones will be created (Electric automated vehicles –Electricity Levy). Changing Tax frameworks. This affects the taxation and legislation pertaining to these industries

• Understanding new industries and being able to maintain revenue streams is paramount

The nature of production and the marketplace for goods and services are changing, impacting Revenue, Customs and Excise administrators. Internationally there is a growing drive to cut out the middleman and reduce friction in the supply chain.

Disruptive Impact

Additional Information

Mega-trend: The nature of production

Innovation Hub 33

• The overwhelming majority of the taxpaying public is web enabled using a smart device.

• SARS should move aggressively ahead with its modernisation of our digital offering to taxpayers without fear that online access and smart device penetration in South Africa will constrain the initiative to the extent that we should hold off in pursuing this objective.

• Key features: Connection of devices gives to monitor economic activity, especially in the informal and illicit economies.

• If you don’t put smart devices and social media at the centre of your designs you will fail.

Hyper connectivity and smart device usage are becoming the norm globally and in South Africa. Digital channels and social media is becoming the primary manner in which Revenue Authorities access, educate and engage with taxpayers/traders (internet of things, AI, automation).

Disruptive Impact

Additional Information

Mega-trend: Rise of hyper connected smart devices and social media

Innovation Hub 34

Mobile Omni channel

Increased 1st &

2nd party data integration

Big Data (information)

• Increased national & International stakeholder engagement and collaboration

• Increased information exchange• More agile legal structures

• No annual filing (Auto assessment)

• AI is the new UI

• New digital offerings

• No SARS specific product registrations (leverage off digital identity management)

• Pro-Active client engagement

• No Branches• Shift to integrated

government services

• Audit becomes largely redundant

• Debt largely disappears

• Machine Learning /Predictive Analytics for risk engines

• Cryptocurrency & Block chain for Customs

• Contact centre & digital virtual agents & agents working remotely

SARS resources and skills

looks different

Changes in the tax

framework

Consolidated Single View

What do these mega-trends mean for SARS in the future

• No registration

• Digital ID & authentication

• Cashless society

• Behavioural Economics