Monday, 8 October 2018

Celebrating Five years of the Office of the Tax Ombud


The Office of the Tax Ombud was created on 1 October 2013 and celebrates its fifth anniversary in October this year. The office was created to deal with taxpayers’ complaints which could not be resolved by taxpayers using the South African Revenue Service’s internal complaints processes.

The Office has a degree of independence as it reports to the Minister of Finance and can appoint its own staff without having to consult SARS. In addition, the office is funded by a budget approved by the Minister and not SARS.

Before taxpayers can lodge a complaint with the Ombud they must exhaust SARS internal complaints procedures unless compelling circumstances exist. To determine if compelling circumstances exist, it must be established if the complaint raises systemic issues or exhausting SARS complaint procedures will cause undue hardship to the taxpayer or is unlikely to produce a result within a period of time the Ombud considers reasonable.

The question that must be addressed is what constitutes a systemic issue. During August 2018 the Ombud published a list of twenty items that constitutes systemic issues. If a taxpayer encounters a systemic issue they do not need to exhaust SARS internal mechanisms first before filing a complaint with the Ombud.


The systemic issues are the following:

·         Delay in refunds in certain specific cases – the Ombud deals with twelve categories in this regard:
o   Failure to link submitted documentation requested by SARS to the main file
o   The unwarranted placing of Special Stoppers
o   Using the filing of new returns as an excuse to block refunds;
o   Delay in the lifting of stoppers and lack of a timeframe for doing so
o   Refunds for one period being withheld while an audit/verification is in progress on another period
o   Using historic returns to delay the payment of refunds
o   Raising assessments to clear unallocated credits
o   Requesting further information during an audit
o   Assessments successfully, but refund still not paid out
o   Raising assessments prematurely; 
o   Debt set-off not withstanding a request for suspension of payment
o   Verification assigned to the auditor but not finalised within the prescribed timeframe

·         Incorrect allocation by SARS of payments made by taxpayers

·         Taxpayers being affected by employer’s non-compliance with legislation relating to IRP5s

·         Inconsistency by SARS in providing taxpayers with timelines for finalisation of audits/verifications

·         Victims of identity theft being held liable for tax debts

·         Non-adherence by SARS to dispute resolution turnaround times

·         SARS’s failure to take information at its disposal into account, specifically relating to information requested during audit/verification and objection procedures

·         SARS taking collection steps when legally barred from doing so

·         SARS’s failure to take information at its disposal into account, specifically relating to the tax compliance system and the “pin” on the client’s profile indication tax compliance status (TCS)

·         Non-adherence to legislative requirements in respect of final demand and third party appointment in terms of section 179 (5) of the Tax Administration Act

·         Numerous follow-ups by taxpayers without being advised of the escalation process (unless the taxpayer was represented by a tax professional)

·         Pay-As-You-Earn Statement of Account issues relating to, inter alia, the reconciliation of the account specifically when recovering a debt

·         Numerous follow-ups relating to situations where SARS issues duplicate income tax numbers under one identity number (unless the taxpayer was represented by a tax professional)

·         SARS incorrectly invalidating the notice of appeal
 
·         SARS revising an assessment without issuing any prior communication

·         SARS revising an assessment without issuing a letter of findings

·         Refunds paid into wrong bank accounts

·         E-filing profile hijacking

·         Delay in e-filing profile transfer between tax practitioners due to as system error

·         Dispute resolution e-filing/system issues

It is anticipated that taxpayer complaints will get to the Ombud quicker than before as, if the complaint is systemic in nature, taxpayers do not need to adhere to SARS internal complaint mechanisms.

The Ombud has become an important means of redress for taxpayers who have encountered problems in their dealings with SARS. It is hoped that in time the independence of the office will be enhanced and greater powers conferred on the office as is the case in other countries.

Areas in which the Tax Ombud should have more power are:

·         In the United States, the Taxpayer Advocate, an office similar to the Tax Ombud, can issue Taxpayer assistance orders directing the Internal Revenue Service to refrain from taking action against taxpayers in certain well-defined cases. It is unfortunate that, in South Africa, the Tax Ombud does not, at this stage, have a similar power.

·         Another problem that still needs to be addressed is the issue of legal assistance for indigent taxpayers. In the United States, taxpayers can go to Low Income Taxpayer Clinics for assistance with their tax affairs. It is hoped that, in time, something similar will be introduced in South Africa.

·         The Ombud does not have the power to award wasted costs to taxpayers as is the case in some jurisdictions and hopefully in time this will be considered.

The SARS Service Charter has been published and this should assist the Ombud in evaluating how SARS is meeting the timeframes specified therein.

The Tax Ombud must be commended for the work done by the office since 2013 in educating taxpayers about taxpayers’ rights and addressing the administrative complaints in the tax arena. Hopefully, government will accept the recommendations of the Davis Tax Committee on Tax Administration and formally legislate the proposed Taxpayer Bill of Rights to further entrench taxpayers’ rights in South Africa.

Congratulations to the Office of the Tax Ombud and its staff on reaching its fifth anniversary and wishing the office every success in its endeavours in the future in addressing taxpayers’ administrative complaints and teaching taxpayers about the rights they have when interacting with SARS.


Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, October 2018.

Monday, 10 September 2018

Be Aware of Bogus Tax Practitioners


The Tax Administration Act requires that any person who renders tax consulting services or completes tax returns for a fee must register as a tax practitioner with the South African Revenue Service (‘SARS’). To register with SARS,  the tax practitioner must be a member of a Registered Controlling Body approved by SARS.

Currently recognised controlling bodies are:

In addition, the following controlling bodies were automatically recognised in terms of the Tax Administration Act:

Only members of the bodies referred to above may apply to be registered as a tax practitioner with SARS. Other persons cannot be registered as tax practitioners.

The purpose in requiring tax practitioners to register is to protect taxpayers from unscrupulous tax practitioners.

In July this year, tax practitioner Nosicela Ntozini was convicted on 159 counts of fraud and for failing to register as a tax practitioner. She was sentenced to six and a half years imprisonment. She was employed by SARS as a call centre agent and submitted income tax returns for 38 taxpayers, claiming fraudulent tax refunds.

She manipulated the SARS system to secure the refunds and received a percentage of the refunds from the taxpayers in question. SARS paid out a total of R399 134 to the taxpayers. Ntozini received R109 660 from the taxpayers as her share of the fraudulent refunds.

In addition to the fraud committed by the accused, she failed to register as a tax practitioner. The failure to register as a tax practitioner is a criminal offence under section 234 (c)  which can give rise to a fine or a period of imprisonment not exceeding two years.

Taxpayers can seek help from SARS officials in completing tax returns during filing season and no fee is payable for that assistance. Taxpayers should not employ SARS officials to assist in completing their tax returns as that is a violation of the SARS code of conduct.

Where a tax practitioner fails to comply with their statutory obligations, the taxpayer may lodge a complaint with SARS which in turn may then lodge a formal complaint under section 241 of the Tax Administration Act against the tax practitioner’s Registered Controlling Body.

It is important that taxpayers choosing to appoint a tax practitioner to attend to their tax affairs only appoint a duly registered tax practitioner to do so.


Tax practitioners who are not registered with SARS approved controlling body 
will not be able to answer taxpayers' queries.
Image bought from i-Stock Stock photo ID:475765167 CreativaImages 

Before selecting a tax practitioner, taxpayers should check with SARS, via the SARS website, that the tax practitioner they are dealing with is duly registered as required by the law. If the person is not registered with SARS, that fact should be reported to SARS so that appropriate action can be taken by SARS against the offender.

Also, where a tax practitioner guarantees the taxpayer a tax refund, and wants a share of that refund, the taxpayer should be concerned about the integrity of the tax practitioner and immediately check whether that person is, in fact, a duly registered tax practitioner.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, September 2018.

Monday, 13 August 2018

SARS Commits to Service Charter


SARS finally released the SARS Service Charter on 1 July 2018, the day on which filing season for 2018 commenced. One important use of the Charter is to allow the Office of the Tax Ombud to evaluate SARS’ actual levels of service against the level of service prescribed in the Charter. SARS faced calls from the Office of the Tax Ombud to release the Charter, but it remained outstanding for a number of years.
The Charter sets out what SARS does and how it seeks to meet its mandate under the South African Revenue Service Act, 34 of 1997. The document sets out taxpayers’ rights and obligations, but does not create any new rights. The rights in the document flow from the Bill of Rights in the Constitution and the obligations flow from the fiscal statutes.
The rights and obligations set out in the Charter are as follows:
SARS will:
Help you by providing
• Courteous and professional service at all times
• Clear, accurate and helpful responses
• Instructions that are clear and concise on the actions you need to take and by when
• Access to SARS via eFiling, the SARS Contact Centre, SARS branches and Mobile Tax Units
• Self-explanatory leaflets and booklets on the SARS website www.sars.gov.za and in branches
Be fair to you by
• Expecting you to pay only what is due under law
• Treating everyone equally
• Ensuring everyone pays their fair share
• Informing you if and when prescribed timeframes cannot be met
Respect your constitutional rights and privacy by
• Keeping your tax affairs strictly confidential
• Furnishing you with reasons for decisions taken regarding your tax and customs affairs
• Applying the law consistently and impartially
If you are not satisfied, you may
• Exercise your right to request reasons for decisions and outcomes regarding your personal tax affairs
• Exercise your right to object and appeal against an assessment or qualifying decision
• Lodge an administrative complaint via eFiling, at a SARS branch or via the SARS Contact Centre
• After having exhausted all administrative complaints processes within SARS, lodge a complaint with the Office of the Tax Ombud
In return, your obligations are to
• Be honest
• Submit full and accurate information on time
• Comply with all prescribed administrative processes and timeframes
• Pay your tax and/or duties on time and in full, using the correct payment reference number(s)
• Encourage others to pay their tax and/or duties on time and in full
• Not encourage or be party to any corrupt activity or fraud in any form
• Ensure that SARS has your correct personal information and payment details
• Take responsibility for your tax affairs, even if you have authorised someone to act on your behalf.
• Show our staff respect just as they are expected to respect you. If someone else acts on your behalf, we expect the same respect from them.’
The SARS Service Charter sets out what SARS does and how it seeks to meet its mandate
under the South African Revenue Service Act, 34 of 1997

Image bought from i-Stock "Compliance" by almagami

From a review of the Charter it appears that SARS want taxpayers to encourage other taxpayers to pay their tax and or duties on time and in full. Whilst the sentiment for this statement is understood it has no legal basis and cannot be legally enforced.
The Charter also sets out the levels of service taxpayers can expect when interacting with SARS. It deals with the following types of interactions with SARS:

·         Engagement
·         Registration
·         Returns/Declarations
·         Inspection, audit and verification
·         Refunds
·         Payments
·         Debt
·         Disputes in terms of the Tax Administration Act
·         Disputes in terms of the Customs and Excise Act

Where SARS fails to adhere to the time frames specified in the Charter, the taxpayer would have to complain to SARS and adhere to the prescribed complaints process or lodge a complaint with the Tax Ombud in the prescribed manner.

It must be noted that the Charter is not a legal document and is only a statement of intent on the part of SARS.  The Charter does not address the question of taxpayers recovering wasted costs from SARS which is catered for in a number of other countries.

In the United States, the Taxpayer Advocate, an office similar to the Tax Ombud, can issue Taxpayer assistance orders directing the Internal Revenue Service to refrain from taking action against taxpayers in certain well-defined cases. It is unfortunate that, in South Africa, the Tax Ombud does not, at this stage, have a similar power.

Another problem that still needs to be addressed is the issue of legal assistance for indigent taxpayers. In the United States, taxpayers can go to Low Income Taxpayer Clinics for assistance with their tax affairs. It is hoped that in time something similar will be introduced in South Africa.

Hopefully, SARS will meet the timeframes stated in the SARS Service Charter and, whilst the Charter may not be perfect, it is hoped that it will encourage enhanced tax compliance and result in a better relationship between taxpayers and SARS.

Taxpayers need to be aware of their rights and obligations in the tax arena and the Charter should assist in this regard. Likewise, SARS needs to be mindful of taxpayers’ rights and must uphold those rights as stated in the newly released Service Charter.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, August 2018.

Monday, 14 May 2018

E-filing and Submission of Tax Returns


Until 2007 taxpayers had no choice but to file paper-based tax returns with SARS. This required the completion of a paper-based return and also the submission of the taxpayers’ supporting documents and tax certificates. SARS then introduced e-filing, whereby taxpayers could register for e-filing and submit their tax returns electronically. With e-filing it is not possible to submit supporting documents when, for example, an individual files their tax return, the ITR12.

Furthermore, taxpayers have a choice to register for e-filing personally and file their returns themselves or they can appoint a registered tax practitioner to act on their behalf and file their returns. The Tax Administration Act (‘the Act’) sets out who must register as a tax practitioner, as well as the statutory obligations arising where a person is a registered tax practitioner.

A registered tax practitioner must be a member of a SARS Recognised Controlling Body or a body recognised by the Act. All registered tax practitioners must adhere to the code of professional conduct prescribed by their controlling body. If the practitioner does not comply with their code of conduct or the provisions of the Act, SARS can lodge a complaint against the practitioner.
The failure to file returns on time can give rise to action being taken by SARS
against the taxpayer or tax practitioner.

Image bought from i-Stock "Compliance Diagram" by stuartmiles99

Although a taxpayer appoints a tax practitioner to submit tax returns on their behalf, the taxpayer retains the legal obligations imposed by the Act. Thus, if the tax practitioner fails to submit a tax return at all or on time, the taxpayer can be subjected to the administrative penalties for late submission of returns, which can range from R 250 per month to R 16 000 per month that the return remains outstanding. The penalty amount depends on the taxpayer’s level of income.

The failure by a tax practitioner to file returns on time can give rise to action being taken by SARS against the tax practitioner. However, this does not detract from the taxpayer’s personal liability for the failure to lodge a return. SARS can still subject the taxpayer to the administrative penalty and prosecute the taxpayer for non-submission of a return.

Should a taxpayer be dissatisfied with the service received from a tax practitioner, they should terminate the agreement with the tax practitioner. The taxpayer may have a basis on which to lodge a formal complaint with the practitioner’s controlling body or with SARS itself where the practitioner has violated the Act.  If a practitioner delays the submission of a return they can face action by SARS itself. In addition, the taxpayer must remember that the e-filing profile belongs to the taxpayer and can be retrieved from the tax practitioner at any time. 

SARS indicated recently that it will use the National Prosecuting Authority to prosecute taxpayers in the Tax Court for the failure to submit tax returns. It must be remembered that the failure to submit a return when required to do so constitutes a criminal offence, which can give rise to a fine or a period of imprisonment. This will, on a successful prosecution, result in the taxpayer having a criminal record.

Taxpayers using e-filing must ensure that they do not allow unauthorised persons to obtain their login and password details. The Office of the Tax Ombud has in its various annual reports indicated that there have been too many cases of identity theft where taxpayers have been duped into making  their passwords available to unauthorised third parties.

Once a return is filed via e-filing, SARS will often request that the taxpayer submits the documents to support the filed return. The taxpayer should receive notice of such verification requests via e-mail or SMS. The taxpayer is entitled to receive proper notice of SARS requests and, in my opinion, it is not sufficient for SARS to merely post a letter on the taxpayer’s e-filing profile.

E-filing has allowed SARS to enhance its data matching processes to ensure that taxpayers properly declare all income derived by them. Should a taxpayer choose not to declare all income received or accrued they will be subject to the understatement penalty, which can range from 10% to 200% of the income tax underpaid.

E-filing has its advantages to both taxpayers and SARS in that returns can be processed far more quickly than paper-based returns.  However, taxpayers must still submit their tax returns on time. Where a tax practitioner is appointed, that person must act professionally and should not delay the filing of returns without a good reason. 

Whether returns are filed via e-filing or manual submission, or managed by a tax practitioner or the taxpayers personally, the taxpayer remains liable for the failure to submit a tax return on time.  

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, May 2018.

Monday, 9 April 2018

SARS has Legal Powers to Seize Your Income

After a taxpayer has filed their tax return they will receive an assessment from SARS which will reflect either a refund due to the taxpayer or an amount of tax payable to SARS. The assessment will reflect the date by which the tax must be paid, failing which SARS will use its recovery powers to enforce collection of the tax due.

This article deals with SARS’ powers contained in section 179 of the Tax Administration Act (‘the Act’), whereby SARS can appoint a third party holding any funds of the taxpayer, such as a bank, the taxpayer’s debtors or the taxpayer’s employer, to pay the funds to SARS and not to the taxpayer. The power is draconian but has been held to be lawful under the Constitution.

Before SARS may use section 179 it is legally required to issue a final demand to the taxpayer reminding them of the tax due to SARS. The law requires that the final demand must be issued ten business days before the letter appointing the third party is issued. SARS is not required to issue the final demand where the collection of the tax will be prejudiced.

It must be noted that SARS can appoint the taxpayer’s bank as a third party under section 179 and this will have the result that any funds in the taxpayer’s account must be to SARS and not the taxpayer until the tax debt is settled. 

In the case of an employee, SARS can instruct the employer to deduct the amount from the taxpayer’s salary and pay that to SARS instead of to the employee. The Act recognises that an employee needs funds to live on and if the third party appointment or garnishee is too onerous the taxpayer can, within five business days of the appointment, request that the monthly amount deducted is reduced to take account of the taxpayer’s basic living costs.
Failure to engage will result in SARS using its powers to ensure collection of tax due.
Image purchased iStock 
ID:157682422 "Money Squeeze" by sekulicn 
In the case of a taxpayer other than a natural person, SARS may vary the third party instruction on the basis that it will cause serious financial hardship if the SARS instruction is not revised.

If the person appointed is unable to comply with the third party appointment instruction they must inform SARS thereof, as well as the reasons therefore. SARS may then withdraw or amend the instruction.

The person appointed as the third party by SARS must adhere fully to the instructions set out in the letter appointing the bank, employer or other person as the third party. Failure to comply with SARS’ instructions can result in the third party becoming personally liable to SARS for the amount of the tax debt. In addition, the failure to comply with section 179 as required can give rise to a criminal offence under section 234(n) of the Act. If convicted, the third party can face either a fine or a period of imprisonment.

It is important that taxpayers pay their tax debts as and when they fall due. If they are unable to settle the amount due to SARS they should talk to SARS and make arrangements with SARS to pay the tax due over a period of time. The failure to engage with SARS will result in SARS using the powers it has in the Act to ensure collection of the tax due. 

It is clear that SARS can appoint the taxpayer’s bank or employer or any other person as a third party under section 179 of the Act. It is critical that the person appointed by SARS complies with section 179 and pays the specified amount of tax to SARS, failing which the third party can be held personally liable for the amount due to SARS by the taxpayer and worse still could face prosecution under section 234 of the Act.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, April 2018.

Monday, 12 March 2018

Tax Court decides that SARS must issue a letter of audit findings


In Tax Case IT 13726, as yet unreported, the Tax Court in Port Elizabeth had to determine if the 2012 assessment issued to the taxpayer was valid. The taxpayer claimed farming expenditure amounting to R 1 781 604 and reflected an amount of some R 7 million as a retrenchment payment which the taxpayer contended should have been taxed not at the normal marginal rate of tax but at the special rate applicable to retrenchment lump sums.

SARS issued an additional assessment for 2012 on 31 January 2013 disallowing the farming expenditure and treating the retrenchment lump sum as normal income. The taxpayer lodged objections to the adjustments made to the assessment by SARS. The objections were disallowed and the taxpayer filed an appeal against SARS’ decision to disallow the objections.

On 25 May 2017 the Registrar of the Tax Court was informed that the parties would only argue the following points:

·         As a point in limine, whether the audit conducted by SARS before the issue of the additional assessment was valid and if the additional assessment was itself valid;
·         Whether the lump sum received by the taxpayer upon his termination of employment constituted a ‘severance benefit’ as envisaged in the Income Tax Act.

The taxpayer argued that the amount of R 7 million should have been taxed according to the tax tables applicable to retrenchment and retirement lump sums. SARS contended that it conducted a personal income tax audit on the taxpayer during January 2013 and came to the conclusion that the amount was incorrectly reflected in the 2012 tax return as a retrenchment lump sum on the basis that the amount was paid because the taxpayer was dismissed and not retrenched.

The court indicated that if the taxpayer’s point in limine is upheld and the assessment is held to be invalid that will resolve the dispute without needing to determine if the payment was a retrenchment lump sum or not.

Employees with tax problems are distracted and unhappy employees. 
Image purchased iStock_000031119668 "Knowledge of the law is crucial for a fair trial - PeopleImages"
The court decided that SARS could not rely on a procedurally flawed audit conducted without the taxpayer’s knowledge as a new ground in its Rule 31 statement and is thus mpermissible as this would violate the principle of legality.

The court stated that the issue of an additional assessment is administrative action as dealt with in section 33 of the Constitution  which confers the right of just administrative action on taxpayers. That section also requires that any person whose rights have been adversely affected  by administrative action is entitled to be supplied  written reasons for the decision made. The court indicated that an assessment was issued  and SARS’ failure to provide reasons therefore offends the principle of legality as dealt with in various court decisions.

Section 40 of the Tax Administration Act (‘TAA’) provides that SARS may select a taxpayer for inspection, verification or audit. Section 42 of the TAA places a legal obligation on SARS to keep the taxpayer informed as to the status of the audit. Furthermore, upon conclusion of the audit SARS must, within 21 business days,  issue a document which is generally referred to as the letter of audit findings whereby SARS should advise the taxpayer of the adjustments to be made to the taxpayer’s assessment and provide reasons in writing for those adjustments.

In the case at hand SARS failed to provide a report on the status of the audit and also did not provide reasons as required by the TAA. Thus, the court decided that SARS had violated section 42(2)(b) of the TAA and as a result the taxpayer was denied the opportunity to respond to the issues raised by SARS, especially regarding the circumstances giving rise to the lump sum of R 7 million.

The court also reviewed the law dealing with severance benefits in order to establish if the lump sum of R 7 million was in fact a retrenchment lump sum. Revelas J stated in the judgment that had SARS granted the taxpayer the opportunity to explain the nature of the payment it would have satisfied SARS that the lump sum was related to a retrenchment process as required by the Income Tax Act.

SARS argued that the taxpayer had not been retrenched but that the payment related to the taxpayer’s dismissal which meant the lump sum would be taxed as normal income. SARS relied on a letter issued by the taxpayer’s employer that the payment was for dismissal and not retrenchment. The court stated that SARS reliance on the letter in question was selective and decided that the payment was made for termination of employment as a result of retrenchment.

The court was also critical of the manner in which SARS decided to disallow the farming expenditure. The judgment states that had SARS conducted a proper audit there would have been a different result, that is, the expenditure would not have been disallowed.

Revelas J decided that the audit was invalid and SARS non-compliance with section 40 and 42 of the TAA offends the Constitution and  the principle of legality. Thus, the court set the additional assessment aside as it did not comply with the law.

In the result the entire 2012 additional assessment was set aside and the interest levied on the tax reflected as due was remitted. Furthermore, the court ruled that SARS must pay the taxpayer’s cost of the appeal. It must be noted that in the Tax Court, costs are not always awarded to the successful part as is the case in other courts. Section 130 of the TAA prescribes when costs should be awarded by the Tax Court but the court did not refer to those requirements. Costs can be awarded where, for example, the taxpayer’s grounds of appeal are unreasonable or SARS grounds of assessment are unreasonable.

This case is important for taxpayers as it serves as a useful reminder of the rights taxpayers have when SARS conducts an audit into their affairs. Taxpayers are entitled, by law, to be advised as to the status of an audit and more importantly when an audit is completed they are entitled to a letter of audit findings setting out the adjustments made to the taxpayers assessment as well as the reasons for those assessments. If SARS fails to adhere to its statutory obligations the court will set any such additional assessment aside and more likely than not award costs against SARS for not complying with the law.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, March 2018.

Tuesday, 6 February 2018

Employer and employees’ tax obligations

Any employer paying remuneration to an employee is required, under the provisions of the Fourth Schedule to the Income Tax Act, 58 of 1962, (‘the Act’), to deduct and withhold Pay As You Earn (‘PAYE’) or employees’ tax from the remuneration paid. 

The employer must pay the  tax collected over to the Commissioner: South African Revenue Service (‘SARS”). It does not matter whether the remuneration is paid in cash or in kind. Certain payments may be exempt from tax, but those fall outside of the scope of this article.

The employer must deduct the tax from the remuneration and pay that over to SARS by the 7th of the month following the month in which the tax was deducted. If the 7th falls on a weekend or public holiday, the PAYE must, together with the other employment related taxes, be paid on the preceding business day.

The tax year for natural persons commences on 1 March of each year and ends on the last day of February of the following year. The employer is required by law to provide their employees with a tax certificate, the IRP5 certificate, reflecting the amount of remuneration paid to the employee and the PAYE deducted from that remuneration. The IRP5 must cover the full tax year or, if the employee only worked for a part of the tax year, only that part.

The employee will receive the tax certificate around July and then has the personal obligation to complete and submit an income tax return to SARS, subject to certain exceptions.

If the employee fails to file their tax return within the prescribed period SARS will impose administrative penalties on the employee for the late filing of the return. 

The penalty is determined by taking account of the level of taxable income reflected by the taxpayer and can range from R 250  to R 16 000 per month until the tax return is filed. Where SARS is aware of the taxpayer’s latest address the penalty can be imposed for up to 36 months and where SARS does not have the taxpayer’s latest details the penalty can be levied for up to 48 months. 

In addition, SARS can institute criminal proceedings against a taxpayer for the failure to submit a tax return in time and has indicated that in future it intends to use the Tax Court to expedite the prosecution of defaulting taxpayers. In such cases, the taxpayer will remain liable to pay the administrative penalty to SARS as well as whatever fine the court may impose.

Thus, where a taxpayer is required to submit a tax return and fails to do so the penalty will be imposed and can add up to a substantial amount due to SARS. It is critical therefore that taxpayers file their tax returns timeously.

The first time a taxpayer may become aware of a debt due to SARS is when they receive a letter of demand from SARS or if SARS instructs the taxpayer’s employer to withhold amounts of the taxpayer’s salary to settle the debt due to SARS by way of a garnishee.
Employees with tax problems are distracted and unhappy employees. 
Image purchased iStock_000031119668
Employers do not have a legal obligation under the Act to assist or inform their employees that they must complete and submit an annual income tax return to SARS. However, in practice it appears that employees are not always aware of the obligation to file an income tax return.  This is especially true of school leavers or graduates who may be employed for the first time and are not aware of the tax rules in the country.

Those schools that do not teach basic financial skills, including basic tax rules, to their pupils should do so, thereby enabling pupils to be properly equipped to become compliant tax paying citizens when they embark on a business venture for their own account or enter into employment and receive remuneration.

Whilst employers may not have a statutory duty to advise their employees to register and submit an annual income tax return, many employers do assist their employees in this regard. When a new employee commences employment with an employer the employer should remind the employee of the obligation to register and submit annual tax returns to SARS.

Ideally, the employer should arrange for tax information sessions whereby employees are reminded of the obligation to file a tax return and are taught how to do so. 

Most people fear SARS and are loathe to deal with their tax affairs.  This is often as a result of ignorance of how the tax system in the country works and how a tax return should be completed.

Employers should empower their employees by educating them on the need to submit tax returns and furthermore assist employees by providing information as to how tax returns should be completed. This will alleviate employees receiving a nasty shock at the end of the month when they receive their pay slip and, for the first time, become aware of an amount deducted on behalf of SARS for the failure to pay an income tax debt on time and/or as a result of  an administrative penalty imposed for late or non-submission of a tax return.

Employees who have debts due to SARS will be distracted and may not be as efficient as they could be if their tax affairs are in order and up to date. 

It is contended that if an employer assists its staff in attending to their personal tax obligations that will contribute to a content work force and encourage tax compliance in the country.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, February 2018.