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 7^th of the month following the month in which the tax was deducted. If the 7^th 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. 
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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.