​Government Institutions

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  • 3 May 2018 - Tax Treatment of Relocation or Resettlement Expenses
    Employees may be obliged to move from one place of residence to a new place of residence, due to that employee transferring from their current location of employment to another. The employees’ costs associated with such relocation are private in nature, and if the employer carries these costs, a benefit or advantage accrues to the employee that is subject to tax.

  • 5 May 2017 - What Constitutes Severance Pay when Applying for a Tax Directive
    SARS would like to clarify the treatment of severance pay when applying for a tax directive.  
    It has been observed that when government institutions apply for a tax directive with regard to a severance payment, there may be amounts included in the severance pay amount that relate to leave pay and bonus. 
    Inclusion of such amounts has the effect of understating the taxes due by employees and is therefore incorrect.   
    The term “severance benefit” is defined in section 1(1) of the Income Tax Act,1962 and means any amount that is received by or accrued to a person in respect of the relinquishment, termination, loss, repudiation, cancellation or variation of the person’s office of employment or of the person’s appointment to any office or employment, if-

a) Such person has attained the age of 55 years;
b) Such relinquishment, termination, loss, repudiation, cancellation or variation is due to the person becoming permanently incapable of holding the person’s office  or employment due to sickness, accident, injury or incapacity through infirmity of mind or body; or
c) such termination or loss is due to-

(i) the person's employer having ceased to carry on or intending to cease carrying on the trade in respect of which the person was employed or appointed; or
(ii) the person having become redundant in consequence of a general reduction in personnel or a reduction in personnel of a particular class by the person's employer,
unless, where the person's employer is a company, the person at any time held more than five per cent of the issued shares or members' interest in the company.

The following is to be excluded from the severance benefit on the tax directive application form:

    • Any amounts paid / payable in respect of services rendered. For example any amounts including any voluntary award (that is not a severance benefit as defined) in terms of paragraph (c) of the gross income definition
    • Per paragraph (f) of the gross income definition, any amounts in commutation of amounts due under any contract of employment or service.

As a result, leave pay, notice pay, bonus/pro rata bonus must not be included as part of the severance benefit as these amounts are not received as a result of the termination of employment.

  • Notice pay flows from the commutation of amounts due under the contract of employment and stems from a contractual obligation between the employer and employee to remunerate the employee for services rendered. Such amount constitutes an amount received under paragraph (f) of “gross income”
  • Leave pay and bonuses are received in respect of services rendered and fall with paragraph (c) of “gross income.

We have observed that amounts which do not constitute a severance benefit (e.g. leave pay, bonus and pro rata bonus) are included in the tax directive application form.
It is important to note, that at the time that the government institution submits the application for a tax directive, SARS will not be aware of the makeup of the amounts. SARS will act on the basis of the information contained on the tax directive. In the event however, of a PAYE audit on the Government Institution, where additional information is requested and this matter comes to light, it is the Government Institution that will be required to pay in the correct taxes that should have been deducted from the employee.
It is therefore important that representatives of government institutions who are responsible for the requesting of tax directives from SARS have a clear understanding regarding what constitutes a severance benefit.
Additional information in this regard can be found in the “Guide for Employers in respect of Employees (2018 Tax Year)" and "Tax and Retrenchment" webpage. Queries can also be directed to [email protected].

Welcome to the area of the website specifically designed to meet the tax needs of government.

Our main areas will be:

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There are three spheres of Government as per the Constitution, namely:

  • National;
  • Provincial; and
  • Local.

Clarity of what a Government institution is helps to identify taxpaying institutions that form part of the system of inter-governmental relations and SARS is able to offer the correct blend of education and service products that help these institutions achieve tax compliance. The definition of a Government Institution is as follows:
  • National Government Departments per Schedule 1 of the Public Service Act;
  • Provincial Government Departments per Schedule 2 of the Public Service Act;
  • National Parliament as per Chapter 4 of the Constitution of the Republic of South Africa;
  • Provincial Legislatures per Chapter 6 of the Constitution of the Republic of South Africa;
  • Local Government: Municipalities as per the Municipal Structures Act and Section 155(6) of the Constitution;
  • Municipal Entities - The Municipal Systems Act defines three types of entities that may be established by a municipality with effect from 1 August 2004 (private company, service utility or multi-jurisdictional service utility). These include Museums and Art Galleries, Community Halls, Tourism, Transport and Buses, etc.;
  • Public Entities as listed in the Public Finance Management Act (PFMA);
  • Public FET Colleges as defined in the Further Education and Training Colleges Act;
  • Universities as defined in the Higher Education Act;
  • Public Hospitals or Public Health Care Establishments as defined in the National Health Ac;
  • Public Schools as defined in Chapter 3 of the South African Schools Act;
  • Public Museums as defined in the Cultural Institutions Act; and
  • Public Pension Funds created as per the Pension Funds Act.


Last Updated: 03/06/2019 2:09 PM     print this page
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