Government Connect Issue 9 (March 2023)

Employer Annual Declaration opened on 1 April and closes on 31 May 2023

During this period, employers are required to submit their annual reconciliation declarations (EMP501) that reflect accurate and the latest payroll information about their employees, monthly employer declarations (EMP201) for PAYE, UIF and SDL; payments made (excluding penalties and interest paid); and employee tax certificates (IRP5/IT3(a)s generated, covering the full tax year from 1 March 2022 to 28 February 2023. For more information on how we will help you to comply, submission channels, enhancements to e@syFile ™ Employer and more, see our letter to stakeholders.

Changes to the Auto Assessment Function

For the 2021/2022 filing season, SARS introduced changes to the auto assessment process. Information on this can be found at: How does Auto-Assessment work | South African Revenue Service (sars.gov.za).

To assist taxpayers who were auto-assessed and wish to make corrections to the auto-assessed returns, SARS provided the following guidance:

If a taxpayer is not in agreement with the assessment, he/she can access the tax return via eFiling or SARS MobiApp, complete the return, and file it within 40 business days from the date that SARS issued the assessment.
SARS can extend the 40 business days if we receive the request for extension before the expiry of the 40 business days, together with reasonable grounds. SARS can also extend the 40 business days after the expiry of the 40 business days if the taxpayer’s request is submitted to SARS within 21 business days after the expiry of the 40 business days, and if accompanied by reasonable grounds. SARS can also extend the 40 business days after the expiry of the 40 business days if a taxpayer’s request is submitted to SARS within 3 years after the expiry of the 40 business days, and if accompanied by exceptional circumstances.

However, there were taxpayers who did not meet the above-mentioned timelines or their requests for extension was not approved by SARS. These taxpayers were unable to submit their original return after estimate or object the auto assessment. After careful consideration, SARS decided to provide leniency to this group of taxpayers by reviewing the auto assessment process and system rules. The changes to the auto assessment process and system are as follows:

Conditionally reinstate the “Request for Extension” option in instances where a return was rejected with reason “40 days lapsed” whereby the taxpayer did not request extension nor the extension was granted, and SARS subsequently issued a Reassessment Rejection letter.
Enable identified taxpayers to file their return even though their original return was submitted after the estimate was not assessed or processed.

New USSD service launched

USSD or quick codes as it is known, is a new feature available to taxpayers. Taxpayers can now request specific Personal Income Tax related services by typing in a USSD string *134*7277# into their mobile devices. The benefits are that it is free of charge and you don’t need to have smart phone or internet connectivity.

The following additional tax related services are offered to taxpayers via the USSD channel:

What’s my Tax number?
Account balance
Do I need to file a tax return?
Do I need to file a tax return?
eBooking.

Visit the SARS Mobile Tax Services webpage for more information and a link to the online Guide.

For this system to work well, your registered particulars must be correct with SARS and the number you use must match the details on the SARS system. If your cell phone number and/or information used does not match, contact details can be updated via either of the following channels:

Importance of ensuring correct registered particulars

Government Institutions are reminded of the importance of updating registered particulars with SARS. Correct registered particulars ensure that communication from SARS is received timeously, statement of accounts can be received and acted on in time, requests for information from SARS can be resolved and any monies due can be efficiently paid out. It is important to look at all tax types that the government institution is registered for and ensure that the correct details are provided across all tax types. Such information pertains to:

Name of the Institution across all tax types (these must be the same from VAT, PAYE and Income Tax if applicable)
Name of representative employer
Contact details (telephone numbers, e mail address)
Banking details

In terms of Section 23 of the Tax Administration Act: A person who has been registered under section 22 must communicate to SARS within 21 business days any change that relates to—

postal address;
physical address;
representative taxpayer;
banking particulars used for transactions with SARS;
electronic address used for communication with SARS; or
such other details as the Commissioner may require by public notice.

These changes are to be communicated to SARS via completion of the RAV01 (Registration Amendments and Verification form) which can be accessed on eFiling. These changes cannot be amended via e mail or discussion with a SARS employee – the correct process is via the RAV01 form and government institutions are required to acquaint themselves with this process and also educate their staff on this matter.

Deregistration of Tax Types

We regularly encounter situations where a particular institution is no longer operating, and no attention has been given to deregistering the tax type. This then results in the accumulation of outstanding returns or the submission of NIL returns (returns without any declarations).

SARS has prepared a presentation on the deregistration of tax types. This can be accessed on the following link: Deregistration of Tax Types | South African Revenue Service (sars.gov.za)

Imported services vs electronic services

Over recent years, various articles on “imported services” and “electronic services” have been published in VAT Connect as follows:

VAT Connect Issue 13 (November 2021) – dealing with rulings previously issued in relation to the original (2014) Electronic Services Regulations.
VAT Connect Issue 12 (June 2021) – dealing with certain amendments pertaining to the completion and retention of documents and mentioning that guidance in that regard can be found in the publication External Guide: Manage Value Added Tax on Imported Services.
VAT Connect Issue 11 (September 2020) – dealing with various matters concerning the identification of “imported services” and declaration of said services, as distinct from “electronic services” and the associated VAT consequences of making such supplies. This article was in relation to the updated (2019) Electronic Services Regulations and mentioned that guidance in the form of the documents Manage Imported Services – External Guide and the Frequently Asked Questions: Supplies of Electronic Services is available on the SARS website.
VAT Connect Issue 10 (March 2020) – dealing with various administrative matters concerning deregistration of certain entities that were previously registered under the original (2014) Electronic Services Regulations and the closure of the mailbox in connection with enquiries regarding the introduction of the updated (2019) Electronic Services Regulations. Also mentioning that the Frequently Asked Questions: Supplies of Electronic Services were updated accordingly.
VAT Connect Issue 9 (February 2019) – which explains in some detail the application of the law relating to the introduction of the updated (2019) Electronic Services Regulations.

Although we have written about imported services and electronic services several times and issued various publications, we still receive some questions on how to distinguish between the two concepts so that the correct VAT treatment can be applied.

As a general background, to making the distinction, one should keep in mind the reason why the electronic services regulations were introduced, namely –

to deal with the difficulties involved in administering and enforcing the collection of VAT on imported services as it relies on a self-declaration by the recipient so that in many cases, the transaction will not be subject to scrutiny by SARS; and
to keep the VAT system in tune with modern commercial realities which recognises the worldwide trend that, increasingly, the nature of cross-border supplies into South Africa consists of digital content or access to facilities is granted by electronic means, for example, over the internet. As a result, it is considered that the VAT on those supplies could more easily be collected and administered under a separate electronic services regime which requires the VAT registration of the non-resident supplier.

Following from the above rationale, the implementation of the 2019 Electronic Services Regulations resulted in a major part of the tax base being shifted from the imported services regime into the electronic services regime. The effect being that the recipient would no longer be liable for VAT on imported services under section 7(1)(c) in respect of supplies of electronic services acquired from non-residents. Instead, the non-resident supplier would be liable to register for VAT and to collect and pay the tax to SARS on such supplies under section 7(1)(a) in the same manner as any other local vendor.

As a result, with effect from 1 April 2019, there are only a few instances where the imported services provisions will continue to apply. As a rule of thumb, if a South African resident contracts with a non-resident supplier to acquire services for non-taxable use or consumption in South Africa, the imported services provisions will only apply if the services are of the type mentioned in the 2019 Electronic Services Regulations and the value of the supplies does not exceed the R1 million VAT registration threshold. In other words, the non-resident supplier is not liable to register and account for VAT under the 2019 Electronic Services Regulations and has also opted not to register voluntarily. The effect is that the supplier will not charge VAT on this supply, but the recipient of the supply may potentially be required to pay VAT on this supply to SARS under the imported services provisions.

In regard to the explanation above, it should be noted that –

VAT on imported services is only applicable to the extent that the recipient acquires the services for private, exempt, or other non-taxable purposes. Therefore, if the recipient acquired those services wholly for taxable purposes, then there would be no liability to pay VAT on imported services. There are also certain exemptions in section 14(5);
in determining whether the contract involves the supply of “electronic services” or not, the key factors to consider are the characteristics or nature of the supplies, and how they are delivered, for example, over the internet. If the services require physical performance in South Africa, then they are unlikely to be electronic services unless there is a mixed package of services (including electronic services) which require different forms of delivery;
neither the supplier nor the recipient can choose whether a supply by a non-resident should be charged with VAT under the normal rules (section 7(1)(a)) as opposed to applying the imported services provisions (section 7(1)(c)). For example, if a non-resident supplier is liable to register, charge and account for VAT on electronic services, the parties cannot choose to pay VAT on imported services instead. See the tax court case VAT 144 dated 13 March 2006 for further explanation in this regard;
the recipient of services supplied by a non-resident may have to ask the supplier a few questions to establish if that person is liable to register for VAT or not. This is important because the non-resident supplier (being a vendor) is liable to account for VAT on any electronic services to SARS, whereas, in the case of imported services, the recipient must self-declare the VAT and pay it over to SARS.

For further guidance in regard to distinguishing between electronic services and imported services and the associated liability to account for VAT, please refer to the Frequently Asked Questions: Supplies of Electronic Services. In particular refer to questions 66 to 68 that specifically deal with imported services.

Connect Newsletters

SARS produces various newsletters in addition to the TPC. Please visit Newsletters | South African Revenue Service (sars.gov.za) for information pertinent to VAT, Government Institutions, Tax Exempt Institutions and SMMEs.

Tax compliance statement issued by SARS on Phala Phala

A tax compliance statement issued by SARS indicates that the $4 million sale of the game at President Cyril Ramaphosa’s Phala Phala farm in 2020 has been declared. South African Revenue Services Commissioner, Edward Kieswetter, says all high-profile political office bearers should agree to make their tax affairs public as evidence of a commitment to transparency. Watch the interview where Commissioner Edward Kieswetter discussed this topic with a television news channel.

In this regard and mindful of the considerable public interest and concern in the affairs of the taxpayers Mr Matamela Cyril Ramaphosa, Ntaba Nyoni Estate and Ntaba Nyoni Feedlot, SARS received the consent of the taxpayers, in terms of section 69 (6) of the Tax Administration Act no 28 of 2011 (TAA), to make a public statement. Without the express written consent of the taxpayer and the Public Officers in terms of section 69(6) of the TAA, SARS would be prohibited by law from making this statement. The companies’ consent was provided by the Public Officer for each of the companies respectively appointed in terms of section 246 of the TAA, 2011 and responsible for all acts and matters of a company for tax purposes. See the full media statement here.

Scam alert

Beware of the latest email scam saying that a letter of demand which requires your attention has been issued and asks you to click on a link to open the letter. Please ignore and don’t click on any links. If in doubt, please send an email to [email protected]. See the latest scam here –Scam-Letter of demand-10 March 2023.

Tax Directives

Section 1.1, Paragraph (b) (xii)(bb) of the definition of “retirement annuity fund” (RAF) in section 1(1) of the Income Tax Act. Section 1.1, Paragraph (b) (xii)(bb) of the definition of “retirement annuity fund” in section 1(1) of the Income Tax Act has been amended to allow for transfers between Retirement Annuity Funds (RAF).

The effect of the amendment is that the word “total” is deleted, and the following conditions are inserted –

The value of each policy/contract being transferred from one retirement annuity fund to another retirement annuity fund must exceed R371 250 (see highlighted portion blue above); and
The value remaining in the retirement annuity fund after the transfer must exceed R371 250.

However, there is no monetary restriction on the transfer value if the full/total value of the retirement annuity fund is transferred to another retirement annuity fund (i.e., there is no amount remaining in the retirement annuity fund after the transfer).

Where a taxpayer opts to transfer one or more policies/contracts to a new RAF, a separate tax directive application for each transfer must be completed.

See the enclosed link for a webinar that SARS held recently on tax directives. Tax Directive Webinar – YouTube