National Treasury and SARS published the 2021 Tax Statistics
National Treasury and the South African Revenue Service published the 2021 Tax Statistics on 25 January 2022. The 2021 edition provides an overview of tax revenue collections and tax return information for the 2017 to 2021 tax years, as well as the 2016/17 to 2020/21 fiscal years.
Revenue collection in the 2020/21 fiscal year was severely impacted by the COVID-19 pandemic lockdown restrictions and an already struggling economy that contracted by 7% in 2020. Total tax revenue collections for 2020/21 declined by 7.8% to R1 249.7 billion from the R1 355.8 billion collected in the previous year.
Total tax revenue increased from R1 144 billion in 2016/17 to R1 249.7 billion in 2020/21, growing at a compound annual growth rate (CAGR) of 2.2% over this period. This is significantly lower than the CAGR of 9.0% attained in the previous five-period from 2011/12 to 2016/17.
PAYE Audits conducted by SARS and the obligations of employers
SARS conducts PAYE audits on employers, in instances where an under declaration of taxes is identified. Once this happens, SARS contacts the employers to advise that an audit will be conducted, requests additional information and where the under declaration is confirmed, an additional assessment is raised on the employer. The taxes calculated are then recovered from the employer.
Although the audit concludes at this point, the employer is still required to calculate the shortfall in PAYE per employee, recover this from employees, issue amended IRP5 certificates and file an amended PAYE Reconciliation (EMP501) supported by the amended IRP5 certificates with SARS. The right to recover the taxes is a statutory right in terms of paragraph 5(3) of the Fourth Schedule to the Income Tax Act 58 of 1962.
It is important that the employer exercises this right and recovers the taxes from employees, because to the extent that an employer does not recover from the employees, the amount paid by the employer under the employees’ tax assessment, is deemed to be a penalty paid by that employer in terms of Paragraph 5(5) of the Fourth Schedule.
Where an employer fails to correctly deduct employees’ tax from remuneration paid to employees as required by the law, (Paragraph 2(1) of the Fourth Schedule requires an employer to deduct or withhold employees’ tax from any remuneration paid to employees, and to pay such amount deducted or withheld over to SARS within 7 days after the end of the relevant month), it incurs a personal liability to SARS for the amount that it should have deducted. (Paragraph 5(1) of the Fourth Schedule, read with section 157 of the TA Act.)
It is no longer acting as an intermediary between SARS and the employee, making payments against the employee’s final liability for income tax. Such payments become payments made by the employer in its personal capacity against its own liability.
Because the payments made to SARS under the audit assessment are made against the employer’s own personal liability, and not against the employees’ final income tax liability, the employees are not entitled to a tax credit (such as the credit reflected on an employees’ tax certificate (IRP5)) on assessment. Thus, the employees remain liable for the income tax due on the amounts that the employer did not correctly tax.
Under paragraph 28(1)(b) of the Fourth Schedule, the employee remains ultimately liable for any tax shortfall when they are assessed by SARS after submitting a tax return. This was confirmed by a Full Bench of the Witwatersrand Local Division of the High Court in Estate Late GA Pitje v Commissioner for South African Revenue Service 66 SATC 219 at paragraphs 11 and 12.
Importantly, however, the employer is not permitted to issue the amended IRP5 certificate to the employee, unless it has collected the full taxes due from that employee. This is because Paragraph 5(4) provides that an employee is not entitled to an IRP5 certificate until the tax is repaid to the employer. In terms of paragraph 28(3) of the Fourth Schedule, any IRP5 certificate issued in contravention of this rule, will attract a further joint and several liability between the employer and the employee for the amount of tax incorrectly reflected on such certificate.
Tax deductions (PAYE) on pension or annuities
Where a pensioner has one source of income during a tax year, the PAYE system ensures the correct PAYE deductions from their pension or annuity.
However, where a pensioner has more than one source of income, the different sources of income are combined at the end of the tax year to determine the correct amount of tax due. By adding all the sources of income, they are placed in a higher tax bracket which affects their tax due at year-end. This is not a new principle and it applies to everyone, not only pensioners.
Although pensioners can request their retirement fund administrator to deduct a higher amount of PAYE so that any tax due at year-end is adequately covered, not many pensioners are making use of this option, which leaves them with an unexpected tax debt at year-end.
To assist pensioners with more than one source of income, recently introduced legislation makes provision for SARS to determine a more accurate PAYE deduction amount. We do this by using the latest data available to SARS. The retirement fund administrator can then deduct a more accurate amount of PAYE from pensioners.
It is our intention to introduce this service with effect from 1 March 2022.
In practice, this will mean the following:
- Pensioners will not have to do anything, because SARS will provide the retirement fund administrator concerned with the PAYE deduction percentage.
- For pensions or annuities payable during March 2022 and for the periods thereafter, the retirement fund administrators will use this rate to deduct PAYE from the pension or annuity.
- The rate provided by SARS will be valid for the whole tax year, unless circumstances that influence the year-end tax liability change. In such a case, the retirement fund administrator may revert to applying the normal PAYE deduction rate, with effect from the month in which he/she becomes aware of the change in circumstances.
- The PAYE deducted from the pension may be slightly higher, but in return, you are less likely to be faced with an unexpected tax bill at the end of the tax year.
- The pensioner may, at any time, request their retirement fund administrator to continue to deduct PAYE at a rate higher than the rate provided by SARS.
- Pensioners may also request their retirement fund administrator to use the normal PAYE deduction rate, and not the one provided by SARS, however this may result in a high tax bill at year-end.
SARS commits to increased use of data for trade efficiency
The SARS Commissioner, has committed the SARS Customs division to scale up digital transformation and to increase the use of data to improve the facilitation of trade, revenue collection and improve compliance by traders who import and export goods across South Africa’s borders.
Speaking on International Customs Day, which is held on 26 January every year, Mr Kieswetter added this was necessary to combat the increased sophistication of organised crime and to improve management of the expanding volume and complexity of international trade.
The Commissioner reported that the Customs Modernisation Programme, has led to an improvement in the average case turn-around time by 22% as at December 2021; frontline interventions came down from an average of 109 hours in March 2020 to 38 hours as at December 2021, and reduced the stop rate for Authorised Economic Operators by 86% leading to savings in cost and time.
“We have improved our risk-based interventions to detect and deter illicit trade, with an average success rate of 54% by the end of December 2021, which has raised an additional R2-billion in revenue. “As at December 2021, SARS Customs more than doubled the value of seizures compared to the previous year, from R1.5-billion to R3.5-billion, including narcotics, clothing and textiles.”
Commissioner Kieswetter said several other initiatives, built on increased use of data and expanding the data eco-system, were making significant progress as part of the SMART border concept.
SARS working to eliminate Unregistered Individuals Practicing as Tax Practitioners (UIPTP)
As reported in the 2021 August issue of Tax Practitioners’ Connect, there are a number of unregistered individuals performing the tasks of tax practitioners. Some taxpayers are not aware of the risks of using these individuals to represent them with SARS. A recent media article noted these dangers when a taxpayer incurred a tax debt of about R70 million due to an UIPTP who failed to perform the duties that he was entrusted by the taxpayer published on IOL on January 25 this year.
As noted in section 234(c) of the Tax Administration Act “A person who willfully and without just cause, fails or neglects to register as a tax practitioner under section 240 is guilty of an offence and, upon conviction, is subject to a fine or to imprisonment for a period not exceeding two years.”
UIPTPs are not only illegal, but they also bring the profession into disrepute. SARS encourages tax practitioners to report such individuals via [email protected]
New SMME Connect newsletter now available
SARS has published its first SMME Connect Newsletter (Issue one) aimed at the small business sector. It covers a number of topics, including how a smarter SARS is making compliance easier, and increasing clarity and certainty for taxpayers in this space. We believe that this may be of interest to some of your clients, and encourage you to share this SMME newsletter.
Tax practitioners are reminded that Individual provisional taxpayers must submit their 2nd provisional tax return (IRP6) for 2022 tax year by the end February 2022.