The South African Revenue Service (SARS) plans to collect taxes from individuals on a real-time monthly basis, but several practical issues need to be addressed before then, says Joon Chong, a partner at Webber Wentzel.
SARS announced in February 2020 that it aimed to become a future revenue authority informed by data-driven insights, self-learning computers, AI, and other devices in what was termed “Vision 2024”.
Through a SARS app, Vision 2024 anticipates using third-party data to make an “assessment” of an individual where real-time tax liabilities will be shown, which will be valid in terms of the Tax Administration Act, Chong said.
According to a recent SAIT/SAGE payroll tax update webinar, Vision 2024 aims to:
- Enable accurate and timely withholding of taxes from employees and their payment to SARS;
- Reduce the payroll administration for employers, payroll administrators and SARSenable employees to monitor their tax obligations during the tax year;
- Simplify the annual returns process for employers; and
- Relieve the necessity for most salaried employees to file annual tax returns.
In a recent meeting with tax practitioners, Chong said SARS outlined its Vision 2024 to do away with the “filing season” in 2025.
“Currently, banks, financial institutions, medical schemes, attorneys, estate agents and issuers of bonds, debentures and financial products are required to file third-party returns to SARS once a year after the end of the year of assessment which accrued to a taxpayer in that year and contain information on interest, dividends or capital gains from that year,” said Chong.
“These third-party returns, together with the IRP5 certificates issued to employees and EMP 501 returns filed with SARS by employers, are currently used to pre-populate the ITR12 annual tax returns for individuals.”
Vision 2024 envisages a data analytics environment where third-party data will be provided to SARS on a real-time monthly basis which will then be used to generate an “assessment” on a SARS app.
“It appears that the third-party data could be used by SARS to generate an “effective tax rate” for each taxpayer,” Chong said.
The legal expert noted that through a “push directive” or the IRP3e directives issued by SARS to “employers”, they can then require employers to withhold employees’ tax [PAYE] using the higher effective tax rate rather than, the lower calculated rate based on the actual remuneration paid by the employer.
This process is already in effect for annuitants who earn more than one stream of annuities. Annuitants can elect to have their PAYE withheld at the lower calculated rate rather than the rate in the IRP3e directives.
Chong said that trust distributions and section 18A donations are not currently reported through third-party data reporting to SARS. He noted that Vision 2024 might also require third-party data on these transactions.
There is, however, no information on how SARS will collect the tax due on business income, rental income and capital gains which are not subject to third-party data reporting.
“It appears that these taxpayers will need to update the app with these amounts and monitor and pay their monthly tax liabilities on the app as they arise.”
Chong said that an example provided by SARS went as follows: “if tax is triggered in March and only paid in January, interest will be payable for the ten-month delay between the due date and payment date”.
Experts at Webber Wentzel anticipate that:
- The Tax Administration Act and various other tax statutes will need to be amended to accommodate the implementation of Vision 2024.
- The provisional tax system would be reviewed given changing circumstances and international developments, as noted in the 2022 Budget, and this review would coincide with the implementation of Vision 2024.
- SARS will circulate information on Vision 2024, especially on the implications for employers and employees and all those required to file third-party data with SARS.
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