Big tax changes coming to South Africa

The South African Reserve Service (SARS) plans to collect taxes from individuals on a real-time monthly basis, but several practical issues need to be resolved by then, says Joon Chong, partner at Webber Wentzel.

SARS announced in February 2020 that it aimed to become a future tax authority informed by data-driven insights, self-learning computers, AI and other devices in what has been dubbed “Vision 2024 “.

Through a SARS application, Vision 2024 plans to use third-party data to make an “assessment” of an individual where real-time tax debts will be displayed, which will be valid under the Tax Administration Act, Chong said.

According to a recent SAIT/SAGE webinar on the payroll tax update, Vision 2024 aims to:

  • Enable accurate and timely withholding of employee taxes and payment to SARS;
  • Reduce payroll administration for employers, payroll administrators and SARSallow employees to monitor their tax obligations during the tax year;
  • Simplify the annual declaration process for employers; and
  • Eliminate the need for most salaried employees to file annual tax returns.

In a recent meeting with tax professionals, Chong said SARS presented its 2024 Vision to remove the “filing season” in 2025.

“Currently, banks, financial institutions, medical plans, lawyers, real estate agents, and issuers of bonds, debentures, and financial products are required to file SARS third-party reports once a year after the end of of the tax year that accrues to a taxpayer in that year and contain information about interest, dividends or capital gains in that year,” Chong said.

“These third-party returns, along with IRP5 certificates issued to employees and EMP 501 returns filed with SARS by employers, are currently used to pre-populate ITR12 annual tax returns for individuals.”

Vision 2024 envisions a data analytics environment where third-party data will be fed to SARS on a monthly basis in real-time, which will then be used to generate an “assessment” on a SARS application.

“It appears 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 IRP3e directives issued by SARS to “employers”, they can then compel employers to withhold tax from employees. [PAYE] using the highest effective tax rate rather than the lower rate calculated on the basis of the actual remuneration paid by the employer.

This process is already in effect for annuitants who earn more than one annuity stream. Annuitants may elect to have their PAYE withheld at the lower calculated rate rather than the rate provided in the IRP3e guidelines.

Chong said trust distributions and Section 18A donations are not currently reported through third-party data reporting to SARS. He noted that Vision 2024 may also require third-party data on these transactions.

There is, however, no information on how SARS will collect tax due on business income, rental income and capital gains that are not subject to third party data reporting.

“It looks like these taxpayers will need to update the app with these amounts and monitor and pay their monthly tax obligations on the app as they arise.”

Chong said an example provided by SARS was as follows: “If the tax is triggered in March and not paid until January, interest will be due for the ten-month period between the due date and date of payment”.

Webber Wentzel experts predict that:

  • The Tax Administration Act and various other tax laws will need to be amended to reflect the implementation of Vision 2024.
  • The interim tax system would be revised in light of changing circumstances and international developments, as outlined in Budget 2022, and this revision would coincide with the implementation of Vision 2024.
  • SRAS will disseminate information about Vision 2024, in particular the implications for employers and employees and all those who are required to file third-party data with SRAS.

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