Brace yourself for a SARS onslaught

The South African Revenue Services is often complimented for its success in widening the tax revenue net. Under the guidance of Commissioner Pravin Gordhan SARS has beaten the collection targets set by Treasury for a number of years now. A quick look at f

New rules for provisional tax payments

We write this article on the eve of another SARS intervention which is aimed to expedite revenue collection. In their latest tax alert, PriceWaterhouseCoopers reminds taxpayers that the rules for making provisional tax payments will change with effect from 1 January 2009. From that date all provisional taxpayers have to “base their 2nd payment on at least 80% of their actual taxable income.” In the past a taxpayer could estimate earnings for the full year (the ‘basic amount’) and make two provisional payments to cover that tax estimate, before making a top-up based on actual earnings.

We’ll use a basic example to illustrate. You’re a provisional taxpayer who earned R400 000 in the 2007/2008 tax year. Before the new rule came into effect you could complete your provisional tax for 2008/2009 using R400 000 as the ‘basic amount’ even if you knew your income was going to be much higher. At this level your tax estimate would be for R101 210 plus 38% of the amount above R380 000, less the primary rebate of R8 280 – a total of R100 530. So you could decide to pay R50 000 (50% of your calculated liability) at 31 August 2008 and another R50 000 at 28 February 2009. You’d then declare your actual income – let’s say it came to R600 000 and calculate your top-up provisional tax payment. In this case you would be liable for an extra R78 730 – the tax payable on R600 000 (R178 730) less the amount already paid (R100 000).

SARS is unhappy with this situation for obvious reasons. It allows taxpayers to defer the full amount of tax that they incur in a given year. Under the new rule, they want you to pay more attention when estimating your total annual income. In the above example you should have anticipated your salary would be more than the R400 000 declared in the 2007/2008 period. Your ‘best’ scenario would have been to pay provisional payments on an expected R480 000. In other words R63 565 in August 2008 and February 2009 with the balance of R51 600 after your assessment.

Brace for punishment – unless you have unlimited resources

The bad news is that SARS will levy a penalty if you don’t comply. “Estimates that turn out to be less than 80% of the final taxable income (when calculated), will be subject to a 20% penalty on the under-estimate,” says PWC. In other words, SARS is going to punish non-compliance. In the above example you would have ended up with a penalty of 20% of the difference between your actual tax liability (on R600 000) less your estimated tax liability (on R400 000). We reckon you’d be out of pocket R15 746 – R178 730 less R100 530 at 20%.

One of the complaints levelled against the existing tax legislation is that individuals with the financial ability to do so can delay justice indefinitely. Take the case of SARS versus David King for example. SARS believes he owes them R2.3bn in taxes and penalties and has filed 322 charges against him. Since the charges were levelled against King, SARS has dropped R245m in legal expenses in their attempt to finalise the case. King has spent another R150m on lawyers to defend himself. Quoted in an article in the Financial Mail, SARS spokesperson, Adrian Lackay says that “King has the resources to counter every court order we issue.” Since the case was brought against King in 2002 SARS has had to go to the Supreme Court of Appeals seven times, he adds.

The message is clear. If you have millions of rand to battle SARS in court, then push the envelope where tax is concerned. But if you’re an ordinary taxpayer you’d better make sure your taxes are in order. Pay what SARS tells you to – or face the consequences.

Editor’s thoughts:
The implementation of the 80% rule shouldn’t impact on too many taxpayers. It makes sense to perform a proper assessment of your likely earnings when completing your provisional tax assessments. But here are some cases where estimates of income could be serious impacted – examples we can think of include capital gains or unexpected bonuses. Do you have any problem with the decision to penalise taxpayers for poor estimates of likely earnings? Add your comments below, or send them to gareth@fanews.co.za