It’s time to get your tax affairs in order

Gareth Stokes, FAnews Online Editor

There are some busy weeks in store for National Treasury and its income collecting arm, the South African Revenue Services (SARS). On Wednesday, 17 February 2010, ex-SARS Commissioner and current Minister of Finance, Pravin Gordhan, will present the toughest budget in the last decade. Seven working days later the deadline for your second provisional payment for the 2009/10 tax year looms.

You should know how provisional tax works by now. Payments are made based on your estimated taxable income for a particular year and calculated using the relevant Tax Tables. SARS allows you to fulfil your obligation by making three payments. For the 2009/10 tax year the first provisional period deadline is 31 August 2009, at which point you must pay half of your full-year taxable income estimate, less employee’s tax deducted in the first six months, and less any allowable foreign tax credits. The second provisional deadline is 26 February 2010. You have to pay the total estimated tax for the full year less employee’s tax paid for the full year, less any allowable foreign tax credits for the full year, and less the amount of provisional tax paid for the first period. A top up payment is allowed in the third period, ending 30 September 2010.

Tough rules demand closer attention

Due to changes in the rules governing provisional tax payments, Barnard Jacobs Mellet (BJM) Private Clients bills the event as a New-style day of reckoning for provisional taxpayers. Under the ‘old’ system you would estimate the amount of tax due by referring to you previous year assessment and then make a top-up payment at a later stage. This leniency has been done away with.

In the current tax year SARS has decided to create two tiers or classes of taxpayer for the purposes of provisional tax. Tier one is for individuals with taxable incomes of less than R1 million, and tier two for those whose income exceeds that mark. The rules dictate how each of these classes should make their provisional tax payment. The tier one taxpayer “may base their estimate for the second provisional tax payment on the lesser of the last assessment or 90% of their actual taxable income,” notes BJM Private Clients. If you don’t have your latest assessment then you need to increase the ‘payment’ by 8% each year from the last available assessment. “Tier two taxpayers must base their estimate for the second provisional tax payment on at least 80% of their actual taxable income for the 2010 tax year!”

Tony Barrett, CEO (Wealth) at BJM Private Clients, explains: “In practice, this means taxpayers have to accurately estimate what their taxable income will be for the 2010 tax year before the completion of the tax year.” Taxpayers will have to include capital gains in their calculations. The risk to taxpayers is in underpaying their provisional tax. In the event they have to top up by too much, SARS will be able to levy penalties for late payment. “Provisional taxpayers may find it in their best interest to seek specialist advice on the new system and how to address the challenge of making accurate forecasts at such an early stage,” said Barrett.

A record 2009

SARS enjoyed a record season last year. They received in excess of four million returns from individuals and trusts by the 20 November 2009 deadline, beating the 2008 number by 800 000 returns. “At a time when our economy contracted into recession and within the context of a global economic meltdown, SARS views the breakthrough of the 4 million mark as a major step towards improved to tax compliance in this country,” says SARS. The 4.06m total includes 3.9 million individual taxpayer returns of which 2.17 million were submitted electronically. In an effort to reduce non-compliance SARS has also announced penalties against repeat offenders with multiple outstanding returns.

SARS will levy a minimum penalty of R250 per return outstanding per month until the outstanding returns are submitted. In their assessment of 2009 taxpayer activity SARS concludes that taxpayers are driven by fear rather than moral conscience. The penalty system proves they’re happy to go the fear route in improving the overall state of revenue collection in South Africa.

Editor’s thoughts: The problem with processing in excess of four million tax returns each year is the number of ‘omissions’ that slip through the cracks. SARS cannot possibly follow up on (or audit) every taxpayer. As a result many smaller taxpayers pay less attention to their returns than they should. Do your clients take enough care with their provisional tax payments? Add your comments below, or send them to gareth@fanews.co.za