SARS gets five stars; but it can be taxing!

Since Pravin Gordhan took the reins at the South African Revenue Services in 1999, finance minister Trevor Manuel has benefited from a series of record-breaking tax collection years. Every year, without fail, a higher revenue collection target is set. And every year, without fail, the giant lumbering machine we know as SARS has done its part in exceeding that target. Gordhan’s contract ends in 2009 and it will be interesting to see whether the new ANC leadership extends his service for another five years. But we’d be surprised if they don’t.

There are some who argue that SARS has had an easy time of it over the last few years on the back of a booming economy. This might account for some of the improvement; but we believe the drive to get more people on board has played a major role too.

We’re all guinea pigs as systems change

As the tax net widened, SARS realised it would have to change some of its processes to keep pace. Just like banks realised year ago that letting their cashiers count money manually was a bad idea, so too has SARS realised that the paper based submission system they’ve relied on for decades is a trifle over the top. This encouraged them to design, develop and implement SARS e-filing – an Internet based system for the electronic submission of tax returns. As expected there have been some teething problems!

When e-filing was launched in 2007 the demand on the system was huge. New users struggled with the form submission process and experienced extreme frustration waiting for SARS call centres to help. At the time we felt that SARS was using its legally bound audience as guinea pigs for its new ideas and systems. New systems should be tested 100% before being deployed across a large audience. Otherwise users have to endure frustrations similar to those experienced when the latest vehicle licensing system was deployed.

Today things have calmed down and most users are enjoying the benefits of the system without too much difficulty. We quite happily complete and submit our VAT payments online without a moment’s trouble – although our first submissions (in July 2007) hit a major snag due to e-filing registration issues. So what’s SARS got in store for us in the next few months? The latest change came into effect on 1 July 2008.

Latest ruling could cause massive inconvenience to individual taxpayers

SARS has decided to place “a new emphasis on the information supplied by employers to SARS in respect of the PAYE deducted from employees” in the 2008 Tax Year. From 1 July 2008 your employer will have to complete and submit accurate records of all the staff in their employ – including information of all PAYE deducted and paid over to SARS. SARS will then use this ‘reconciled’ information to pre-populate tax forms for certain categorise of taxpayers and “to verify the information supplied by individuals on their tax returns.”

Let’s look at what this additional ‘red tape’ means for the average employer and employee. Firstly, the employer will have to complete and submit a Reconciliation Declaration (EMP501). On this form the employer will have to reconcile the amounts of tax withheld from employees (PAYE, UIF and Skills Development Levy) with the amount they have paid over to the Receiver. Employers will also have to reconcile these numbers with the actual numbers appearing on the printed IRP5 forms.

Computer software has been made available to assist with the new requirements. Employers can collect a copy from any SARS office, or download the software at http://www.sarsefiling.co.za/. SARS has given employers 60 days to comply with this requirement. The EMP501 will have to reach SARS no later than 29 August 2008.

For employees it will be business as usual – unless you’re expecting a pre-populated form from SARS. Such a form will only be generated after the EMP501 has been received from your employer. This effectively means that some categories of individual taxpayers are at the mercy of their employers when it comes to submitting their tax forms.

SARS is watching you

We welcome most of these new initiatives. Because one of the major conditions for a successful taxation system is that it must be seen to be fair. There’s nothing worse than religiously completing your tax returns and paying your dues only to hear a friend or neighbour boast about his ability to ‘escape’ the Receiver’s clutches. You can be sure this person will soon wipe the smug smile from their face. Because SARS is getting smarter and is working with many institutions to see that every citizen pays their dues.

In the past SARS would rely on the employer’s legal obligation to supply salary details and the taxpayer’s honesty to supply details of any additional earnings. Of course SARS could talk to other institutions to follow up on a particular taxpayer; but the process was time consuming. Nowadays things have changed. According to Mark King, general manager of operations at SARS, technological innovations have made it possible for SARS to access a range of personal financial information. “This includes interest received from banks and contributions made to retirement annuities,’ he said. “We are moving towards a system where all third party data will be available to us and can be compared to information provided by both employees and employers.”

The truth is there’s nowhere to hide – and it has been like this for a number of years. The only thing standing between SARS and full tax compliance is resources. They simply don’t have enough human resource to knock on every taxpayer’s door and perform a full audit... But as the systems improve you can be sure they will conduct more audits – and on the right people!

Editor’s thoughts:
When the SARS e-filing system was first unveiled users had many problems with it. As time passes it seems the system is improving. One of the biggest problems we’ve had with SARS in recent times is the number of forms being returned as incomplete – when a basic assessment of the return would find no fault. Does the latest EMP501 requirement cause you any hardship – or is it just a simple extension to your existing tax compliance processes? Add your comments below, or send them to gareth@fanews.co.za