Tax Reference Numbers Compulsory for Everybody

Everyone now has to have a tax reference number with no exceptions, even part time students that don’t have a full time job, making it a nightmare for casual staff to get paid and presenting companies employing large numbers of casual staff with an administration nightmare.

This is according to tax expert and Chairman of payroll software company NuQ, Ron Warren, who says that even students working for a pittance during their holidays will be required to have a tax reference number, as will casual labourers taken from the street.

The tax reference number has been made a mandatory field on the tax certificate returns made by employers, therefore employers have to obtain tax numbers from all employees, casual as well as permanent staff.

“Employees of large numbers of temporary workers are facing an administration nightmare and possible penalties should they not comply,” says Warren.

He cites the example of the census due to take place later this year which will pose a huge problem for statistics officials. “I have heard that they will be taking on 156 000 census takers for this task,” he says. “If they have to insist on applicants having a tax registration number the census will probably not be able to take place.”

Section 67 of the Income Tax Act states that everyone who at any time becomes liable for any normal tax or who becomes liable to submit any return contemplated by section 66 must, within 60 days after so becoming a taxpayer, apply to the Commissioner to be registered as a taxpayer.

It goes on to say this requirement does not apply to persons whose income is derived solely from remuneration which is subject to SITE only. In simple language, such remuneration consists of salary or wages received during a tax year which do not exceed R60 000 for that year. If only part of a year has been worked, the annual equivalent of the remuneration must not exceed R60 000.

“For example, if an employee worked for 6 months of a tax year for one employer and earned R35 000 from that employer, and earned no other remuneration during that tax year, he or she would not be earning remuneration subject to SITE only,” explains Warren. The annual equivalent of R35 000 is R70 000, which is more than the SITE earnings limit of R60 000.

He says that it is this section of the Act which gave rise to the correct understanding that persons who were SITE only taxpayers were not required to register with SARS as a taxpayer.

“When this was enacted (in the previous century) SARS was understaffed and not computerised, and could not deal with the volume of tax returns that were being made and this legislation removed a few millions of low paid employees from the tax system.”

Starting with the 2010 tax year, emphasis was placed by SARS on every employee having a tax reference number, and the tax reference number was made a mandatory field on the tax certificate returns made by employers. However, Warren says that instead of changing the Income Tax Act to state unequivocally that tax reference numbers were now compulsory for all employees, they left the Act as it was (explained at the beginning of this article).

Not surprisingly, the general public refused to believe that all employees (regardless of their earnings) were now required to have tax reference numbers. Warren says that this belief was reinforced by those low paid persons who attempted to register for tax with their local SARS offices, where they were bluntly told that they were not required to register because their earnings were below the SITE limit.

The officials at SARS who specified in their official instructions to employers that the tax certificate number was mandatory on their annual return fudged the issue by quoting section 14 of the Fourth Schedule. This provides that every employer shall “render to the Commissioner such return as the Commissioner may prescribe”. In other words, if the Commissioner prescribes that tax reference numbers are mandatory on tax certificates for every employee, that overrides the provisions of the section 67 quoted at the start of this article!

In effect, their interpretation of the law was that the Commissioner can disregard the provisions of the Income Tax Act. “That interpretation may be correct, although I have my doubts on that, but it is a poor reflection on SARS that they allowed such a situation to develop,” says Warren. “Surely they could just have changed the Act by deleting section 67(2), which exempted SITE only taxpayers from registering with SARS? To this day, two years after SARS made the tax reference number compulsory on tax certificates, this is in contradiction to section 67(2) of the Income Tax Act.”

Steps taken by SARS to resolve the problem
Warren says that although the tax reference number was made mandatory on the tax certificates submitted by employers, SARS accepted tax certificates with missing tax reference numbers for the 2009 and 2010 tax years. “They probably did this because they realised that it would be physically impossible for SARS staff to manually issue the thousands of tax reference numbers that were missing.”

For the 2011 tax year, an interim tax certificate return was required for the first 6 months of the tax year (March to August). SARS promised that they would electronically issue tax reference numbers for all missing numbers on the six monthly return, in time for the final return to be made after the end of the tax year in February 2011. Warren says that they appear to have kept this promise, issuing a file at the end of March 2011 containing new numbers to each employer who had some missing tax reference numbers.

However, Warren explains that there were still some missing numbers, because some employees without a tax reference number could not be satisfactorily identified from the information provided by their employer. In such cases, the employee would have to go personally to a SARS office to try and get registered. Alternatively, the employer could try to register the employee through the e@syFile program via a new facility made available on that program.

So what now?
Warren says that SARS have very sensibly decided not to enforce the mandatory requirement for tax registration numbers on tax certificates again this year. “However, if a tax registration number is missing, a warning will be given by the e@syFile program that a penalty may be raised in respect of such missing numbers,” he adds. “The employer then has the option to abort the tax certificate run and get the missing numbers, or continue with the run and face the possibility of penalties being raised. No indication has been given of the size of the penalty that will be raised!”