What should we really take away from the budget speech?

Common sense drove most South African to believe that there will be at least a VAT increase, because, somewhere, somehow the State’s coffers need to be filled, and the only way to do so, or so we thought, was to increase taxes.  When Minister Mboweni announced that there will be no real tax increases, we all looked as surprised as the All Black rugby supporters during last year’s Rugby World Cup.  How can a government, who desperately need to increase its revenue propose some real income tax relief?

The South African Revenue Service, (SARS), are very confident that any tax shortfalls will be collected from illicit and criminal activities. What does this mean for average Joe Six-Pack or Jan Papsak?  They are not criminals and surely the proposal of Minister Mboweni echoes the sentiment shared over many “braaivleis”-fires.  Collect the money from the tax dodgers…  You know, the guy who owns a Ferrari on an R5,000 a month salary…

Well, even though there will be a real focus from Treasury and SARS to collect money from illicit and illegal economic activities, Joe and Jan could find themselves in the same boat as Mr. Flashy Car.  On 1 February 2020, SARS commissioner Edward Kieswetter announced that through the power of technology, and with the assistance of capable employees, SARS will analyze an enormous data pool to pinpoint and pursue non-compliant taxpayers.

Again, the question may be asked, what does this mean for me and you?  Yes, you can be a non-compliant taxpayer and you do not even know it.  Three of the most common misconceptions that will lead to non-compliance will be discussed below.  The three most common non-compliance mistakes made are:

• People who should submit a tax return, do not;
• People who should pay provisional tax do not pay provisional tax; and
• Income earned on the side is not declared.

Who should submit a tax return?

During the 2019 year of assessment, SARS provided taxpayers with a very useful link to determine whether or not they should submit a tax return.  This link can be viewed on https://www.sars.gov.za/TaxTypes/PIT/Pages/Do-you-need-to-submit-a-return.aspx.

There are so many factors to consider that I urge people to either view the link, contact SARS or contact a tax practitioner to determine whether or not you should submit a tax return.  To say that you earn less than R500 000 a year, and therefore should not submit a tax return is incorrect.  Non-compliance penalties in terms s210 and s211 of the Tax Administration Act No 28 of 2011, (TAA), will be levied by SARS.  These penalties will start at R250 per month from the date of non-compliance. If your taxable income was more than R500000, the monthly penalty will be R1000.  Additional penalties in terms of s213 of the TAA could also be levied if SARS is satisfied that an amount of tax was not paid as and when required by a tax Act, in addition to any other penalty or interest for which a person may be liable.

Who should pay provisional tax?

Provisional tax may be the source of your uncle in the accounting business’s heart attack, and maybe provisional tax is the source of your bosses’ foul mood, but provisional tax may also be the source for an underestimated penalty on your next tax return.  In terms of the par 1 of the Fourth Schedule to the Income Tax Act No 58 of 1962, (Fourth Schedule), a provisional taxpayer is:

• Any person who receives remuneration from an employer who is not registered to withhold employees tax;
• Any person who receives an amount which does not constitute remuneration or an allowance;
• A company; and
• Any person notified by SARS that they are a provisional taxpayer.

Certain entities are excluded from being a provisional taxpayer, like a Public Benefit Organisation and similar institutions.  However, it is important to know that interest received, as well as rental income do not constitute remuneration and people who receive such income should pay provisional tax.  It is only when the interest income or rental income is less than R30,000 a year that you can consider yourself to be a non-provisional taxpayer, unless, SARS informed you that you are a provisional taxpayer.  This means that there could be a very strong possibility that you are a provisional taxpayer, and you do not even know it.

Paragraph 20 of the Fourth Schedule determines that SARS can levy an underestimation penalty under certain circumstances.  You will never consider the money you paid on such penalties to be money well spend…

Income earned on the side

If you are reading this, you are probably thinking about your Airbnb-house or your trailer-renting business, or maybe just the honorarium you receive from the go-kart club.  What about that income?  Most months those income are your only spendable income, and you really, really, really, do not want to pay tax on this.  Especially your honorarium, because the R2,000 you receive each year isn’t enough to compensate you for having to deal with oom Piet.

Unfortunately, SARS are expanding their capabilities to pick up anomalies like this.  To put this in a more practical example one can consider a person on a business trip staying in your Airbnb house.  He is going to deduct that expense for his tax purposes.  There is a good possibility that he will be selected for an audit, and SARS could request him to provide them with the proof of his expenses.  He will then upload the invoice/proof of his stay in your Airbnb.  If there is no rental income on your tax return, then SARS will know that you are not declaring any rental income.  The same goes for the trailer renting business.  I know you use that money to pay for your kid’s cricket gear, and maybe a Spur meal or two.  But for the guy who rented the trailer from you, it is an expense, deductible for tax purposes if he used the trailer to generate trade income.  This undeclared income will be taxed in your name, and you will not have the opportunity to deduct any expenses against such income.

This article is not meant to scare you or nudge you even closer to emigrate to Australia. An effective SARS will benefit all citizens and should not be discouraged.  However, you should take the opportunity and get your tax affairs in order while you still have some element of control.  The TAA allows under certain circumstances for a taxpayer to make use of the Voluntary Disclosure Programme where some relief in terms of the penalties could be granted. 

If you are uncertain whether or not you should submit a tax return, pay provisional tax, or how to handle your current or previously undeclared income, we advise that taxpayers should seek the advice of a qualified tax professional immediately with matters of this nature. In this regard, Forvis Mazars Port Elizabeth has several dispute specialists that can deal with these matters timeously and decisively. Please email any queries you may have in this regard to PLZ.TaxConsulting@mazars.co.za.

Author: Franscios Celliers, Consultant, Forvis Mazars in Gqeberha