Employees’ Tax
1722. Proposed amendments to the administration requirements
April 2009 – Issue 116

The 2009 Budget was fairly uncontroversial in many respects. There were, however, certain significant proposed amendments mentioned that will impact on both employers and employees.

An important proposal that featured in the Budget was the rewrite of the Income Tax Act No. 58 of 1962 (the Act). This rewrite has been considered by the Government in the past, but has never been implemented due to a number of factors. It now appears as if the rewrite will commence this year, beginning with those provisions of the Act dealing with the taxation of employment income. The Treasury has indicated that the amendments to the Act in respect of employment income is part of the Government's plan to reform retirement planning and to enhance the social security safety net, as well as to simplify the tax administration process.

Although the discussion document and draft legislation dealing with the rewrite of the Act will only be released for comment by the end of 2010, the Budget did mention specific amendments to the taxation of employment income that will be made during 2009. These amendments focus mainly on the administrative provisions contained in the Act. One of the most important proposed amendments that employers need to take note of is the imposition of interest should the employer fail to pay PAYE to SARS timeously.

In terms of Paragraph 2(1) of the Fourth Schedule, an employer is required to pay the tax deducted or withheld from employees (i.e. PAYE) within seven days after the end of the month during which the tax was deducted or withheld. Should an employer fail to pay this PAYE to SARS, it will be absolutely liable for the due payment. In terms of paragraph 5(5) of the Fourth Schedule, the amount due to SARS by the employer is deemed to be a penalty due and payable by the employer. The classification of the outstanding amount as a penalty technically prevents SARS from charging interest on the outstanding PAYE due by the employer. It is therefore proposed that interest charges will be imposed on the outstanding PAYE.

This will result in large cost implications for employers who fail to pay PAYE to SARS timeously, especially if another proposed amendment raised in the Budget is implemented, namely the imposition of compound interest instead of simple interest on amounts of tax outstanding.

Further amendments proposed in the Budget include changes to the provisions in the Act dealing with an employer's obligation to submit reconciliations.

In terms of paragraph 14(3) of the Fourth Schedule, an employer is obliged to provide a reconciliation statement reflecting the details of the total amount of employees' tax deducted or withheld by the employer, as well as the details of the IRP 5 certificates issued to the employees during the tax year. The purpose behind the reconciliation is to reconcile the amount of employee's tax declared and paid over to SARS with the tax reflected on the IRP 5 certificates issued for that tax year, and to account for all issued, cancelled, lost and destroyed IRP 5 certificates. A penalty is payable by the employer for failure to submit a reconciliation.

It is proposed that employer reconciliations of employees' tax will be required more frequently than once a year, and that the reconciliations should include skills development levies and UIF contributions. This will result in placing a heavier administrative burden on employers.

Additional proposed administrative changes include:

· the reinstatement of an employer's obligation to obtain and maintain certain employee data and to report this data as required;

· permitting SARS to provide employees' tax reference numbers and certain other non-financial data to their employers;

· requiring third-party data providers to include taxpayer reference numbers with information they provide;

· the alignment of estimated assessment, interest and additional tax provisions across personal income tax, the skills development levy and UIF contributions;

· the introduction of a single taxpayer registration process across multiple taxes;

· automatic registration of employees with SARS; and

· the use of a single interest rate on underpayments and overpayments.

The amendments proposed in the Budget will have the effect of placing a greater liability, as well as more onerous administrative requirements, on employers. It is therefore advisable that employers review their current PAYE collection and submission systems to ensure that they are prepared for the new administrative amendments.

The more onerous administrative requirements to be imposed on employers is all the more significant in light of the new penalty provisions set out in the section 75B Regulations contained in Government Notice No 1404 (Government Gazette, 31 December 2008), which came into effect on 1 January 2009. The new penalty provisions provide a standardised framework for the imposition of penalties for non-compliance by taxpayers. Examples of such non-compliance that fall within this framework include the failure by an employer to submit a monthly declaration of employees' tax, and the failure by an employer to deliver an employees' tax certificate to one or more employees as and when required by the Act.

Should an employer not comply with an obligation imposed on it by the Act, that employer will be subject to a fixed penalty amount. The fixed penalty amount is based on the assessed loss or taxable income of the employer for the preceding year. This penalty amount increases in equal increments for each month that the employer continues to fail to rectify its non-compliance. Therefore, employers will need to ensure that they comply with the more onerous administrative requirements should they be imposed, so as to avoid the costly consequences of non-compliance.

Edward Nathan Sonnenbergs

IT Act:4th Schedule para 2(1), 5(5) and 14(3)

IT Act:S 75B

IT Act:Regulations contained in Government Notice 1404

This article to be read in conjunction with Item 1721 in order to qualify for 30 minutes of CPD.