What is provisional tax? How and when do I pay it?

Provisional tax is paid twice a year manually by individuals who earn non-salary income

What is provisional tax?

Provisional tax is paid by people who earn income other than a salary / traditional remuneration paid by an employer.
If you earn non-salary income, for example rental income from a property, interest income from investments or other income from a trade or small business you run, you will be a provisional taxpayer, even if you ALSO earn a salary. Some exceptions and thresholds do apply though.
If you just earn a salary then you are a regular taxpayer and don’t have to worry about filing provisional tax returns!

When do I have to pay it?

One payment by end of August (mid tax season)
A second payment by end of February (end of tax season)
*Optional* third payment at end of September (seven months after tax season closes) ONLY if amount paid in previous payments was insufficient.

Provisional payments due for the 2019 tax year:

Provisional tax payment deadlines

Regular taxpayers make their tax contributions to SARS monthly via PAYE deducted off their paycheck automatically and submit one tax return every year for the end of February to describe their affairs – an ITR12.
Since provisional taxpayers earn money from other sources, they have to complete an IRP6 return AND make manual payments to SARS.
SARS wants provisional taxpayers to have an even cash flow and avoid paying one large (potentially crippling) chunk of tax in February, so they ask that two (or optionally three) payments are made during the tax year at the end of August and end of February, with an IRP6 required for each one.
The tax paid from the first and second payments is then credited against any tax owing at the end of tax season, and can be refunded by SARS if too much was paid.
Provisional taxpayers also need to submit an ITR12 tax return (just like regular taxpayers), except the due date for this is 31 January the following year (11 months after the tax season closed).

How do I register as a provisional taxpayer?

You can either apply as a provisional taxpayer when you first register for a tax number with SARS, or make the change on your SARS eFiling profile. Alternatively you can visit your nearest SARS branch in person or call the call centre on 0800 00 7277 (0800 00 SARS).

How do I complete the IRP6 form on SARS eFiling?

If you do not make use of SARS eFiling to file your returns, you can visit your nearest SARS office and complete the return there, with assistance from the staff. The quickest way to file is via eFiling and these instructions are below:

STEP 1: Login to your eFiling profile
Go to www.sarsefiling.co.za.
On the top right-hand corner you will see Register and Log in.

SARS eFiling login screen

Click Log in and then type in your unique username and password – you will have decided on these when you registered for eFiling.
Didn’t register yet to E File? Register your profile quickly at www.sarsefiling.co.za using your tax number.
If you used to use a tax practitioner and they did this for you, you must request your SARS eFiling login details from them – they belong to you!
Otherwise call SARS ZA on 0800 00 7277 (0800 00 SARS), provide your ID number and some other security details and they will restore access to your eFiling.

SARS eFiling login screen

Then click Login.

STEP 2: Generate the IRP6 return
Make sure that your name appears at the top under Taxpayer List just in case you have logged onto someone else’s SARS eFile page!
If the title of the page is not INCOME TAX WORK PAGE then click the RETURNS button in the menu at the top of the page.
In the menu on the left Returns Issued will open, showing Personal Income Tax (ITR12) and Provisional Tax (IRP6) – click Provisional Tax (IRP6).

SARS eFiling Returns Issued menu

The page title will now be PROVISIONAL TAX WORK PAGE and should show the IRP6 returns you are busy with.
If you have already created your IRP6 provisional tax return for the relevant year (it should be listed), jump to STEP 3 below.

Generate a new IRP6 return

Otherwise, select the year and relevant period (01 is the payment due at end of August and 02 is the second payment due end of February) from the drop down selector box on the right hand side of the page and click Request Return.
This tells SARS you would like to complete a return for that period and they generate it for you.
Important: You are filing a return for the tax year you are currently in, the one that ends in the coming month of February.
For example, if filing for period 01 in August of 2018, you will select 2019-01 (the 2019 tax year).

STEP 3: Start work on your IRP6 return
Click on the relevant IRP6 and then complete the form with the help of the explanations below.

Select the IRP6 to work on

When you are finished, click the File button to submit.
To make payment to SARS, click the Make Payment button and follow the instructions.

Understanding each section of the IRP6 on eFiling

Particulars of Taxpayer – will already be completed. Check to ensure that these are still correct.
Period – ensure that the correct period is checked – first period / 01 is 31 August 2018 for the 2019 tax year.
Turnover – GROSS INCOME: total business income, royalties, dividends, interest and all other income, including employment income. Exclude all retirement lump sums.
Important: In August, this is your ESTIMATED full amount that you expect to have made for the whole tax year at year end – not the amount you have earned to date over 6 months. In February this amount can be corrected based on your actual recorded income.
Estimated taxable income – all your income minus the business-related expenses incurred in earning that income. Also subtract any pension fund, retirement annuity fund contributions, donation deductions and any exempt income.
Tax on estimated taxable income – this amount will automatically calculate.
Less: Rebates (for individuals only) – depending on your age this amount will already appear on the return.
Less: Medical scheme fees (for individuals only) – this is a credit that goes toward providing relief if you or your employer pay for a private medical scheme. For the 2019 tax year this amounts to R310 per month for the first two members and R209 per month for every member thereafter. For the 2018 tax year this amounts to R303 per month for the first two members and R204 per month for every member thereafter. See our medical aid credits calculator.
Less: Additional medical expenses (for individuals only) – if your medical aid costs exceed 4x the above medical credit (3x if you are over 65) then a portion of your costs PLUS Out of Pocket Medical expenses can be claimed here as a credit.
Tax for the full year – will automatically calculate based on the tax tables.
Tax for this period (6 months) – this amount will automatically calculate and then divide by 2.
Less: Employees tax for this period (6 months) – add up all the employees tax your business paid from all the pay slips. Only add the PAYE. Do not include PAYE on Lump Sums, UIF or SDL.
Less: Foreign tax credits for this period (6 months) – if you earned money from overseas and any tax was withheld or paid, include that amount here.
Tax payable for this period – this amount will automatically calculate.
Add: Penalty on late payment – this amount will automatically calculate.
Add: Interest on late payment – this amount will automatically calculate.
Total Amount Payable – this amount will automatically calculate.

Historical information – this will already be completed based on your previous year’s income.

Tax Ombud intervention secures R450m SARS refunds

Interventions by the Office of the Tax Ombud (OTO) in the 2017/18 financial year saw about R450 million in tax refunds paid to the first top ten taxpayers, the OTO said on Tuesday.

 

For the financial year, the OTO said, the SA Revenue Services (Sars) had implemented over 99% of recommendations made by the Tax Ombud, Judge Bernard Ngoepe.

 

The OTO made the revelations as it presented its 2017/18 Annual Report at The Protea Fire & Ice Hotel, in Pretoria.

 

Judge Ngoepe told the more than 100 delegates in attendance at the event that complaints were for Value Added Tax (VAT) and Corporate Income Tax (CIT). The highest refund paid was R158 million in VAT. This was followed by R90 million, also in VAT.

 

He added that the organisation has experienced a significance increase in the number of contacts from 670 in the 2013/14 financial year, to over 17 000 in the 2017/18 financial year.

 

“We are pleased with how we have been able to help promote fairness in the country’s tax administration system and we look forward to working with other stakeholders not to just promote and protect the rights of taxpayers but also promote tax compliance,” Ngoepe said.

 

“This office has helped resolve thousands of taxpayers’ complaints against the revenue collector in the past five years but there is still much that needs to be done. “We have already brought about positive changes in the Tax Administration Act which have given us powers to investigate systemic issues and more independence from SARS, amongst others.”

 

The OTO said it would continue to travel across the country informing taxpayers about its services.

 

“We are also working closely with our government through the Government Technical Advisory Centre (GTAC), which is assisting in developing a business case for a cost-effective and independent organisational model,” the Judge said.

 

The launch of the report coincided with the OTO’s fifth anniversary since establishment.

 

Judge Ngoepe said the OTO was committed to helping ensure balance between Sars’ powers and duties, on the one hand, and taxpayer rights and obligations on the other. – SAnews.gov.za

Who’s (Legally) Allowed to File a Tax Return?

Tax isn’t the easiest of subjects to navigate. Besides the long list of legalese to master, there’s the fact that tax legislation evolves year on year. What was applicable on your tax return 2 or 3 years ago, isn’t necessarily valid on your next, and what’s right this year, may change next season.

It’s unsurprising then, that when faced with the daunting task of filing their annual tax return, many people turn to a friend, colleague or trusted broker to help them out, in the hope that they’re more proficient. And while it may be safe to do so for advice on, say, an alternative medical aid option or a good restaurant for a good dinner, when it comes to tax, this can have serious legal consequences (for both parties) if things go wrong.

In July 2013 SARS took a firm stance on who was legally allowed to file tax returns on behalf of others and introduced stricter requirements for tax practitioner registration. Effectively this means that if anyone other than a Registered Tax Practitioner is filing your tax return on your behalf, the act is deemed illegal.

Requirements to be a Registered Tax Practitioner

Practitioners need to first be registered with a SARS approved controlling body before applying for a SARS practitioner number.

The controlling bodies confirm that the practitioner has the necessary skills and qualifications to file other people’s taxes correctly. They also ensure the practitioner participates in continuous professional development programmes in order to keep up to date with tax legislation.

SARS approved controlling bodies include:

  • A Law Society
  • Chartered Institute of Management Accountants (CIMA)
  • Chartered Secretaries Southern Africa (CSSA)
  • General Council of the Bar of South Africa
  • Independent Regulatory Board for Auditors (IRBA)
  • Institute of Accounting and Commerce (IAC)
  • SA Institute of Chartered Accountants (SAICA)
  • SA Institute of Professional Accountants (SAIPA)
  • SA Institute of Tax Practitioners (SAIT)
  • The Association of Chartered Certified Accountants (ACCA)
  • Association of Accounting Technicians Southern Africa (AAT(SA))

If they’re registered correctly, they’ll have both a membership number with a controlling body and a SARS practitioner number. You can verify that your Tax Practitioner is registered with SARS here. All you need is their Tax Practitioner number (PR-XXXXXXX) and SARS will instantly confirm their registration status.

Why Use a Registered Tax Practitioner to File Your Tax Return?

  • It’s a legal requirement to do so!
  • A Registered Tax Practitioner should be properly qualified to complete your tax return and therefore claim all deductions applicable to you. Leaving out some expenses or claiming incorrectly, can cost you dearly in the long run.
  • A Registered Tax Practitioner’s behaviour will be governed by their controlling body’s code of ethics and conduct. There’ve been cases where “fly by night” practitioners guarantee you a refund (and may even base their fee on a percentage of your refund) but they achieve this by submitting fraudulent claims. Avoid these types of practitioners at all costs. If you’re suspicious of their actions, rather check their registration status with SARS.
    (Note: No-one, not even a Registered Tax Practitioner, should make guarantees that you will absolutely receive a refund. Refunds are only applicable if you’ve overpaid on tax, once all your available and permitted deductions have been calculated. Everyone’s tax situation is different and a refund can’t be 100% assured for each and every submission.)
  • SARS allows you to report unprofessional conduct of a Registered Tax Practitioner, which in turn will lodge a formal complaint with the relevant controlling body for investigation.
  • If you don’t use a Registered Tax Practitioner to submit your tax return – besides breaking the law – you’ll have no recourse whatsoever if that person behaves negligently or unethically!
  • If you have an issue with your tax assessment and you need to make contact with SARS, your Tax Practitioner can make the process far more efficient (and less painful!) by making an appointment directly with a SARS consultant on your behalf. If you don’t use a Registered Tax Practitioner, you’ll be on your own in the long queues at SARS when it comes to resolving your issue.

Article originally published in https://www.taxtim.com/

CHANGES TO INCOME TAX RETURNS FOR COMPANIES

SARS implemented several changes to the annual income tax returns for companies (the ITR14) on 26 February 2018 as part of SARS’ ongoing efforts to promote efficiency and compliance.

Two new schedules were added to the ITR14:

  • The first schedule relates to companies that wish to claim the learnership allowance in terms of section 12H of the Income Tax Act[1]:
    1. the details of its registered learnerships must now be provided in a separate schedule.
    2. In terms of this schedule, separate disclosures are required for learners with a disability and learners without a disability for both NQF levels 1 to 6 and NQF levels 7 to 10.
    3. The number of learners and the allowance amount for each of these fields must be completed in the schedule.
  • The second schedule relates to Controlled Foreign Companies (“CFCs”).
    1. A company that holds at least 10 percent of the participation rights in any CFC, must submit a return to SARS. The previous schedule has been replaced with a simplified Excel schedule, which enables companies to declare all CFC information in one consolidated schedule.
    2. From the 1st of June 2018, the schedule must accompany the submitted return. The schedule can be uploaded via e-Filing as a supporting document, regardless of the number of CFCs.

Further amendments for groups of companies:

  • Companies with subsidiaries are required to submit a complete group structure together with the ITR14.
  • Additional questions with regard to the Country-by-Country (“CbC”) reporting regulations have also been added. Companies that are subject to these regulations will have to specify the tax jurisdiction of the reporting entity for the multinational entity group as well as the name of the reporting entity.

An example of the new ITR14 template is available on the SARS website.  Companies should carefully consider these new requirements in order to ensure that the updatedITR14 is completed correctly and that all the required supporting documentation is submitted together with the ITR14.

Companies that have already created the new tax returns on e-Filing, not yet submitted, must refresh the return in order to request the revised ITR14.

 

Article posted on: http://pkf.co.za

CRYPTOCURRENCIES AND TAX

The advent of cryptocurrencies, and in particular the substantial gains that are associated with investments in cryptocurrencies, caught the attention and interest of the world – and not least of all, that of the taxman.  Because where money abounds, tax is normally to be collected.

SARS recently issued a statement explaining its views on the tax treatment of cryptocurrencies. In summary, SARS states that cryptocurrencies are not to be treated as currency for tax purposes, and that the normal tax principles should apply to cryptocurrencies as if they are intangible assets.

 

CURRENCY OR NOT CURRENCY? 

The reasons provided by SARS for the view above are that (a) cryptocurrencies are not official South African tender and (b) are also not widely used and accepted in South Africa as a medium of payment or exchange.

If SARS is suggesting that the two reasons afforded for not treating cryptocurrencies as currency are the criteria to determine whether something qualifies as “currency” for tax purposes, no currency other than the ZAR will qualify as currency.  Take for instance the US dollar – it is not official South African tender and is also not widely used and accepted in South Africa as a medium of payment or exchange.  Does that make it something other than currency?  Surely not.

The SARS view, and more specifically the basis for the SARS view, as to why cryptocurrencies are not tantamount to currency appears unscientific and potentially wrong.

 

THE IMPORTANCE OF THE CLASSIFICATION AS CURRENCY OR INTANGIBLE ASSET

Currency is not an asset for capital gains tax purposes, and as such, not susceptible to capital gains tax upon disposal.  Consequently, if cryptocurrency is currency, any capital gains upon disposal will escape the capital gains tax net.  In contrast, intangible assets are, in principle, subject to capital gains tax (or income tax).

Special tax rules apply to foreign currency gains and losses on “exchange items”.  Generally speaking, these gains are taxed or losses are deductible, on an annual basis (and even if they are unrealized), except in the hands of non-trading trusts and natural persons.  A unit of (foreign) currency is an “exchange item” and thus, potentially, subject to these rules.  If, however, cryptocurrencies are not currency, these rules will not apply.

 

CAPITAL OR REVENUE NATURE OF GAINS UPON DISPOSAL OF CRYPTOCURRENCIES

SARS indicated that the normal tax rules apply to categorise cryptocurrencies as trading stock or capital assets.

Given the SARS preference to classify cryptocurrencies as intangible assets, and thus similar to shares in a company, a plethora of tax legislation may ensue to solve disputes about whether a cryptocurrency investment was held on capital or revenue account.

It will be recalled that the abundance of tax litigation on the topic of the capital or revenue nature of shares was one of the reasons for introducing safe haven rules in terms of which profits and gains resulting from a disposal of shares are generally classified as capital if the shares were held for three years or longer.

Cryptocurrency investments generally do not produce returns.  In that respect they are different to equity investments which normally produce (or at least hold the promise of) dividend income.  In many of the tax cases relating to the capital or revenue classification of proceeds on disposal of shares, the taxpayer argued that the shares were held on capital account on the basis that they formed the capital structure which produced income in the form of dividends (based on the tree and fruit scenario).  A taxpayer who invested in cryptocurrency may, as a result of the absence of returns, find it hard to demonstrate that cryptocurrency was held as part of its capital structure.

Having said that, there are numerous other criteria to take into account when determining the capital or revenue nature of an asset.  The mere absence of returns should not be conclusive.

IN SHORT

The crypto-phenomenon’s tentacles reach into many aspects of settled commercial and legal practice. Tax is no exception. Although SARS is correct that cryptocurrencies do not require a separate tax regime, the existing tax framework may need to incorporate cryptocurrencies in a more specific manner in order to avoid confusion and potential unfairness.

Doelie Lessing, tax director at Werksmans Attorneys

Article originally published on: https://accountingweekly.com/

How to survive a SARS audit

The recent developments at the South African Revenue Service (SARS) promises to cause a shake-up for many unsuspecting taxpayers. They are short on budget and the general perception is that there has been a lapse in taxpayer morale. The SARS audit teams will undoubtedly start in earnest with the targeting of taxpayers to see how additional tax revenue, penalties and interest can be collected.

As a firm that includes specialist tax attorneys, we have a front row seat in seeing the mistakes made by taxpayers who do not engage with SARS correctly. The price is either an unnecessary and drawn out tax audit process, which puts your life on hold, even you are squeaky clean; or where you are caught, a very large tax bill.

Here are some of the most important aspects to consider:

Your unpaid taxes are not your main problem. If you are caught not paying income taxes on R100 000 earned 5 years ago and your tax rate was 40%. The tax hereon is obviously R40 000 (R100 000 x 40%).

However, SARS is obligated to impose the applicable understatement penalty percentage in accordance with the table in section 223 of the Tax Administration Act (TAA), No 28 of 2011, which could be as much as 200%.

Section 89(2) of the Income Tax Act (IT Act), No. 58 of 1962 computes interest thereon at the prescribed annual rate (currently 10.25%), which means where SARS raises an additional tax assessment, you should expect an initial tax bill of R140 500 (R40 000 tax + R80 000 understatement penalty + R20 500 interest for 5 years), which will continue to increase for the duration of the period of non-compliance.

Importantly, a taxpayer may also face other types of penalties or interest and this is confirmed by the wording of section 213(1) of the TAA, resulting in a possibly even greater tax bill, depending on the circumstances at hand. An example is a percentage based penalty of 10%.

The penalties imposed can sometimes be reduced or remitted in their entirety, depending on the facts. You will always do better negotiating this upfront, before the assessment is finalised and by correctly engaging with SARS. The Tax Court is the last place where you would want to argue the remission of penalties – there are many cases where the Tax Court has instead increased the penalty and the cases where the penalty is waived are rare.

Some if the must-know items to ensure you are protected:

• Where SARS starts the audit incorrectly, such as sending an incorrect notice, you can stop the process in its tracks by addressing this through the correct legal procedure.

SARS is obligated to keep you updated, under law, on the progress of an audit. Where they have started an audit a while ago and not kept you updated every 90 days, tax law gives the advantage to the taxpayer. We have used this, many times, to terminate an audit process.

Know your rights, there are checks and balances; which serve to also protect taxpayer rights. Should SARS wish to conduct an audit, verification or inspection, section 42 of the TAA places an onus on them to ensure that they keep the taxpayer informed of the status of the audit whilst it is being conducted, and upon conclusion thereof. This specifically requires of SARS to provide a taxpayer with a report which sets out the stage of completion of the audit.

Section 42 furthermore requires that SARS inform the taxpayer, within a period of 21 business days, of the outcome of the audit or criminal investigation; including a mere indication that same was inconclusive.

In the outcome of the audit, SARS is also required to state the grounds for the proposed assessment it intends issuing against the taxpayer. SARS must share their findings with you before raising an additional tax assessment. Section 42 of the TAA compels them to give you their findings within 21 business days of the audit or criminal investigation being concluded.

Luckily for the unsuspecting taxpayer, section 42 allows a taxpayer the opportunity to respond to SARS and to the facts and/or conclusions set out by SARS in the outcome of the audit. This is particularly useful where the findings are factually or legally incorrect and may even prevent an assessment being raised incorrectly.

Also, even after the tax assessment has been raised, the taxpayer has extensive rights during the processes of asking for “reasons” for the assessment (Rule 6 of the Rules promulgated under section 103 of the TAA), “objection” (Rule 7), as well as the “appeal” and “alternative dispute resolution” processes (Rule 10 and Part C of the Rules, respectively).

The best defence possible remains that you should come clean with your taxes before you are being audited. Once the audit has started, you are prevented from claiming the relief under section 227 of the TAA for coming clean. The key requirement is that you need to approach SARS correctly on your non-compliance and this always ensures not just a much better outcome under law, but also that you can sleep better.

 

Article originally published on: https://accountingweekly.com/how-to-survive-a-sars-audit/

No further extension on the VAT claw back relief

Background

Where a property developer constructed residential units for sale and these units are temporarily let out as a result of the adverse economic conditions the developer had to declare the output vat on a deemed supply of such units. This imposition of VAT on the deemed supply is based on the open market value of the property when the property was first let out. This resulted in unreasonably high negative cash flow consequences for property developers.

Relief offered by SARS

In 2012 the VAT Act was amended to include special relief in order to alleviate such unreasonable cash flow consequences, but this relief was only applicable for 36 months, commencing on or after 10 January 2012 and expiring on 1 January 2015. Further relief was then provided for a further 3 years to 1 January 2018.

Consequences for property developers

It should be noted that the 36 month rule is applicable to each unit. Therefore if a unit was let out from 1 January 2015 the vat claw back will apply on 1 January 2018. Property developers needs to consider ceasing the rental of these units to ensure that they do not fall foul of this provision. If any lease was entered into during the January 2015 period, and the unit is still being let out the developer will be liable to account for a deemed output VAT in his 2018/01 return (which if done monthly will be due at the end of February 2018).

Article written by Henico Schalekamp – Partner at PKF Octagon and published on http://pkf.co.za/

Income tax: This is what you’ll pay

No rate hikes, but no inflationary adjustment for top four income brackets.

National Treasury will raise almost R7 billion from the personal income tax system through lower-than-inflation increases to tax rebates and brackets, effectively collecting taxes by stealth.

However, it has acknowledged that further hikes in personal income tax rates could be counterproductive and has kept rates unchanged.

Against the background of the introduction of a VAT hike of one percentage point to 15% on April 1, many taxpayers will see their disposable income come under pressure in the coming tax year.

The bottom three personal income tax brackets (for lower- and middle-income earners) and the primary, secondary and tertiary rebates will be partially adjusted for inflation through a 3.1% increase, while the top four brackets will remain unchanged from March 1.

The table below sets out the changes.

Tax Tables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

South Africa’s personal income tax burden has slowly but surely increased from 8.3% of GDP in 2010/11 to 9.8% in 2017/18. In an effort to stabilise public finances and to enhance the progressive nature of the income tax system, government introduced a super tax bracket of 45% for individuals earning more than R1.5 million per annum in 2017. This was after personal income tax rates were increased by one percentage point in most cases in 2016.

“An additional personal income tax rate increase in 2018/19 would have greater negative consequences for growth and investment than a VAT increase. Moreover, significant shortfalls from this tax in 2017/18 suggest that further increases might not yield the revenue required to stabilise the public finances,” Treasury said in its budget review.

According to an analysis by PwC, the effect of the changes to the personal income tax rates will have the following effect at the various taxable income levels for taxpayers under 65:

Taxable Income2018/2019 Tax DueChange from 2017/2018% Change

 

R100,000R3,933-R432-9.9%
R200,000R22,265-R910-3.9%
R500,000R113,807-R2,017-1.7%
R1,000,000R312,973-R2,017-0.6%
R1,500,000R517,973-R2,017-0.4%
R2,000,000R742,973-R2,017-0.3%

The table below highlights the relatively small tax base and the skewed nature of income distribution in South Africa.

Estimates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Article originally posted on: https://www.moneyweb.co.za/

VAT increased to 15%

Government has proposed a one percentage point increase in the value-added tax (VAT) rate to 15%.

The increase was widely anticipated in tax circles as it is arguably the most effective way of raising significant amounts of additional revenue. National Treasury expects the hike, which will take effect on April 1 2018, to raise the lion’s share (R22.9 billion) of the R36 billion in additional taxes it hopes to collect in 2018/19 to stabilise the country’s fiscal situation.

“We have not adjusted VAT since 1993, and it is low compared to some of our peers. We therefore decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances,” finance minister Malusi Gigaba announced during his budget speech on Wednesday.

South Africa’s VAT system includes 19 basic foodstuffs – including samp, maize meal and rice – that are zero-rated. To limit the impact of the hike on poor individuals, this system will remain in place. Vulnerable households will also be compensated through an above average increase in social grants.

National Treasury said an additional personal income tax rate increase would have had greater negative consequences for growth and investment than a VAT hike.

“Moreover, significant shortfalls from this tax in 2017/18 suggest that further increases might not yield the revenue required to stabilise the public finances.”

Although the economic growth outlook has improved, growth remains elusive and GDP is only expected to expand by 1.5% in 2018, compared to Treasury’s earlier projection of 1.1%.

The VAT hike announcement will likely face significant push back from unions. Cosatu on Monday said it would not support any attempt by government to balance budget shortfalls and deficits upon the backs of struggling workers.

“Cosatu expects government not to throw the working and middle classes under the bus with VAT and income tax hikes… Workers are not the ones who have looted Eskom, SAA and the state.

“Government must remember workers are voters and they are tired.”

The union’s comments suggest that it may want to use the national election of 2019 as a bargaining chip to oppose a VAT hike.

Although Treasury did consider the introduction of a tiered VAT system, it said the VAT system was “not the best instrument for achieving redistributive goals”.

It said it was cognisant that personal income taxes have been raised in recent years and that it was not convinced that further hikes would result in substantial additional revenue.

“VAT is an efficient, certain source of revenue provided that its design is kept simple. Increasing the VAT rate by one percentage point is estimated to have the least detrimental effects on economic growth and employment over the medium term. The zero-rating of basic food items mitigates the effect of the increase on poor households.”

Treasury said the introduction of a tiered VAT system would require further enforcement, more resources at the South African Revenue Service (Sars) and could lead to legal uncertainty.

According to National Treasury, the wealthiest 30% of households contribute 85% of VAT revenue.

Lesley O’Connell, PwC VAT partner, says the VAT rate hike will result in additional costs for consumers as they will now have to pay an additional VAT on any purchases of goods or services from VAT vendors.

“This will have a major impact on households’ already tight budget. The implementation of the VAT increase for certain business will also be complex, and the implementation date of April 1 does not leave much time to allow businesses to effect the necessary system changes and enhancements.”

“This is the correct approach as we see further reliance on indirect taxes. This raises large amounts of revenue with relatively small increases in rates due to its broad base and economic efficiency. The effect that there is no amended list of zero rated foodstuffs is positive as it maintains the integrity and efficiency of the South African VAT system.”

 

Article originally published on: https://www.moneyweb.co.za/

Avoid Interest and Penalties! Submit your Provisional Tax Return by 28 February 2018!

A provisional taxpayer must, during every period submit an estimate of the total taxable income which will be derived in that year of assessment. Provisional tax payments must be made by natural persons on or before 28 February and 31 August each year. The South African Revenue Service (“SARS”) also allows for a third “voluntary top up” or “additional” provisional payment, which must be paid on or before 28 September.

avoid tax penalties

In the event that the taxpayer also receives income in the form of a salary, the PAYE deducted during the year of assessment will be taken into account when calculating the estimated amount.

Provisional taxpayers are also entitled to a foreign tax credit in respect of foreign taxes paid on income from a non-South African source.

It is important for taxpayers to ensure that they meet the abovementioned payment deadlines to avoid unnecessary tax liabilities in the form of interest and penalties. In this regard, we highlight below the consequences of the late or underpayment of provisional tax.

Late payment of provisional tax

  • interest at the prescribed rate on late payment;
  • a penalty of 10% will be levied on any late payment in respect of the first
  • and second periods; and/or
  • SARS will consider the estimate income to be nil if four months has lapsed since the due date of the second provisional tax payment.

Underpayment of provisional tax

  • A penalty up to a maximum of 20% of the underpayment may be levied by SARS;
  • If the taxable income is more than R1 million, a penalty will be levied if the second period estimate is less than 80% of the actual taxable income;
  • If the actual taxable income is equal or less than R1 million a penalty will be levied if the second period estimate is below the basic amount and not within 90% of the actual taxable income for the year.

Capital gains during the year

There is also a duty on a provisional taxpayer to include in its estimated taxable income capital gains that arose or will arise during the year of assessment.

The due date for the second provisional tax payment, being 28 February 2018 is around the corner. All provisional taxpayers are urged to submit their tax returns correctly and on time.

 

Article originally posted on: http://www.pkf.co.za/