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Foreign tax legislation brings shift in SA payroll management

14 September 2015   (0 Comments)
Posted by: Author: Amanda Visser
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Author: Amanda Visser (BDlive)

The introduction of foreign legislation such as the US Foreign Account Tax Compliance Act (FATCA) will bring about a fundamental shift in the way South African employers manage their payrolls.

South Africa has become a signatory to the inter-governmental agreement with the US that requires financial institutions to provide financial information on US citizens in South Africa.

Beatrie Gouws, associate director at KPMG, says FATCA was followed by the Common Reporting Standards issued by the Organisation of Economic Co-operation and Development, which has been called FATCA ‘on steroids’.

The G20 finance minister endorsed the Common Reporting Standards for the automatic exchange of tax information in February last year with the first exchanges scheduled for 2017.

"It means all the information of foreigners that is in the banking system or financial system will be provided to the South African Revenue Service (SARS) who will share it with other revenue services," Ms Gouws said at the annual Tax Indaba in Sandton recently.

"The introduction of these two elements is going to explode our world, because things are no longer within the employer and within the payroll where nobody else knows about it. There will be intense scrutiny on what you do and how you do it," she said.

Another issue that has been causing employers nightmares is the statement of account. Ms Gouws says SARS is permitted to take money from a taxpayers account if the taxpayer is in arrears.

Piet Nel, head of the School of Applied Tax at the SA Institute of Tax Professionals, says a statement of account records all the monthly payments of employee taxes such as pay-as-you earn, skills development levy and unemployment insurance.

The account is supposed to be nil, but differences arise because of the late capturing or recognising of payments by SARS, automatically levying a penalty of 10%.

Mr Nel says if there is a balance outstanding and the employer does not have a suspension of debt request or an instalment agreement, SARS is entitled to take the outstanding amount from the employer’s bank account. This does not happen often but SARS is entitled to do that, he says.

Ms Gouws tells of an instance where an employer was under the impression that his affairs with SARS was in order, and did not request a statement of account regularly.

However, there were some issues with the account of which the employer was unaware. SARS took what it believed was owned from the business account.

The owner could not pay his employees and the factory was subsequently burnt down.

"The ramification of not getting it right is real. You need to check if every single link in the chain is closed," Ms Gouws warns.

Personal income tax is government’s biggest revenue source and amounts to 35% of the total taxes collected. According to Ms Gouws, 90% of this is collected through the employees’ tax system.

Employers need to realise that they are not simply a conduit for employees’ taxes. There are big tax management risks, she says.

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Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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