South Africa’s business owners and the South African Revenue Services (Sars) — not mutual admirers at the best of times — have just come through a rough patch with each other.
Friday (August 29) marked the Sars deadline for the submission of businesses’ employees tax.
Rob Cooper, chairperson of the Payroll Authors’ Group industry association, calls it “the first radical change that Sars has made in 10 years to the administration of PAYE [pay as you earn]”.
He believes it is an “extremely positive” change, but traumatic for employers as they grapple with new forms, software and procedures.
For months Sars has been trying to educate and cajole the 380 000 employers registered on its books to comply with the new system.
“If we want this thing to have critical mass, you need probably in the order of about 70 000 to 80 000 [employers] who employ the bulk of the people to comply,” Sars chief executive Edward Kieswetter said a few days before the deadline.
Employers will know in the next few days whether Sars will extend the deadline or penalise them with a promised low tolerance for late submissions.
Over the past few months business owners’ discomfort was exacerbated by the fact that Sars rolled three different changes into one.
Firstly, they seem to have hardened their attitude towards employer paperwork. “We’re going to be tougher and more assertive in terms of penalties for late submissions. We’ll do now what the law has empowered us to do,” said Kieswetter.
Secondly, employers now have to submit their final declaration of all the employees tax (on the new EMP501 form) at the same time as they submit each individual worker’s proof of income earned and tax paid (IRP5).
In the past, they used to issue IRP5s soon after the end of the financial year to their employees, who needed to sort out their personal taxes. But when it came to reconciling the year’s tax on the EMP501 form, “they would delay it and do it next week, and next week became next month, and next month became next year”, said Cooper.
Last year 450 000 personal tax payers handed in their IRP5s before their employers had submitted their EMP501s, said Kieswetter.
In many of these cases Sars had to refund taxpayers claiming overpayment without knowing whether they had received the tax from the employer in the first place.
Thirdly, Sars has issued a computer programme called Easyfile to help employers automate many of the steps they have to go through to compile both their EMP501 and well as their employees’ IRP5s, but the programme cunningly forces its operator to first complete the EMP 501 before it can even preview an IRP5, let alone print it out.
Easyfile is compatible with all South African payroll systems and can import information automatically from a business’s payroll. This significantly speeds up completion of the EMP501. This is designed to ensure that all the taxes deducted from salaries throughout the year balance with those paid over to Sars. It allows for manual adjustments for any payments made outside a business’s payroll.
Only once all the figures balance will Easyfile automatically produce the employees’ IRP5s, copies of which can then be submitted online together with the EMP501.
Sars will still accept forms completed manually, but will not process an IRP5 without the employers’ EMP501.
A major advantage of the new system is that Sars can use the information from employers’ EMP501s to “pre-populate” the tax returns of employees, eliminating the many errors that occur when ordinary people fill in their own tax returns.
“Last year 600 000 people made mistakes on their forms. Now that is 600 000 people that we have to go back to and say ‘you know what, you’ve made a mistake, come in and fix it, send us another form’. It’s a hassle. Whereas those people who didn’t make any mistakes and whose employers behaved themselves, they got their returns literally within two days. If they had a refund due, they would get their refund,” said Kieswetter.
“The pre-populated form is a huge service offering to taxpayers, but in order for us to do that, you need to have a complying employer.”
If an employee cannot get his tax affairs sorted out because the boss has not completed his paperwork, the pressure applied is personal and immediate, rather than a vague future administrative penalty.
Kieswetter said an individual taxpayer will still be able to square up with the taxman and claim a refund, even if his employer has not done his paperwork, but it will entail red tape, delays and scrutiny of payslips and other proof of income.
“If I was an employee [and] I’m expecting a [tax] refund, I’d put my employer under quite a lot of pressure. So we’re hoping that internal pressure will improve compliance,” said Kieswetter.
Tougher for the small fry
Based on the range of opinions on the taxman’s new employees tax paperwork system, it seems the lower down the foodchain, the more negative the sentiment.
More or less at the top end is Rob Cooper, chair of the industry association Payroll Authors Group, who calls the new system “a breath of fresh air” and “really the best thing that’s happened in 10 years” since the last major change when Sars allowed payroll systems to produce IRP5 certificates in electronic form.
Cooper believes most of the technical problems business owners experience is from using old hardware and computer systems.
Around the middle of the pecking order is Ben Engelbrecht, who provides accounting and tax services in Fish Hoek to about 350 businesses. “It’s a good thing and it’s a bad thing,” says Engelbrecht.
“Our concern with the whole system is they’re trying to implement this in the space of two months. It is brand new. Although it is very nice and it will work eventually, the implementation is just too jittery. It’s too much, too quickly. It should have been phased in over a longer period.”
Nawaal Cyster, an assistant accountant who helps with the tax administration of about 300 companies in a Cape Town- based accounting practice, is less flattering about Sars support staff: “I think they’re a bunch of stupid idiots. I would like actually to, you know, meet one of the top people there at Sars, who should come and give seminars to the people, and not send the fly-by-nights who don’t even know what the heck is going on.”
On the other hand, Cyster says the new system brings a major relief by allowing her to issue electronic IRP5s for the first time. Her company does not subscribe to payroll software, but works with spreadsheets. This meant that, in the past, she had to write out hundreds of IRP5 certificates by hand. Overall, the new system “is a good thing. I think their staff should be a bit more jacked up with the system because I think that most of them don’t even know it.
“And that was not the ordinary call centre that I phoned. I phoned the [tax] practitioner number.”