Could the taxman’s efforts to reduce its administrative burden by raising the filing threshold have the side effect of improving its revenues? The South African Revenue Service (Sars) says no, and that it is about easing processes for taxpayers, but it may be a double-edged sword for taxpayers in other ways, said one tax expert.
Last week, during its launch of the new tax season, Sars announced that the threshold for filing tax returns had been raised for individuals. Those earning less than R500 000 are no longer required to file a tax return under certain conditions, up from the previous threshold of R350 000.
The other conditions an individual must meet to avoid filing a return include: income must come from one employer; you do not receive a travel allowance, company car or other fringe benefit, which is considered an additional income; and you do not have any other forms of income such as rental from a property or income from a side business.
But the group of taxpayers relieved of this burden — those earning between R350 000 and R500 000 — was granted deductions of R44-billion in 2017, according to the most recent set of tax statistics.
The agency said the changes are unrelated to refunds or increasing revenue collection. Instead, they are to make compliance easier and cheaper for taxpayers.
Many taxpayers use public transport to Sars branches, often travelling between 200km and 300km, while others take a day off work, Sars said in response to questions.
Last year specifically, 1.1-million taxpayers who earned income of less than R350 000 filed and received an assessment outcome of zero, “a nil return”.
“Not only did these taxpayers incur cost to reach our branches, they also spent time in the queues waiting to be served,” Sars said.
It added that although this is about improving service first, it will also allow Sars to better use its capacity to service taxpayers who must submit a return more efficiently.
Determining who is not required to file is based on third-party information from institutions such as a taxpayer’s employer, medical aid scheme and bank, and the information includes documents such as their IRP5, medical certificate and insurance certificate.
The system then evaluates all this data and is able to send a prompt determining whether the individual should file. Sars then communicates directly with the taxpayer through an SMS, an email or an eFiling prompt. This, said Sars, “ensures more accuracy when identifying who is not required to file because the remaining filing criteria then still [have] to apply”.
There will be no cost saving to Sars because the existing staff will still service taxpayers
Improving revenues was not the aim of this move, said Angelique Worms, a director of the Global employer services division at Deloitte tax and legal. In Sars’s view the cost of assessing these returns and dedicating staff to managing this category of taxpayer would be unlikely to result in additional revenue, she said.
But, she noted, at the same time it could be a “double-edged sword” that sees taxpayers lose out, particularly if they have claims such as contributions to a retirement annuity or medical claims for handicapped dependents that are not recorded or captured by their employer.
She recommended that individuals file a tax return regardless of whether they met the requirements — if only to maintain a complete record with Sars.
“Keeping a complete set of records with Sars may very important,” said Worms. For example, Deloitte has experienced that when a person’s retirement annuity pays out or they require a tax directive from Sars, if Sars finds gaps in their returns history, they may be required to file these returns.
She said Sars’s systems needs to be adapted to recognise that a taxpayer was not required to file a return.