Too early to gauge Revenue’s first step towards self-assessment system
SWEEPING CHANGES to South Africa’s tax system announced earlier this year have been welcomed by the tax profession, though it’s still too early to say how it’s working in practice. The new system affects the way employers submit their annual pay as you earn (PAYE) tax declarations to SA Revenue Service and the way individuals receive, complete and submit their tax returns to Revenue. It therefore affects the accounting profession more than the legal.
It comes after major changes to the system made last year, with both steps in the direction of self-assessment that Revenue has announced as its ultimate goal.
Dermot Gaffney, KPMG’s head of indirect tax practice, says notwithstanding the simplification, accounting firms aren’t experiencing any easing of their workloads. “The accounting behind the tax returns hasn’t altered and there’s still a huge administrative burden on corporates, especially small businesses. It helps that the individual should now be able to complete his tax return himself without professional advice – but that’s not the market of major accounting firms.”
Around 500 000 employees are expected to no longer file tax returns if they earn less than R120 000/year and meet other criteria specified by Revenue.
Revenue commissioner Pravin Gordhan, when announcing the changes at the beginning of this year’s tax filing season, said the new changes were intended to ease the administrative burden on employers. Taxpayers now receive a customised, prepared tax return on request from Revenue that’s intended to make filing returns easier and simpler.
Further, Revenue will provide free computer software to companies so employers can reconcile any deductions made from employees with what companies pay to it.
Gordhan said this year specific emphasis had been placed on the role of employers in the personal income tax system. Last year the system underwent reform by changing from a manual, paper-based process to an electronic, automated process. Revenue eliminated the need for taxpayers to submit supporting documentation with their tax returns. Last year more than 4m returns were submitted electronically.
Speaking at the launch, Revenue COO Edward Kieswetter said that indicated growing public confidence in the electronic sys- tem. Last year most taxpayers received their assessments significantly quicker than before, at an average turnaround time of 20 to 30 days, against 45 to 55 days in 2006. A third of tax returns were processed within 48 hours, compared with 1% in 2006. However, Revenue found difficulty with around 1m taxpayers’ returns. Those included incomplete and incorrect information, some returns not matching information from third parties and in some cases returns being flagged for further investigation.
The customised, prepared tax return will contain information from third parties, such as the taxpayer’s employer, bank and insurance company. The data is based on Revenue’s records of a taxpayer’s income, assets, liabilities and deductions.
With the new system, there will be two filing seasons: one for individuals and one for employers. Companies have a 60-day period from 1 July to 29 August to submit employer PAYE deductions to Revenue. Employees can’t receive or submit their tax returns until employers complete their PAYE declarations to Revenue, because their tax returns will be “populated” by information gleaned from employers so there’s less for the employee to complete.
David French, associate director at Ernst & Young Tax Technical Services, says it’s a first step towards the self-assessment system that Revenue ultimately aims to introduce. “It will be fascinating to see how well it works,” says French.
Individuals have from 1 September until 21 November to file their returns. The deadline for electronic submissions is 23 January next year. French says that for companies the new, simplified electronic process has helped though a number of “teething” problems remain. “The current tax season has opened and we haven’t seen the new website interface yet. It’s a large task to complete all our clients’ tax returns and it’s made more difficult if the form of the tax return is published late. It gives us less time to do the same amount of work,” French says.
“There’s a trend to release the tax return format later and later each year to accommodate Revenue’s electronic system. But they must get their system in place earlier to give practitioners enough time to file returns,” adds French.
Another glitch in the e-filing system is that some individual assessments have been issued without the individual knowing about it. A taxpayer is supposed to be notified by e-mail or SMS whenever his personal profile’s been amended so that an objection can be lodged if he objects. “If you don’t get the notification you can’t object in time,” says French. “So there’s some way to go to achieve the requisite level of maturity in the system.”
Emphasis had been placed on the role of employers. Pravin Gordhan