Gratuity payments haunt Joburg, taxman owed R15m

Only R24,499 of overpayments recovered

The embattled City of Johannesburg municipality owes the SA Revenue Service (Sars) more than R15m after it failed to correctly deduct and withhold employee tax on gratuity payments to former staff between 2014 and 2017.

This was contained in an audit report submitted to the city and Gauteng provincial legislature by the auditor-general (AG).

The contents of the report were meant to be debated in last week’s council meeting but the matter took a back seat because of the motion of no confidence against former mayor Mpho Phalatse.

The AG said Sars conducted a payroll taxes audit for the city during the 2018-19 financial year and it was discovered that the city failed to deduct more than R9m of employee tax when it made the payments.

“The findings emanating from the Sars audit referenced an underpayment of employee’s tax for final gratuities, leave and bonus payments on terminations to the value of R9,183,080 for the periods 2014 to 2017 due to the municipality incorrectly treating it as severance benefit payments,” said the AG.

Speaking to Sowetan yesterday, municipal spokesperson Nthatisi Modingoane said the city will not be commenting on the content of the report at this stage as it had not been tabled to council.

The report added that due to the failure to pay the tax, the city incurred Sars penalties amounting to more than R6.3m.

The AG said the noncompliance by the city is likely to result in a material financial loss of R15,486,128.45 if not recovered.

The AG said the accounting officer was notified of the material irregularity on March 18 2021 and several steps have been taken by the officer to address the irregularity. The city’s accounting officer had only managed to recover R24,499 as of December 31 2022 from employees who are still in the employ of the municipality

According to the AG, the city instituted an internal investigation to determine the responsible officials and the investigation was finalised in September last year.

“Based on the outcome of the investigation, caution letters were issued to the identified officials in March 2022,” said the AG.

The AG found that there was an initiated plan by the city to recover overpayments made to the 12 employees who are still within the employment of the municipality and the last payment recovered is scheduled for April 30 2027.

Sars audit referenced an underpayment of employee’s tax

/FREDDY MAVUNDA The matter of tax deduction on gratuity payments to employees was not attended to by a sitting of the Joburg city council and ended up costing the city more than R15m in taxes owed Sars.