The South African Revenue Service (SARS) has announced changes to its system which will impact the way individuals who receive income from more than one source will be taxed.
SARS say the implementation of Tax Directives Enhancements will prevent taxpayers who receive income from more than one source from ending up with a large tax debt. This debt is usually payable to SARS after the assessment of their income tax return.
The revenue service said, "In response to this, recently introduced legislation makes provision for SARS to determine the effective rate of tax in respect of the combined employment and/or pension sources of income of a taxpayer".
Pieter Faber from The South African Institute of Chartered Accountants (SAICA) explains that the legislation was introduced in 2019. However, due to the impact it would have on administration and the impact it would have on insurers ect, it will only be fully implemented in March 2021.
He explains that people in South Africa do not pay a fixed tax rate. Tax from multiple income is added together which will push taxpayers into a higher tax bracket and they would pay more tax.
He said “SARS could now actually look at both and instruct the pension fund who would now have to apply on an annual basis for a directive to say, don't give the primary, secondary or tertiary rebates so that's the annual amount you actually get off as a rebate and they actually then can give that and tell them not to give that rebate".
Faber says this would mean the tax liability at the end of the year would be a lot more aligned to what the taxpayers real liability is. This could be beneficial to taxpayers as it could prevent them from having to pay a lump sum at the end of a tax season.
“I think the only concern we have on this is and that will be in the detail, which we don't see past in one March, is whether especially for the elderly where the medical expenses will be taken into consideration as well in this calculation because a lot of time that does reduce your actual effective tax rate,” concluded Faber.
