8.4 PAGSA Submissions to Treasury for Budget 2023 Proposals
Submissions for legislation changes that are accepted by National Treasury and announced in the Budget, signal the start of the annual legislation amendment cycle. If all goes well, the final version of the proposal will be promulgated into law, usually with effect from the start of the following tax year.
Needless to say, very few of the submissions made to National Treasury eventually make it into the Budget …
The following proposals to change payroll-related legislation were submitted in November 2022 by the Payroll Authors Group of South Africa for consideration by National Treasury for inclusion in Annexure C of the 2023 Budget Review.
‘Two-pots’ Retirement System
We appreciate that the legislative framework of the ‘two-pot’ retirement system is largely settled. However, we are concerned that there are potential payroll administration difficulties if the requirements as proposed in the draft Revenue Laws Amendment Bill that was issued earlier in 2022 (and that will likely be assented to) are promulgated.
Our comments are therefore of an administrative and not a policy nature but are submitted for consideration at this stage because if they are found to be valid and are accepted, they may impact on the final legislative structure.
Factual Description of the Problems
Tax Certificate Reporting of the ‘Savings Pot’ and Retirement’ Pot
According to the draft legislation, the fund member (the employee) can decide on the proportion of the total monthly contribution that must be allocated to the retirement and to the savings pot, subject to a maximum of one-third of the total contribution going to the “savings pot” and the remaining amount going to the “retirement pot”.
These ratios can vary per member, and it appears that the employee can elect to change the ratio during the tax year.
Concerns:
1. From a payroll and IRP5 tax certificate perspective, how should contributions be reported if an employee is a member of more than one retirement fund?
2. For tax certificate (IRP5/IT3(a)) reporting in future, will payrolls be required to differentiate between:
a. Retirement fund types (pension, provident and retirement annuity funds)? [we assume ‘yes’]
b. Employer and employee amounts? [we assume ‘yes’]
c. ‘Retirement’ and ‘savings’ pot amounts? [clarification required].
3. Currently the employer and employee contributions are reported and validated for the purposes of determining the tax deduction that an employee is eligible for annually and eventually, which portion of the contribution may be received ‘tax-free’. Should contributions in future also be validated and reported for the purposes of the ‘retirement’ and ‘savings’ pots, we recommend that various scenario planning exercises be undertaken with SARS operational to establish the effect of different codes, validations, etc. in practice prior to the effective date. Since any potential legislative amendments would have to take place during 2023 and only be made effective once the 2023 Tax Amendment Legislation is signed into law, the opportunity for any adjustments necessitated by practicality is limited.
Allocation of the Excess of the Total contribution to the ‘Retirement pot’
In many instances, an employee is a member of more than one retirement fund (e.g., a provident fund and a retirement annuity fund) and contributions to both retirement funds are processed in the payroll.
Our understanding is that the total contribution to both funds will continue to be subject to the tax deduction limits of section 11F (the lesser of 27.5% of gross remuneration or R350,000 per tax year) for PAYE calculation purposes, and that any excess contribution above the limit must be allocated to the ‘retirement pot’, and not to the ‘savings pot’.
If our understanding is correct, the following questions arise:
• How must payrolls allocate any excess contribution to the ‘retirement pots’ of the two funds?
• Alternatively, must payrolls report only the total excess contribution on the tax certificate?
• How will the two retirement funds allocate the excess contribution amount between them?
• If the retirement annuity contribution is not processed in the payroll alongside the contribution to the provident fund, then the excess cannot be calculated accurately in the payroll and the question is then where and by whom will the excess be calculated?
‘Savings Withdrawal Benefit’ included in the remuneration definition
The ‘Savings Withdrawal Benefit’ is defined as gross income in new subparagraph (eD).

Will the ‘Savings Withdrawal Benefit’ be included in the Fourth Schedule definition of remuneration?
If the ‘Savings Withdrawal Benefit’ will be included in remuneration, we assume that funds will have to apply for a directive, requiring a change to paragraph 9(3) of Fourth Schedule and once in effect, a new tax certificate code.
This requirement could result in a relatively high volume of tax directives.
Nature of the Businesses Impacted
All businesses that facilitate contributions to a retirement fund.
Exclusion of Employers from the Skills Development Levy
The Legal Nature of the Problem
Section 4(b) of the Skills Development Levies Act excludes employers from the obligation to pay the levy if there are reasonable grounds for believing that the total amount of remuneration, as determined on a monthly basis in accordance with sections 3(3) and 3(4), paid or payable by that employer to all its employees during the following 12-month period, will not exceed R500 000.
Factual Description of the Problem
For those employers whose total section 3(4) remuneration (‘leviable amount’) is estimated on a month-by-month basis to fluctuate above and below R500,000 for each future 12-month period:
1. Due to the fluctuating nature of the amount, the exclusion calculation is a monthly challenge that can easily be neglected or in fact estimated incorrectly by the employer, which could result in non-compliance.
2. Based on the current legislation, it is possible that during the 12 months of a tax year, an employer can be excluded from SDL payments for some months, then included for some months, excluded again, etc. During the months of exclusion from SDL, the levy will not be calculated and paid to SARS, and will also not be reported on monthly tax certificates despite the fact that the employer remains registered for SDL with SARS for those months.
Taking this scenario into the future, once the SARS Vision 2024 project is in operation, due to the fact that it is difficult for some employers to identify their SDL exemption status every month, the SARS ETV (Employment Tax Validation) system will likely raise errors because SDL was not withheld and reported on that month’s tax certificates.
While tax certificate codes can be specified that will indicate the employer’s SDL status from month-to-month, compliance will still be low due to the employer’s difficulty in identifying the SDL status as described in point 1 above.
Nature of the Businesses Impacted
Businesses with remuneration as defined (the ‘leviable amount’) that fluctuates per month above and below R500,000 for the 12-month period ahead.
Proposal
Applying the principle of the Income Tax Act’s “remuneration proxy”, we propose that the total leviable amount for the company for the previous tax year is used by the employer to measure against the R500,000 threshold during the 12 months of the current tax.
This will firstly mean that a historical remuneration total is used (i.e., not an estimate), and secondly that the employer will either be consistently above (included for SDL) or below (excluded from SDL) for the whole of the tax year.
Provision could be made for the Commissioners discretion in case of exceptional circumstances (such as the Covid lockdowns that resulted in very low levels of remuneration).
The ’14-day’ rule for Tax certificate submissions
The Legal Nature of the Problem
The following Fourth Schedule requirements are relevant:
1. Par 13(2)(a) provides that an employer must issue an employee with a tax certificate within 60 days after the end of the period to which the certificate relates.
2. Par 13(2)(b) provides that where an employer has ceased to be an employer in relation to the employee concerned but has continued to be an employer in relation to other employees, a tax certificate must be issued to that employee within fourteen days of the date on which he has so ceased.
3. Par 13(2)(c) provides that where the said employer has ceased to be an employer, a tax certificate must be issued to the employee within 14 days of the date on which employment ended.
4. Par 13(3) allows the Commissioner to direct that an employer is deemed not to have ceased to be an employer in relation to any “casual” employees who are likely from time to time to be re-employed by such employer (e.g., seasonal workers) for the purposes of par 13(2)(a), (b), and (c).
5. Par 14(5) provides that unless the Commissioner otherwise directs, no employees’ tax certificate as contemplated in par 13(2)(a) or (c) shall be delivered by the employer until such time as the employer declaration return has been rendered to the Commissioner.
Factual Description of the Problems
Par 13(2)(b) Problems
• Par 14(5) provides that no employees’ tax certificate as contemplated in par 13(2)(a) or (c) shall be delivered by the employer until such time as the employer declaration return has been rendered to the Commissioner but makes no such provision in respect of par 13(2)(b).
This means that for the majority of employment termination cases (i.e., par 13(2)(b) cases), employers are required to issue tax certificates within 14 days to employees whose employment has come to an end in a certain month despite the fact that an employer declaration return has not been rendered to the Commissioner in respect of that month.
Employers are understandably reluctant to issue tax certificates in terms of par 13(2)(b) before they are reconciled.
Lastly, depending on the size of the workforce and the frequency of employment turnover, there can be a high volume of ’14-day’ tax certificates.
• The only exception to the par 13(2)(b) requirement (if the Commissioner “so directs”) is the termination of a “casual” employee (e.g., a seasonal worker) as referred to in par 13(3).
In principle this exception is welcome but having to differentiate between terminations of ‘non-casual’ and ‘casual’ employees adds to the employer’s administration burden.
General
The 14-day period for submission is too short for what can be a relatively complex administration process.
• If an employee dies on (say) the 2nd of the month, it means that the certificate must be issued by the 16th of the same month. Generally, at that stage of the month the payroll-run has not been processed.
• If there are ‘late’ payments that must be added to the payroll (e.g., bonuses, commissions, overtime, etc.), this information is generally not available within the 14-day period.
Compliance with the PAYE BRS Requirements
It could happen that the PAYE BRS for the current reporting period in which the termination month falls is not available or not yet finalised.
As a result, the 14-day tax certificate issued in a certain month of the tax year could possibly differ from the tax certificate submitted at a later stage to SARS as part of the bi-annual reconciliation.
Nature of the Businesses Impacted
All businesses.
Proposal
1. That employers are no longer required to issue ‘14-day’ tax certificates unless requested by the employee (or the executor) and then only under the following circumstances:
• Death of an employee;
• Emigration of an employee;
• Sequestration of an employee; or
• Liquidation of the employer’s business.
2. That the 14-day period be extended to 60 days.
Note that because the SARS Vision 2024 project is at an early stage, we are uncertain what impact tax certificates that are submitted monthly will have on the ‘14-day’ tax certificate requirements.
However, it was felt that it was important to raise the above issues for consideration.
Employment Tax Incentive – Simplification
Based on anecdotal evidence since January 2014, in our opinion the ‘take-up’ of the employment tax incentive by employers could increase significantly if the ETI Act is amended to simplify the requirements to reduce the cost and the risk to employers of participating in the ETI scheme.
The PAGSA has submitted an overview of our proposals to National Treasury some years ago and is included again to keep it alive for consideration in the future, particularly in the light of the current high unemployment levels of young people.
Travel Allowances section 8(1)(b)(ii)
The Legal Nature of the Problem
Travel allowances are provided for in section 8(1)(b)(ii) and in the definition of Fourth Schedule remuneration which gives employers the option to include either 80% or 20% of the income value of the travel allowance as remuneration, depending on high or low business travel estimates for the year ahead.
Factual Description of the Problem
The travel allowance provisions are widely misunderstood, resulting in both unknowing as well as deliberate incorrect application by employers, with correspondingly low levels of compliance.
Areas of difficulties include but are not limited to –
1. Employers granting ‘travel allowances’ to employees who do not travel for business purposes in privately-owned vehicles.
2. SARS Interpretation Note 14 instructs employers to estimate the value of a travel allowance to be as close as possible to the actual business travel expense.
The Fourth Schedule then requires employers to include either 80% or 20% of the estimated travel allowance value (which should be very close to the business travel expense as described above) as remuneration that is then used for PAYE, SDL, UIF, ETI, and remuneration proxy calculations.
If the estimate of the travel allowance value is in fact very close to the actual business travel expense, then 80% or 20% of the employer’s business cost, is remuneration that is used during the tax year for PAYE, SDL, UIF, ETI, and remuneration proxy calculations.
Although any excessive PAYE withholding reduces the employee’s monthly cash flow, this can be refunded on assessment at the end of the tax year if the employee submits an ITR12 and a travel claim. However, it is highly unlikely that SDL and UIF will be refunded, and monthly ETI amounts are unlikely to be revised.
3. Employers find it difficult to estimate a realistic value for the travel allowance, and sometimes inflate its value excessively in the misguided belief that they are doing their employees some sort of a ‘tax favour’.
4. Employers ‘illegally’ structure travel allowances into their employees’ packages by reducing the cash component value of the employee’s remuneration by the travel allowance value that estimates the business travel expense.
The result is that the employee pays for a portion of the employer’s business travel expense from their remuneration and many employees are none the wiser.
In general, travel allowances are arguably one of the most misunderstood, incorrectly applied, and widely abused, of the PAYE requirements.
Nature of the Businesses Impacted
Many thousands of public and private sector employers grant travel allowances to their employees.
Proposal
We propose that travel allowances are phased out over a period of time and replaced by the travel reimbursement.
Compared to travel allowances, travel reimbursements are simpler, better understood by employers and employees, and are easier to administer, resulting in less employer/employee misunderstandings, lower administration costs and improved compliance levels.
Residential Accommodation Fringe Benefit Calculation
The Legal Nature of the Problem
Seventh Schedule paragraph 9(3) specifies the formula that must be used under certain circumstances to calculate the taxable fringe benefit of residential accommodation provided to an employee by their employer.
The formula has three components:
1. The ‘remuneration proxy’ value
2. An abatement value (adjusted from year-to-year)
3. A percentage value that is based on the size of the accommodation and whether or not power or fuel is provided.
Factual Description of the Problem
1. The remuneration proxy and the abatement are linked directly to the employee. This means that the value of the fringe benefit value for the same accommodation and facilities will vary depending on the remuneration level of the employee that occupies the accommodation.
2. The fringe benefit value of the same accommodation can fluctuate from year-to-year for the same employee depending on the impact on the remuneration proxy value by other factors such as the section 10(1)(o)(ii) foreign employment income (FEI) exemption.
For example, if the FEI exemption is applied in year 1, the value of the fringe benefit will be reduced in year 2 in comparison to the fringe benefit value in year 1 because the remuneration proxy value in respect of year 1 is reduced in year 2, even though the value of the accommodation remains the same.
While the progressive nature of our tax system is acknowledged, because the calculated fringe benefit value is included in remuneration on which tax is calculated using the progressive tax tables, this aspect of our tax regime is accommodated.
Nature of the business / Persons impacted
The formula is widely used by many employers in a range of industry sectors.
Proposal
That the ‘remuneration proxy’ and abatement components of the formula are removed, and the structure of the formula is changed to result in a fringe benefit value that is based solely on the value of the accommodation.
We trust that these proposals will be of value to you.
[Rob: As you will see in the next section, not one of our 2022 proposals were accepted for Budget 2023.
Maar aanhouer wen … uiteindelik  ].
8.5 Budget 2023 – Proposals for Legislation Changes
The proposals announced by the Minister of Finance in the Budget Review are turned into ‘legal-speak’ and issued as draft Bills in about mid-July of each year. After public comment and a final health check by SCOF, the final amendments are signed into law by the State President and generally made effective from the start of the tax year that follows the promulgation of the Amendment Acts.
This means that the budget proposals are a reasonably firm indication of what could be in the law next year and are therefore important for employers and payroll suppliers.
Note that there are not many proposals in Budget 2023 to change legislation that impacts directly on payroll suppliers and employers, but towards the end of this section there are three important statements of future intention to be aware of.
There are also a number of changes proposed in the budget that affect members of retirement funds, but they do not impact directly on payroll administration and are therefore outside of the scope of this workbook.
The following budget proposals impact on payroll suppliers and employers.
Budget 2023 Proposal: Clarifying the amount of employer contribution to a retirement fund to be deductible
Section 11F(4) of the act deems an employer contribution to a retirement fund as a contribution made by the employee, and it is calculated as the amount equal to the cash equivalent of the value of the taxable benefit.
However, there is no requirement that the calculated cash equivalent be included in the employee’s income, as is the case in sections 6A and 6B of the act.
This is against the policy rationale of the act’s provisions. To address this, it is proposed that the act be amended to require that the cash equivalent of the taxable benefit for employer retirement fund contributions be included in an employee’s income before a tax deduction is allowed.
Budget 2023 Proposal: Aligning tax registration requirements for non-resident employers
It has been noted that non-resident employers may not have representative employers in South Africa for purposes of employees’ tax. They are, as a result, not liable to deduct or withhold tax from the remuneration that is paid to their employees who render services in South Africa. Nevertheless, given that they pay remuneration, they are required to register with SARS as employers.
They are liable for skills development levies and unemployment insurance contributions, which many pay. It is proposed that the various provisions be aligned to ensure consistency.
Budget 2023 Proposal: Varying employees’ tax withholding in respect of remuneration
The Fourth Schedule to the Income Tax Act allows employers to request a variation in employees’ tax withholding to take into account foreign taxes paid. However, such a variation does not apply to remuneration arising from share options and similar schemes. This could result in cash flow implications for the affected employees, as they will only be entitled to claim a foreign tax credit when they complete their annual tax returns.
It is proposed that SARS be empowered to vary the basis for withholding under these circumstances.
Budget 2023 Intention: Two-pot retirement system
Following extensive public consultation, the first phase of legislative amendments to the retirement system is due to take effect on 1 March 2024.
The intent of these amendments is to enable pre-retirement access to a portion of one’s retirement assets, while preserving the remainder for retirement. Retirement fund contributions will remain deductible up to R350 000 per year or 27.5 per cent of taxable income per year – whichever is lower.
Permissible withdrawals from funds accrued before 1 March 2024 will be taxed according to the lump sum tables. Withdrawals from the “savings pot” before retirement will be taxed at marginal rates. On retirement, any remaining amounts in the savings pot will be taxed according to the retirement lump sum table (for example, R550 000 is a tax-free lump sum on retirement).
Four areas required additional work: a proposal for seed capital, legislative mechanisms to include defined benefit funds in an equitable manner, legacy retirement annuity funds and withdrawals from the retirement portion if one is retrenched and has no alternative source of income. The first three matters will be clarified in forthcoming draft legislation. The final matter will be reviewed as a second phase of implementation.
Budget 2023 Intention: Third-party data and personal income tax administration reform
The pay-as-you-earn (PAYE) and personal income tax administration reform announced in the 2020 Budget has given pensioners the option to agree to more accurate PAYE withholding rates to take account of multiple sources of income, as well as enabling 2.9 million individual taxpayers to be automatically assessed without the need to file personal income tax returns.
The reform will continue over the medium term with a view to reducing the administrative burden for employers, payroll administrators and SARS, as well as individual salaried taxpayers.
Work has commenced, in consultation with employers and representative organisations, to provide employer and employee data on a monthly basis in a fully automated fashion.
Over time, the need for employer PAYE annual reconciliation is expected to fall away, and the reform will be extended to third-party data providers.
[Rob: Payroll suppliers, employers, and tax practitioners: Take a deep breath … ]
Budget 2023 Intention: Broadening the personal income tax base.
As part of exploring the effect of remote work on the personal income tax regime, the National Treasury and SARS committed to a multi-year review of allowances.
A discussion document will be released this year to outline workplace practices and policies, changes in the current environment and how different workplaces are affected by home office and travel allowance policies.
Budget 2021 Proposal: Reviewing tax provisions for Travel and Working from Home
This proposal from Budget 2021 is included here to provide some history and background.
For many years the PAGSA has submitted requests to National Treasury to investigate and make changes to travel allowances (we also submitted proposals for suggested changes), and in 2020, as a result of the Covid lockdowns and the spotlight on working from home, we submitted proposals for changes to the Home Office allowance.
Proposed in the 2021 Budget (but not again in the 2022 Budget), is the intention to review travel and home office allowances, as follows:
In light of the large‐scale migration to working at home over the past year, the National Treasury will review current travel and home office allowances to investigate their efficacy, equity in application, simplicity of use, certainty for taxpayers and compatibility with environmental objectives.
In recognition of the potential effect on salary structuring, this will be a multi‐year project, starting with consultations during 2021/22.
This was good news at the time of the 2021 Budget
Normally all of the budget proposals are converted into draft legislation, but the budget proposal to review the tax provisions for travel and working from home was not included in the 2021 amendment legislation.
This was disappointing, but my understanding is that this budget proposal is not off the table but rather that it requires more time for investigation and discussion before draft legislation can be formulated.
The 2022 Budget does have this to say about home office allowances:
“A discussion document will be published in 2022 on a personal income tax regime for remote work” but is silent on travel allowances.
The travel allowance is the largest of the allowances, and is a difficult, sensitive, and critically important area of employment law to tackle. I am hoping that we are at the start of a serious project to phase out travel allowances and rather make use of travel reimbursements (as motivated by the PAGSA’s proposal).
The reference in the wording of the budget proposal to a “multi‐year project” does indicate that these changes are difficult and will take time.
Budget 2023 Proposal: Traveller management system
Lastly, and just for interest’s sake for those of you who travel internationally regularly (not important for payrolls).
SARS is implementing a modern online traveller management system, which has been piloted on a voluntary basis at King Shaka International Airport since November 2022.
The system is aimed at strengthening SARS’s capability to facilitate legitimate traveller movements, providing travellers with clarity and certainty regarding their obligations, easing compliance, detecting non-compliance and improving enforcement of legislation by SARS and other agencies.
It is proposed that the Customs and Excise Act be amended to provide for the declaration of the required information before arrival in or departure from South Africa.
Budget 2023 closed Chapter 4 by stating that:
“Government remains focused on ensuring that the tax system is fair, efficient and equitable”