Chapter 7. Vision 2024 – Monthly Tax Certificates
7.1 Early History of the Vision 2024 PAYE Project
In a special meeting on 12th February 2020, SARS briefed the PAGSA Exco members on the intention to modernise the technical capability of their systems “where increasingly its work will be informed by data-driven insights, self-learning computers, artificial intelligence and interconnectivity of people and devices”.
With SARS permission, PAGSA Newsflash 2020-05 was issued to PAGSA members on 24 February 2020 to give PAGSA payroll members an early warning of what lay ahead.
This was followed 6 weeks later by the State President’s unexpected announcement of the Covid-19 pandemic, the subsequent lockdowns, the under-pressure roll-out of the tax and ETI relief amendment Acts, the July 2021 Civil Unrest, followed by another round of tax and ETI relief amendment Acts. These unexpected catastrophic events put the Vision 2024 project on the back foot for more than 18 months.
From mid-2021, the PAGSA compiled several lengthy documents that explain the essential features that payroll systems provide, as well as some practical aspects of payroll administration of employment taxes to assist the SARS Vision 2024 team.
During this time we also engaged with SARS in a number of meetings to explain fundamental concepts such as the forecasting of the annual equivalent of remuneration (referred to in short as ‘annualisation’), and the practical difficulties of processing PAYE, SDL, UIF, and ETI on a weekly, fortnightly, and monthly basis as opposed to the relatively simple calculation of income tax by SARS at the tax year end when all the figures are known and final.
The frequency and complexity of these meetings increased substantially from December 2022 onwards.
These discussions were confidential – besides a brief mention in the February 2020 Budget, the project itself was officially put in the public domain by a ‘statement of intention’ in Chapter 4 of the 2023 Budget Review.
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.
In short, the Budget was referring to the introduction of monthly tax certificate submissions to SARS by employers.
[Rob: Payroll suppliers, employers, and tax practitioners: Take a deep breath … ]
7.2 Overview of the Vision 2024 Project
In February 2020, the main objectives of Vision 2024 PAYE project were given as:
1. Accurate and timely withholding of employment taxes from employees and payments to SARS
2. Reduction of administration for employers, payroll administrators and SARS
3. Employees will be able to monitor their tax obligations during the tax year
4. The annual reconciliation process for employers will be simplified
5. Over time, most salaried taxpayers will not have to file personal tax returns.
These overall objectives have not changed significantly since 2020.
Benefits of the Vision 2024 Project
In my opinion, providing employee information by submitting monthly tax certificates is a project that will benefit the country in general and all of the major role players (with the exception of payroll suppliers).
1. National Treasury will benefit from:
o Accurate general employment and remuneration statistics on a monthly basis will result in more informed decision making and better policy
o Monthly information will allow the success or otherwise of changes to the law to achieve certain objectives to be measured far more accurately than at present.

2. SARS will benefit from:
o Automation and simplification of their PAYE administration
o Reduced administration burden for the Mid-year and Tax year end reconciliations
o Phase out some internal systems over time
o Having the option in the future to increase revenue by charging interest on positive corrections made in an earlier accrual month (and of course paying interest on negative corrections)
o Improve compliance and increase tax revenue collection by identifying suspicious trends and events from the monthly employment and remuneration information.

3. PAGSA Payroll Suppliers:
o No immediate benefits – they will have to retain the annual tax certificate system functionality and in addition develop and maintain the new monthly tax certificate system.

4. Employers will benefit from:
o Not having to do the Interim Mid-year reconciliation (and possibly the year-end reconciliation)
o Being ‘forced’ by the submission of monthly tax certificates into a rolling month-by-month reconciliation routine.

5. Employees will benefit from:
o Being able to monitor their monthly remuneration and deductions from month to month
o Keeping track of their tax obligations as the tax year progresses.
Exciting times lie ahead for all of us in the payroll world, no doubt with a few bumps in the road, but in my opinion, with a big light at the end of the tunnel to look forward to.
There are some aspects of the monthly tax certificate project including monthly accrual (discussed in the next section) and monthly ETV (Employment Tax Validation) that will probably not be introduced from the start but only at a later stage when the monthly tax certificate process has settled down and is running smoothly.
7.3 Monthly Accrual and Section 7B Variable Remuneration
The concept of ‘accrual’ underpins tax legislation requirements and is a complex subject.
In simple terms, the principle behind accrual is that income, including remuneration as defined by the Fourth Schedule of the Income Tax Act, accrues on either the date when there is ‘an unconditional entitlement to the money’, or the date of the payment of the remuneration, whichever comes first.
Fortunately, accrual has been made easier to apply by the introduction of the concept of ‘variable remuneration’ from March 2013 in section 7B of the Income Tax Act.
Because of its potential importance for the Vision 2024 project in the future, this workbook explains the concept of ‘variable remuneration’ as well as aspects of its application in payrolls in some detail.
Background to the Introduction of Section 7B
The Problem
For many years, the PAGSA has drawn the attention of the tax authorities to the administration difficulties experienced by payroll suppliers and employers when certain types of remuneration accrue in the last month (or months) before the end of a tax year but can only be paid in the first month (or months) after the start of the new tax year when the amounts are available and/or can be quantified.
If this happens, the payroll for the last month of the tax year must be re-opened, the remuneration adjustments made, the payroll re-run, employees paid the additional net pay amount, the EMP201 in respect of that last month must be adjusted and paid with penalties/interest, and possibly the tax certificates in respect of the previous tax year must be adjusted.
These retrospective adjustments placed a significant administration burden on payrolls, employers, and in some cases on SARS (adjustments to the EMP201 and possibly tax certificates).
The Solution
After many requests from the PAGSA over the years prior to 2013, section 7B was added to the Income Tax Act and introduced the concept of ‘variable remuneration’ from 1 March 2013 as the solution.
Variable and Non-variable Remuneration
Section 7B allocates the various types of Fourth Schedule remuneration into two groups:
1. ‘Variable’ remuneration, and
2. ‘Non-variable’ remuneration:
Variable Remuneration
‘Variable remuneration’ includes the following types of remuneration:
1. Overtime
2. Bonuses (annual, quarterly, performance, etc.)
3. Commission (commission is calculated based on a percentage, not on the number of units produced)
4. Travel allowances (an allowance or advance paid in respect of business travel expenses)
5. Leave paid out (BCEA annual leave that is owing and paid on termination of services)
6. Reimbursive travel allowances (kilometer-based payment in respect of business travel expenses)
7. Night shift allowances
8. Standby allowances
9. Employer-paid reimbursements (these must be ‘true’ reimbursements as specified in the IT Act), and
10. An amount that is determined based on the employee’s work performance (from 1 March 2023).
Section 7B goes on to specify that all remuneration types that are classified as ‘variable remuneration’ are deemed to accrue in the month in which they are paid (not in the month in which they would normally have accrued) and must be taxed in the month in which they are paid.
Non-variable Remuneration
All remuneration types that are not variable remuneration, are referred to as ‘non-variable’ remuneration, of which the most obvious examples are salaries and wages, as well as most allowances and fringe benefits.
Non-variable remuneration must be taxed at the earlier of the date of accrual (when there is an unconditional entitlement to the money), and the date of payment of the remuneration.
Comments on the Application of Section 7B
The section 7B requirements are gradually spreading into other legislation and payroll tax administration areas.
Unemployment Insurance Contributions Act
Section 7B is linked to the Unemployment Insurance Contributions Act by the definition of remuneration in the Fourth Schedule. Remuneration paid in a month (or months) after an employee’s services have been terminated can have two different results depending on whether the remuneration paid is ‘variable remuneration’ or ‘non-variable remuneration’.
Under discussion.
SARS Vision 2024 PAYE Project
As explained in the introduction to this section, section 7B was introduced in March 2013 to simplify the transition for employers and payrolls from the end of one tax year into the start of the next tax year.
However, the accrual principles and section 7B apply equally to any month during a tax year.
7.4 Monthly Accrual and Monthly Tax certificates
Accrual is generally applied to a year of assessment, but the introduction of monthly tax certificate reporting has put the spotlight squarely on applying the accrual rules on a monthly basis (as opposed to per year of assessment).
In effect, the accrual principles, and the section 7B provisions must be applied to any month during a tax year.
At the heart of the difficulty of producing monthly tax certificates is that corrections made in the current payroll processing month to remuneration amounts in earlier months, may or may not accrue in that earlier month depending on whether or not the remuneration amount being corrected is ‘variable’ or non-variable’.
If these corrections do accrue in the earlier month, then they should be taxed and reported ‘as though’ they were processed in that earlier month, not in the current payroll processing month.
What follows from this is that if an amount of PAYE is paid by an employer to SARS in a later month than the earlier month in which it accrued, then there is a ‘cost of money’ problem. SARS is entitled to collect interest from the employer on a debit correction in an earlier month and must pay the employer interest on a credit correction.
At the time of writing this workbook (early September 2023), the PAGSA and SARS were in discussion on the difficulties and the pros and cons of whether or not to apply monthly accrual principles to the administration of monthly retrospective corrections.
7.5 Vision 2024 – Next Steps
Before payroll suppliers (and SARS) can even start thinking about making changes to their systems to implement the submission of tax certificates on a monthly basis, there must be a Monthly BRS in place that specifies the new requirements, fields, validation rules, etc.
SARS Monthly PAYE BRS – Technical specification of Monthly Tax Certificates
Towards the end of 2022 and during 2023, SARS and the PAGSA (as well as other bulk producers of tax certificates such as BASA (the banking institutions) and ASISA (the retirement funds)), have spent a lot of time discussing the monthly PAYE BRS that specifies the technical requirements for monthly tax certificate creation and submissions.
This monthly BRS will be used by both SARS to inform the changes to their tax certificate systems (e@syFile, eFiling, Connect Direct, and the online system used in the SARS branches) and also by PAGSA payroll supplier members for the changes to their payroll systems.
The move from the current bi-annual tax certificate submission process to a monthly tax certificate submission process does not appear to be a difficult one, but I can assure you that this is not an easy matter.
Besides the employer and employee demographic and financial fields (the majority of which remain the same as in the current annual BRS), additional fields have been added.
There are significant changes to the File Structure as well as to the various record types.
Other important areas of administration that are still under discussion are the channels of submission, the reporting of corrections, and the EMP201 declaration and payment process.
It is anticipated that a ‘near-final’ Monthly PAYE BRS will be put into the public domain ‘fairly soon’.
Further Discussions
The following aspects of the monthly tax certificate submission process are still under discussion:
1. Monthly accrual
2. Monthly corrections, including interest being raised
3. ETV (Employment Tax Validation)
4. Period available in which monthly submissions must be made
5. Payment of the employer’s liabilities
6. Reconciliation requirements
7. ‘Big bang’ approach, or parallel submission options?
8. Submission channel options, including API submissions.
‘Heads-up’ for Payroll Suppliers
It goes without saying that payroll suppliers will have to schedule as much time as possible, and as many resources as possible, for the design and programming of the changes that will have to be made to payroll systems to cater for monthly tax certificates.
The same applies to SARS for the SARS systems that process tax certificate submissions that must be changed.
At a stage, and probably for a fairly lengthy period of time, SARS and PAGSA members must schedule extensive time to test the compatibility of the SARS and PAGSA payroll systems.
This was put into writing in PAGSA Newsflash 2023-17 that was issued to PAGSA members in May 2023 to warn them that they will be required to make significant changes to their payroll systems to accommodate the monthly tax certificate requirements, and that quality assurance testing between the SARS systems and the payroll systems of the country is likely to be a lengthy process.
Payroll suppliers were advised to make time available in their development schedules to provide for the development and testing of the new requirements.
As with all major IT system upgrades, it is likely that this process could take some time before it is running smoothly.
Communication
At the time of finalising this workbook (early September 2023), this very beneficial but equally complex project is not yet in the public domain and as the PAGSA we are not yet allowed to communicate the detail of the project.
However, I am hopeful that we will be able to do so within a few months, and I feel confident that we will be able to provide detailed information to employers to help their planning in the Annual Payroll Tax Update webinars in March 2024, if not before.
As far as the technical specifications are concerned, this is a different matter.
The PAGSA will communicate the technical requirements of the new system to payroll suppliers as soon as possible (when the Monthly BRS is finalised) to enable them to make the necessary changes to their payroll systems and will also explain the impact on payroll administration to employers.