VISION 2024 PAYE: MONTHLY TAX CERTIFICATE SUBMISSIONS

Background

SARS Initial Briefing
On 12th February 2020 SARS briefed the PAGSA Exco members on the SARS 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”.

PAGSA Newsflash 2020-05 was issued to members with SARS permission on 24 February 2020 to provide PAGSA members with an early warning of what lay ahead.

The ‘Vision 2024 PAYE’ project as it was called was almost immediately hamstrung by the March 2020 Covid-19 lockdowns, the subsequent drafting and issue under extreme pressure of complex tax and ETI relief legislation, followed by the Civil Unrest period in July 2021 and a further round of tax and ETI relief legislation.

The years that followed March 2020 were a very difficult and painful period for all parties and individuals in South Africa.

Payroll Administration Investigation
On the resumption of the Vision 2024 PAYE project, the PAGSA investigated various areas of payroll administration, complied documents to describe these areas, and engaged with SARS in meetings to assist SARS to understand the practical implications and complications of weekly, fortnightly, and monthly payroll administration.

These meetings highlighted the necessity to create a SARS Business Requirements Specification (BRS) that focused on the proposed modernised requirements.

Budget 2023 Intention: Third-party data and personal income tax administration reform
The following is quoted verbatim from the February 2023 Budget Review: 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 [this refers to Fourth Schedule paragraph 2(2B)], 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.

The wording highlighted above in the Budget’s statement of intention firstly puts the Vision 2024 PAYE project into the public domain, and secondly in simple terms can be translated as “monthly tax certificate submissions and related matters”.

SARS PAYE BRS – Technical Requirements of Monthly Tax Certificate Submissions
During 2022 and 2023 to date, both SARS and the PAGSA Exco and Manco committees (and other third-party bulk suppliers of tax certificates such as BASA (the banking institutions) and ASISA (the retirement funds)), have spent a lot
of time on the creation of a Monthly PAYE BRS that will inform both the SARS systems (e@syFile, eFiling, and the online system used in the SARS branches) and the payroll systems of PAGSA members of the technical requirements for monthly tax certificate creation and submissions.

The initial impression one might have is that 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.

Important Aspects of the Monthly PAYE BRS
Besides the details of the employer and employee demographic and financial fields (the majority of which remain the same as in the current bi-annual BRS), additional fields have been added.

Also changed is the File Structure and the records that make up the file structure.

Other important areas of administration that are still under discussion are the channels of submission, the reporting of corrections, and the possible impact on the EMP201 declaration process.

More information will be communicated once these discussions are finalised.

Heads-up for Payroll Suppliers
Please note that significant changes will have to be made to your payroll systems to accommodate the monthly requirements, and quality assurance and compatibility testing between the SARS Systems and payroll systems is likely to be a lengthy process.

Looking ahead, you are advised to make sufficient time available in your 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.

Dates and more details of the rollout of the Vision 2024 PAYE project will be made available by SARS once finalised.

Towards the end of January 2023 Rob Cooper contacted the Compensation Fund authorities to inform them that the earnings threshold for the 2023/2024 year of assessment that payrolls must implement in their systems from 1 March 2023 had
not yet been published and to request that it be published urgently.

Gazette No. 48065 was then published on 17 February 2023 (signed on 13 Feb 2023 by the Director-General of the Department of Employment and Labour). This Gazette specified the threshold for the 2022/23 year of assessment as
well as the threshold for the coming 2023/24 year of assessment, as follows:

a) A Maximum Earnings on Actual Earnings is R529 264 (1 March 2022 to 28 February 2023)
b) A Maximum Earnings on Provisional Assessment is R563 520 (1 March 2023 to 28 February 2024)
c) A Minimum Assessment for employers is R1443
d) A Minimum Assessment for private domestic employers is R498

The two earnings thresholds specified in this Gazette were published in PAGSA Newsflash 2023-05 on 17 February 2023 as follows:
1. R 529 264 for 1 March 2022 to 28 February 2023
2. R 563 520 for 1 March 2023 to 28 February 2024.

On 10 March 2023, Gazette No. 48187 was published (signed on 13 Feb 2023 by the Minister of Employment and Labour) containing a notice that listed the “Increase in Monthly Pensions” over several pages.

These are benefit payouts and are not of importance for payroll systems.

Sometime later, to everyone’s surprise, one of our PAGSA members pointed out that new earnings thresholds were specified after the listing on the Monthly Pension Increases at the end of the Gazette.

The earnings threshold for 2023/24 specified in this Gazette is R568 959 (specified in the previous Gazette as R563 520).

This resulted in an exchange of emails between the PAGSA, the Fund, and the Department of Employment and Labour to determine:
1. Why two Gazettes were published with different earnings thresholds
2. Which of the two earnings threshold is the correct one for 2023/24.

The first question won’t be answered, but it has now been confirmed that the earnings threshold specified in the second Gazette No. 48187 is the correct one and must be used for 2023/24.

To confirm, the two earnings thresholds that must be applied in payroll systems are:
1. R 529 264 for 1 March 2022 to 28 February 2023
2. R 568 959 for 1 March 2023 to 28 February 2024

BUDGET REVIEW 2023 – ANNEXURE C PROPOSALS TO AMEND PAYROLL-RELATED LEGISLATION

The Budget Review was presented on 22 February 2023 and proposed changes to the legislation that impact on payroll suppliers and the payroll offices of employers.

The annual legislation amendment cycle for 2023 will follow the usual steps:
1. The Budget proposals (22 February 2023)
2. The issue of draft Bills (usually towards the end of July)
3. Comments on the draft Bills (by the PAGSA and other organisations)
4. Workshop to discuss the comments (with National Treasury and SARS, usually held in August)
5. The ‘draft Bills’ are updated to ‘Bills’
6. SCOF (Standing Committee on Finance) reviews the Bills and creates final Bills (October)
7. The Final Bills go to the National Assembly and the National Council of Provinces for approval (November)
8. The approved final Bills go to the State President for his signature indicating proclamation as Amendment Acts.

As can be seen from this yearly cycle, the budget proposals are a reasonably firm early indication of what could be in the law for the next year. It is therefore important for employers and payroll suppliers to take note of them.

Refer to PAGSA Newsflash 2023-08 for details of the changes to the tax tables, rates, limits, and thresholds, that are important for payrolls and that are already effective from 1 March 2023.

Budget Proposals in Annexure C

The Annexure C proposals for changes to payroll-related legislation are included verbatim below in case you have not seen them, and because the actual wording can help one to understand the intention of the proposed change.

There are 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 Newsflash.

The budget proposals (there are not many of them) that impact on payroll suppliers and employers follow.

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.

PAGSA Comment: Interesting that despite the oversight process, this drafting error still slipped through.

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.

PAGSA Comment: Section 10(1)(o)(ii) defines remuneration for the purposes of this section only, as follows: “to the extent to which that remuneration does not exceed R1,25 million in respect of a year of assessment and is received by or accrues to any employee during any year of assessment by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument or allowance, including any amount referred to in paragraph (i) of the definition of gross income in section 1 or an amount referred to in section 8, 8B or 8C, in respect of services rendered
outside the Republic by that employee for or on behalf of any employer, if that employee was outside the Republic—

Draft Amendment Bills – July 2023

As indicated above, the budget proposals are turned into ‘legal speak’ by the drafters of legislation and are usually issued as draft Amendment Bills towards the end of July.

The 2023 Budget also includes ‘statements of intention’ in Chapter 4 that are important for payroll suppliers and employers and that are discussed in a Newsflash that follows this one.

BUDGET REVIEW 2023 – CHAPTER 4 ‘STATEMENTS OF INTENTION’

PAGSA Newsflash 2023-11 explained the annual legislation amendment cycle and discussed the proposals that were issued in Annexure C of Budget 2023.

The intention to make significant changes to the legislation and to administration requirements are stated in Chapter 4 of the Budget and are included verbatim below for discussion.

Budget 2023 Intention: Two-pot retirement system

The intention behind the introduction the ‘two-pot’ retirement system and its postponement to 1 March 2024, is stated in Chapter 4 of the Budget as follows.

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 taxfree 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.

PAGSA Comments
The purpose of the ‘two-pot’ retirement system is to improve pre-retirement preservation of the retirement interest and was proposed to be made effective from 1 March 2023. The requirements of the ‘two-pot’ system impact more on
retirement fund employers than on commercial employers, requiring significant changes to their systems but equally importantly, to their infrastructure and internal procedures.

It was also discovered during the 2022 amendment cycle that there are four areas of related legislation that need to be addressed. For all these reasons, the two-pot system has been postponed to 1 March 2024 to allow the additional changes to the legislation to be made, and to give retirement fund administrators more time to prepare their organisations.

Budget 2023 Intention: Broadening the personal income tax base.

The intention to broaden the personal income tax base is stated in Chapter 4 of the Budget as follows.

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.

The intention stated in Budget 2023 to investigate home office allowances, and in particular travel allowances, with a view to changing their requirements is a welcome and positive step forward.

For many years the PAGSA has submitted requests to National Treasury to investigate and make changes to travel allowances (we have also submitted suggested changes), and in 2020, because of the Covid lockdowns and the subsequent spotlight on ‘working from home’, we also requested changes to home office allowances.

Our requests surfaced for the first time in the 2021 Budget that spoke to a “multi-year” intention to review travel and home office allowances, but as far as can be determined, the investigation was not started.

The fact that the 2021 Budget proposal has been included again in Budget 2023 signals intention.

The travel allowance is the most frequently used of all the allowances, and is a sensitive, important, and difficult area of employment law to tackle. Non-compliance, whether deliberate or inadvertent, is high.

The “multi‐year review” wording of the 2023 budget indicates that it will take more than a year to investigate these two allowances and to draft proposed changes to the legislation.

Unrelated, but perhaps of significance, keep in mind that in recent times there have been indications from the policy makers of a general move to replace allowances with reimbursements.

Budget 2023 Intention: Third-party data and Personal Income Tax Administration Reform

The intention to accelerate the roll-out the ‘Vision 2024 PAYE’ project (as it has been referred to up to now) is stated in Chapter 4 of the Budget as follows.

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.

PAGSA Comments

In plain English, the wording means monthly tax certificate submissions.

It is followed by the intention to do away with the EMP501 reconciliation of tax certificates at a later stage.

This statement of intention in the 2023 budget puts the project into the public domain, including its immediate objectives, which is welcome. Members are advised to refer to PAGSA Newsflash 2023-03 for a recent update to the Vision 2024 PAYE project, that included a PAGSA/SARS meeting on 25 January 2023.

At the end of this Newsflash, a ‘heads-up’ was given to payroll suppliers to prepare themselves for significant and urgent changes to their payroll systems, as follows:

“At this stage, if the roll-out of the Vision 2024 PIT project (that includes monthly tax certificate submissions) proceeds as planned, then payroll suppliers must prepare themselves for significant changes to their payroll systems soon after
the start of the 2023/24 tax year.”

Since then more meetings have been held between the PAGSA and SARS, also including other key role player organisations to resolve some blockages that are holding back the release of a Monthly PAYE BRS that will give the technical details of monthly tax certificates.

PAGSA members will be kept up to date by Newsflash as this process unfolds, but once again, prepare yourselves for urgent changes to your payroll systems.

SARS NEW USSD SERVICE FOR INDIVIDUALS

SARS has announced that they have developed new USSD technology to assist individual taxpayers to become, and to remain, tax compliant.

The options available for individual taxpayers using this technology are:
• Check their tax numbers
• Obtain account balances
• Check whether or not a tax return must be submitted
• Make an e-Booking to visit a SARS branch.

At this early stage, it appears that employees can use this new technology to obtain their income tax reference numbers which will assist employers to report the income tax reference numbers on tax certificates.

Below please find the SARS note relating to this announcement.

SARS Notice

New USSD Service makes it easier for taxpayers to comply

SARS is excited to introduce a USSD service, as an additional channel for taxpayers to manage their tax matters. This is in line with the strategic objectives to make it easy for taxpayers to comply and fulfill their tax obligations, as well as to modernise our systems to provide digital and streamline services.

From 20 March 2023, taxpayers may use the code *134*7277# to interact with us thereafter choosing from one of the four menu options:
• To check if they have a tax number
• To get their account balance
• To check if they need to submit a tax return
• To make an e-Booking to visit a branch

We still have a sizable population of taxpayers who do not have access to eFiling, the SARS MobiApp, or own a smart phone, which is the reason for introducing this channel. The service is free for taxpayers to use, and it doesn’t need access to any data. As a member of the SARS community and one of our ambassadors, we urge you to familiarise yourself with the new service and spread the word about it whenever you have tax-related enquiries. With the new channel, taxpayers will have answers quickly in the palm of their hands.

USSD stands for Unstructured Supplementary Service Data, this code works similarly to a text message and establishes real-time communication between a cellphone and server. A user with a phone that has limited storage will be able to
use this code. This is an interactive channel that taxpayers without smart phone can use to reach for some of our service offerings.

We will publish infographics that you can easily download and share in due course.

PAGSA Newsflash number 2023/21 and it was titled Welcome to Niel Nel

The following content is from the PAGSA Newsflash number 2023/21 and it was titled Welcome to Niel Nel

While he was welcomed in the PAGSA AGM held on 21 June 2023, it is a great pleasure to formally welcome Niel Nel to the PAGSA Management Committee (Manco) after his retirement earlier this year after 47 years of long and outstanding
service in many different areas for SARS.

Niel started working for SARS when it was still Inland Revenue in 1977.

He enjoyed a mandatory 15-month army-break and then worked in different operational sections in the Port Elizabeth Branch Office, Port Elizabeth Decentralised Training Centre, and Pretoria Head Office. During his time in the Port
Elizabeth Branch Office, he acquired a National Diploma in Tax and Financial Accounting.

In 1994, Niel was instrumental in the implementation of the Employees’ Tax (PAYE) system which was previously only a manual record of employers. The new system included an online registration process, an accounting system, and various automated follow-up processes for internal use.

In 1999/2000, after consulting widely with external stakeholders, the pre-printed IRP5/IT3(b) PAYE certificates were replaced by the first version of what we have now, the codified electronic certificates.

This initiative resulted in employers saving significantly on the cost of purchasing blank tax certificates in triplicate continuous stationery and book format, to say nothing of the reduction to the huge administration burden of printing these certificates, recording serial numbers, and delivering them to SARS.

The new codified tax certificates were submitted to SARS by employers via floppy or stiffy disks as online submission channels were not available at the time.

The SARS internal manual PAYE reconciliation process was then automated in 2002/2003, with systematic follow-up processes.

During 2000, Niel managed the implementation of the Skills Development processes in SARS as well as the UIF Contribution processes in 2002. The PAYE, SDL and UIF Contribution processes were integrated during the implementation of the UIF Contribution process.

Niel also assisted with the implementation of the Employment Tax Incentive in 2014.

Although Niel collaborated with the PAGSA and other external stakeholders over the years, he was tasked to manage the SARS/PAGSA relationship (as the SARS ‘PAYE Champion’ for the PAGSA) from March 2020 until his retirement from
SARS on 31 January 2023.

The formal date of Niel’s appointment to the PAGSA Manco was 1 March 2023, but he was helping the PAGSA before then and is already making a massive contribution to the roll-out of the monthly tax certificate project.

SARS NOTICE: PAYE ADMIN PENALTIES UPDATE

SARS has issued a notice with regards to the update of the PAYE administrative penalties. This update specifically addresses the late or non-submission of EMP501 reconciliations.

The SARS notice are provided below.

During the month of June 2021, SARS introduced the PAYE Admin Penalty solution. The implemented interim solution provided SARS with the ability to impose PAYE administrative penalties, which meant charging admin penalties for the failure to submit EMP501 reconciliations on time.

PAYE admin penalty was divided into 3 phases with the first 2 phases having already being implemented as follows.

Phase 1 was implemented in June 2021; and
Phase 2 was implemented in April 2022

SARS is currently in the process of implementing phase 3, on 23 June 2023, which aims to incorporate the legal changes that were effected on the 19th June 2022. The PAYE Admin Penalty Phase 3 will include:

Admin Penalty Imposition – “Para 14(7) If the total amount of employees’ tax deducted or withheld, or which should have been deducted or withheld for the period described in subparagraph (3), is unknown, the Commissioner may estimate the total amount based on information readily available and impose the penalty under subparagraph (6) on the amount so estimated”;

Admin Penalty Adjustment – “Para 14(8) Where, upon determining the actual employees’ tax of the person in respect of whom the penalty was imposed under subparagraph (7), it appears that the total amount of employees’ tax was incorrectly estimated under subparagraph (7), the penalty must be adjusted in accordance with the correct amount of employees’ tax with effect from the date of the imposition of the penalty under subparagraph (6) read”

It is important to note that the effective date of the enhancement to the admin penalty process (imposition and adjustment) will only be from the date of promulgation (19 January 2022). The legal changes to the admin penalty imposition and adjustment rules may not be applicable to any recon period prior to 19 January 2022, which means that this takes effect for recon period 202202 and onwards.

NF 2023/39 – SARS Notice: Introducing the new eFiling landing page

NF 2023/39 – SARS Notice: Introducing the new eFiling landing page

NF 2023/39 – SARS Notice: Introducing the new eFiling landing page