The South African Revenue Service (SARS) in under a lot of pressure to collect taxes due to the fiscal deficit. In its effort to meet revenue targets, SARS has become robust in their tax collection efforts. Based on the 11th annual edition of the Tax Statistics published by National Treasury and the SARS in Pretoria on the 20th of December 2018, of the R1 216.5 billion collected in 2018, the highest contribution was from Personal Income Tax.
In aggregate, the contributions were Personal Income Tax at 38.1%, Corporate Income Tax at 18.1% and Value-added Tax (VAT) at 24.5% and these three taxes remain the largest sources of tax revenue and comprise about 80.7% of total tax revenue collections. As the tax revenue is mainly supported by personal income tax, it is evident that payroll taxes will remain a major focus for SARS, and this makes payroll compliance very important for organisations.
In its 2013/14 – 2017/18 Strategic Plan, SARS identified targeting eligible taxpayers as one of its strategic focus points to improve compliance and revenue collection. This puts industries such as hospitality, construction and mining industry which are characterised by high seasonal employees under pressure to ensure that payroll and payroll deductions are compliant with regulations.
In the hospitality, construction and mining industry, which is characterised by temporary employment, UIF becomes an integral part of this employment cycle as qualifying employees can claim unemployment benefits at UIF when employment has been terminated. Also, the women working at these industries are able to claim for maternity benefits at UIF.
Furthermore, the hospitality, construction and mining industries have employees with remuneration comprising of overtime. The calculation and taxation of the overtime must be accurate both for employee satisfaction and compliance. These industries also have a minimum wage which is governed by the Minimum Wage Act of South Africa which employers have to comply with.
According to Chwayita Deliwe, Director and Co-Founder of CN Outsourced Finance, compliance should not be seen as a statutory requirement but should instead be implemented as part of the business growth strategy. “Compliance in general supports business growth, and even more payroll compliance because it also affects employee satisfaction. Employees want to know that the organisations they work for are compliant and that they are contributing the money deducted from their salaries to the relevant authorities”, said Deliwe .
Uncertainties in the global economic environment, a widening budget deficit and an increasing public debt-to-GDP ratio place increasing pressure on SARS to meet challenging revenue targets. Growing national spending demands against an economy that’s projected to grow by 1,5% and an unemployment rate growing to 29% all point to pressure that SARS is under to help government meet its obligations to its citizens.
The existing tax base continues to be under pressure to help deliver economic relief, companies especially those in the hospitality, construction and mining industry which hire a lot of migrant employees must ensure that they are compliant with payroll to avoid costly fines from SARS.
“Changing annual payroll regulations make compliance to payroll a complex exercise. All employees have to be register for tax and correct deductions and contributions have to be accounted. Annual returns must also be submitted and filled on time”, Deliwe added.
Companies can outsource payroll to ensure compliance. Outsourcing payroll to experts gives an immediate benefit of process efficiencies and peace of mind of knowing that you are compliant, regardless of the company size. For small to medium businesses it is a cost saving, as the number of employees does not warrant a full-time employee doing this work. An outsourced payroll service provider will take care of the entire function from assisting with gathering employee information, advice on pensions and medical aids, tax calculations, overtime calculations, retrenchment packages, tax and statutory deductions, producing and distributing payslips, salary disbursements to submission of the PAYE returns and UIF declarations. They also manage submissions to SARS, UIF, and Compensation Fund.