MINUTES OF THE STATEMENT OF ACCOUNTS DISCUSSION WITH THE OFFICE OF THE TAX OMBUD HELD ON 6 NOVEMBER 2017 AT 87 FRIKKIE DE BEER STREET, MENLYN. ATTENDEES: Eric Mkhawane Gert van Heerden Talitha Maude Sibusiso Thungo Marelize Lofte-Eaton Madelein Grobler James Coutino Beatrie Gouws Cherie Carstens Wilma van der Westhuizen CEO, Tax Ombud Senior Manager Legal, OTO Senior Manager Operations, OTO Systemic investigator, OTO BASA SAICA ASISA PAGSA SAIT ASISA 1. WELCOME The chairperson welcomed the attendees 2. OBJECTIVE OF THIS MEETING The industry bodies thanked the Office of Tax Ombud (OTO) for the opportunity to raise the PAYE Statement of Account (SAO) issues as the SARS SOA system has been a problem for the last 10 years and despite several industry forums and specific taxpayer engagements with SARS, this has not been changed. SARS acknowledges that there are changes needed but it seems that it is not a priority despite the time and effort spend
by SARS officials and taxpayers to constantly reconcile the SOAs and correct the incorrect allocations. 3. BACKGROUND The Industry explained the basic set up of the PAYE Account System that allocates any amount paid to PAYE, UIF and SDL in that sequence and that where a debt arises in any period all subsequent payments are re-allocated in the same sequence to recover the debt. All re-allocations are done without informing the Taxpayer that leads to endless reconciliation issues. Most corporates have dedicated resources that review and reconcile SOAs daily as balances change during any day as a result of SARS back-end journal entries that can result in pages of journal entries for one month where the taxpayer has no idea why the journals have been done. The discrepancies in the SOAs results in the rejection of a Tax Clearance Certificate that prevents a taxpayer to obtain business contracts due to PAYE non-compliance. In some instances, the Banks are appointed as agents to recover the debt from the noncompliant taxpayer. We have no objection where it is a legitimate debt but we refer to the debt created by SOA allocations. 4. SPECIFIC ISSUES RAISED 4.1 SARS uses Credits on the account to recover certain debts (including penalties and interest) on the account. Due to the lack of communication between SARS and the taxpayer it is difficult to keep track of the credit on your account and what year it actually relates too. In the event where a debt is outstanding the taxpayer would rather settle that debt with an additional payment with a unique PRN to ensure allocation is correct. 4.2 The allocation and use of credits that appear on the Statement of account are allocated and utilised against previous periods where there was no debt outstanding: 4.2.1 Assessments not being raised for changes that are made 4.2.2 Absorbing credits by raising an assessment and once the required information and investigation being complete, the credit is not re-instated. 2 P a g e
4.3 Where a credit needs to be recovered on an account, it can only be done once the monthly return and payment is done. When a monthly return is declared earlier the process of off-setting the credit is manual and leads to mistakes. This should be automated. 4.4 When an outstanding amount is paid to settle a debt, there is additional interest raised until the payment has been allocated by SARS. No communication is send to a taxpayer and TCC is declined despite the payment being made. 4.5 The ETI challenge is that the credits reflecting on the SOA do not correspond with the totals as per the EMP501 that was submitted no-one knows where SARS got the totals reflecting on the SOA from, but bottom line is that the balance of unutilized ETI credits at the end of Aug and Feb conveniently comes NIL per the SOA. Furthermore, penalties and interest are charged on the account if the new ETI credit does not exceed the actual ETI credit submitted per the EMP201 and EMP501. Even though this was raised with SARS previously no change has been made to correct this and SARS officials cannot provide an explanation why this happens. 4.6 SARS unilaterally raises 'additional assessments' on taxpayers' accounts- in some instances to clear credits due to taxpayers. No communication is sent to the taxpayer indicating when these assessments are raised and no indication of the legal basis under which credits are unilaterally raised. This becomes particularly problematic in prior tax years. 4.7 When 'additional assessments' are unilaterally raised by SARS on taxpayers' accounts, the SARS accounts system automatically re-allocates existing monthly payments (on submitted EMP201s) to the new PAYE liability raises (as opposed to the PAYE, SDL and UIF) i.e. the SARS system raises a liability and automatically allocates the original payment (for PAYE, SDL and UIF) to the PAYE only. This result in penalties and interest automatically raised on the SDL and UIF accounts that cannot be object to or waived. 4.8 The EMPSA does not reflect the original date of payment. One can only look at the PRN number to identify the date of payment. When various journals are processed by SARS, the PRN number is dropped and replaced by 000000 under 3 P a g e
the transaction reference column. Employers can therefore not identify the payments used which leads to reconciliation difficulties. See screenshot below where the payment date was reflected on the "old statement of accounts" vs how the information is reflected on the new EMPSA. Furthermore, it was found that the PRN number used for re-allocations on the SARS system does not reconcile to the original payment date of those funds. If taxpayers request more detail they will notice that the payment date and the PRN number do not co inside. This makes it very difficult to trace the reallocated money to correct payment periods. See example below where the PRN number changed. The payments allocated in this May 2016 period are all payments with the same transaction number of xxxxxxxxxxlc2016058, yet they do have different payment dates and were not part of the payment due in May 2016. Some of these payments came from prior periods. Where an instruction is given to SARS to transfer this back to the original period it makes it almost impossible to do as the payment cannot be clearly identified on the EMPSA with the correct payment date and PRN number. 4.9 Unexplained penalties and interest charged on payment and payment journals done by SARS. 4 P a g e
4.9.1 Revenue is moved from SDL and UIF to PAYE to clear the PAYE recon items. Penalties and interest are raised then on any shortfalls in SDL and UIF 4.9.2 Unexplained payment and payment journals will be raised when requesting a new statement of account from SARS E-Filing website. 4.10 SARS does not action requests within reasonable time resulting in additional penalties and interest raised as SARS has 21 days to respond but this is not adhered to. 4.10.1 Numerous requests for assistance has been sent to SARS to reverse the cancelled certificates on reference number 7xxxxxxxxx but to no avail. 4.10.2 Interest and penalties are being charged on R2 764 015.34 for cancelled certificates that has not been reversed by SARS. 4.10.3 Logging the request with lbcqueries@sars.gov.za requesting assistance did not resolve the matter 4.10.4 Meetings between Client and SARS dating as far back as March 2017 did not resolve the matter 4.10.5 An enquiry was received from SARS in October 2017 asking if the matter has been resolved 4.10.6 The matter is still outstanding 4.11 Raising objections and requesting explanations for the unexplained reconciling items are now becoming futile. The recons of SARS statement of accounts for reference numbers 7xxxxxxx7 and 7xxxxxxxx7 explain the above. 4.12 SOA is cluttered with unexplained journals as per the following example: Below is an extract from our EMP statement for period 201706. This seems to represent a normal month it contains 7 line items. (It should contain only 5 lines Declaration, Payment, 3 ETI line items. What is the purpose is of the Payment and Payment Journal dated 2017/10/03)? 5 P a g e
The statements since March 2014 are attached. We also include a summary of the number of line items per month. These statements are littered with clutter. There are transactions on the 2014 statement dated 2017. Most of the transactions are unexplained journals processed by SARS, and then their attempts to reverse them. Things seem to run smoothly, and then suddenly you discover that unexplained penalties have been raised in prior years, which then has a ripple effect (as the payments which have already been made and allocated to declarations, are then reallocated to settle the penalties. This then results in further underpayment penalties and interest being raised.) 4.13 Outstanding EMP501s is also a common query. In this example, the current PAYE statement of account currently reflects Outstanding EMP501 reconciliations under the compliance section. All reconciliations have been submitted and confirmation of this received from SARS and this is has had no impact on the TCC status. 4.14 There is a concern in the end to end process of payments, reporting and correcting the SOAs. Where an amount for UIF and SDL is amended with a journal and not corrected with the Seta or DOL the taxpayer cannot claim against the payments made. 5. WAY FORWARD The Industry agreed to send examples of these issues to the OTO as soon as Friday the 10 th of November to assist the OTO to draft a letter to SARS and should it be warranted, request a review of this issue where questionnaires be send to taxpayers to provide input. 6 P a g e