The SA Revenue Service (SARS) intends to change the way it calculates the effective tax rates of people who receive income from more than one source, one of those being a retirement fund. This will be introduced as from 1 March 2022. The aim is to prevent these taxpayers from accumulating large tax debts when they submit their income tax returns.

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According to Jean du Toit, Head of Tax Technical at Tax Consulting SA and Tax and Legal Expert, Chris Nel at Africorp Advisory, the introduction of the new legislation by SARS is “a double-edged sword” as the affected taxpayer isn’t necessarily getting relief in terms of the amount of tax paid, but rather when it is paid.

“Although the change creates a cleaner tax liability by avoiding a large tax bill come tax year-end, the flipside is that the taxpayer’s monthly income would be lower due to the higher PAYE tax obligation,” says Du Toit.

“Having said that, I do believe the change is welcomed as relevant taxpayers are better protected from the shock of an unexpected and considerably large tax debt at year-end. So, provided those who are affected are prepared and budget accordingly, they should be better placed for the long term.”

Nel adds that the amendment aligns with the principles of the South African tax collection system (the PAYE system), which is that SARS wants to collect taxes sooner rather than later and, as far as possible, for the exact amount of tax to be settled contemporaneously with the relevant tax period. Therefore, while it is framed as an amendment directed at providing relief to the taxpayer, the change would benefit the fiscus as well.

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