Data quality stumps e-filing

By Leon Engelbrecht, ITWeb senior writer

Johannesburg, 16 May 2008

Poor quality third-party data - mainly from employers - has stumped the SA Revenue Service's R2 billion tax automation drive, announced last year.

This has prompted finance minister Trevor Manuel to announce a sea change in Pay-As-You-Earn (PAYE) tax collection.

SARS last year introduced a new personal income tax regime that relied on a simplified tax form that could be completed online. The form would be verified using third-party data on taxpayers provided by their banks, insurance companies and employers, rather than voluminous bundles of supporting documents.

However, SARS commissioner Pravin Gordhan and his CIO, Barry Hore, say much of the third-party data received - especially from employers - was shoddy. The simplified tax form also turned out to be more complicated than advertised and left many taxpayers hopelessly confused.

The direct result was 600 000 income tax assessments flagged as incomplete, incorrect or unsigned. A further 400 000 could not be processed as they were at variance with the third-party data, raising questions whether this was due to mistake or dishonesty.

In addition to this one million, Gordhan adds in a further 145 000 cases in which the latter seemed the case and those returns are being further investigated. Lastly, 150 000 taxpayers provided SARS incorrect bank details, meaning the tax service could not refund them.

Another approach

"That million keeps us awake at night," says Hore. "We won't get this right unless the third-party data is correct... the amount of error [currently] happening in this process is significant," he adds, as is the handwriting challenges encountered with the manually completed forms.

Manuel, Gordhan and Hore say a two-track approach will be used for this year's tax season. The first entails the effective transfer of responsibility for PAYE from employee to employer, partly to ensure data quality and partly to further lighten the burden on taxpayers The second involves pre-populating the individual taxpayer's tax return with reconciled third-party data and placing an onus on the taxpayer to contest the accuracy of that data.

SARS plans to raise R642 billion in revenue this year. Gordhan says about 30% of this will come from individual taxpayers and PAYE tax makes up 93% of that percentile. "Personal income tax is a crucial part of the tax collection system," he notes.

Hore emphasises that in providing SARS accurate employee PAYE data, the state agency is not requiring anything from business that it should not be providing SARS with already, albeit with "differing degrees of success".

Deadline countdown

One employer of 4 000 - who Hore declined to identify to protect the guilty - last year got every IRP5 it issued wrong, causing headaches for its staff, as well as SARS.

For this reason, Manuel has amended the Income Tax Act to require employers to submit and have SARS approve PAYE reconciliation statements prior to businesses issuing staff IRP5 tax certificates.

Manuel jokes that this will turn SARS into something akin to an airline, offering business class and economy class.

Businesses must this year file reconciled EMP501 forms between 1 July and 29 August. Individual taxpayers must file their returns after 1 September, but before 21 November, while trusts and "exempt institutions" will have until 19 December.

Individual e-filers have until 23 January and trusts, as well as "exempt institutions", have a 20 February deadline.