Despite a steady rise in the number of provisional taxpayers and trusts filing their tax returns, the South African Revenue Service (SARS) remains firm in its stance that much work is still needed to achieve full compliance, particularly by trusts.
The filing season for the 2024 tax year for provisional taxpayers and trusts closed on 20 January. Although the revenue service acknowledges progress, Commissioner Edward Kieswetter (pictured) made it clear that there is no room for complacency.
“In this regard, SARS will continue to employ the latest technology, artificial intelligence, and data science to foster voluntary compliance by ensuring that transacting with the organisation is an effortless and seamless experience that will lessen compliance burden. This will comport with SARS’s overall mission to realise our promise that ‘the best service is no service at all’,” Kieswetter stated.
The increased scrutiny on trusts comes against the backdrop of the BHI Trust scandal, which may have reinforced SARS’s resolve to clamp down on non-compliance in this sector.
Read: BHI Trust: R12.4 million recovered, R1.5 billion still at stake
SARS’s preliminary figures indicate that 84 134 trust returns were received for the 2024 tax year, a notable increase from 68 890 in the previous year. Additionally, there were 80 132 trust returns filed for prior years, bringing the total trust filings to 164 266.
A trust is a legal entity where assets are managed by trustees on behalf of beneficiaries, governed by a trust deed. Trusts fall into two primary categories: inter vivos trusts, created during the founder’s lifetime, and testamentary trusts, which come into effect after the founder’s death. As separate taxpayers, trusts are subject to a flat tax rate of 45% on taxable income. However, distributions to beneficiaries may be taxed in their hands under the conduit principle, thereby reducing the trust’s tax liability.
Trusts are required to file an annual ITR12T tax return and adhere to strict SARS compliance measures.
SARS has reiterated that both SARS and taxpayers play a vital role in maintaining the country’s public finances.
“All categories of taxpayers including trusts, and even economically inactive ones, must register for tax, file returns, and pay on time. Non-compliance with tax law is a criminal offence and will attract penalties and interest,” SARS warned.
The tax authority further stressed that trustees bear personal legal liability for their trusts’ tax obligations, even when using a tax practitioner.
“SARS will hold all the trustees of a trust jointly and individually liable for their trusts’ tax compliance.”
Provisional taxpayers in the spotlight
Provisional taxpayers – those who earn income not subject to PAYE (Pay-As-You-Earn) deductions – are also under increased scrutiny. This category includes freelancers, independent contractors, sole proprietors, company directors without fixed salaries, investors earning rental or business income, companies, and trusts.
Provisional taxpayers must estimate and pay their tax liability in advance through two or three payments:
- The first payment is due by 31 August.
- The second payment is required by the end of February.
- A third optional payment, if necessary, is due by 30 September.
According to SARS, 543 252 provisional taxpayers submitted their annual income tax returns for the 2024 tax year – an increase of 4.76% from 517 356 in 2023. Additionally, 162 690 taxpayers filed outstanding returns from previous years, down from 242 911 in the prior tax year.
In total, 705 942 provisional taxpayers filed returns this season.
Although SARS views this increase as encouraging, it has underscored the ongoing need for enhanced compliance.
“There is still a long way to go to ensure acceptable levels of compliance in these categories of taxpayers,” SARS noted.
The role of non-provisional taxpayers
Unlike provisional taxpayers, non-provisional taxpayers have their income fully taxed through PAYE deductions by their employers. This group includes salaried employees with no significant secondary income.
For the 2024 tax year, SARS recorded 6 797 055 non-provisional taxpayers filing their returns or being automatically assessed. Of these, 4 765 753 were auto-assessed – a sharp 24.94% increase from the previous year’s 3 577 239.
SARS attributes this rise to its improved automatic assessment system, which simplifies compliance for taxpayers.
“This reflects a general increase in compliance in this category, but undoubtedly there is still a long way to declare that every taxpayer who is supposed to file their return is dutifully fulfilling their legal obligation. Increasingly, SARS will focus on encouraging voluntary compliance in these categories of taxpayers,” SARS noted.
How much do provisional taxpayers and trusts contribute to revenue?
The exact contribution of provisional taxpayers and trusts to South Africa’s tax revenue is not explicitly published. However, SARS and National Treasury’s tax statistics provide insight into the broader revenue picture:
- Personal income tax (PIT) accounts for about 39% of total tax revenue, with a portion coming from provisional taxpayers.
- Corporate income tax (CIT), which includes some provisional taxpayers, contributes around 16%.
- Value-added tax makes up about 25%.
Provisional taxpayers contribute to both PIT and CIT, making it difficult to isolate their precise impact on revenue collection. Trusts, because of their unique tax structuring, represent a relatively small portion of the overall tax base.
In line with its strategic objectives, SARS remains committed to making tax compliance as seamless as possible while cracking down on deliberate non-compliance.
“SARS is also making it hard and costly for taxpayers who deliberately do not comply with tax law,” the tax authority warned.
As SARS continues to refine its technological and enforcement capabilities, taxpayers –whether individuals, businesses, or trusts – can expect heightened scrutiny and a more data-driven approach to tax compliance in the years ahead.
