South African taxpayers with different sources of income are often shocked when they discover at the end of the tax year that pay-as-you-earn (PAYE) deductions did not cover their tax liabilities and that they owe money to the South African Revenue Service (SARS).
According to Peter Stephan, senior policy adviser at the Association for Savings and Investment South Africa (ASISA), pensioners who are not provisional taxpayers but who receive annuities from different sources, are particularly at risk of this happening and often do not have the means to pay the tax due to SARS.
Stephan points out that until the tax legislation, that aims to address this problem in part, comes into effect from 1 March 2022, the best way to avoid a nasty tax shock at the end of the tax year is to understand your total tax liability when you are not a provisional taxpayer. This will enable you to request that your employer as well as insurance companies and/or retirement funds apply a higher rate of PAYE to your income. “Ensuring that you are appropriately taxed during the year will ease your financial burden and eliminate surprises when submitting your tax return,” Stephan explains.
But why does this happen? Stephan points out that since you are required to pay income tax on your total combined annual taxable income, the tax liability on your total taxable income may be much higher than the combined amount of PAYE that was applied to each source of income.
Click here to download the ASISA media release that includes an example which explains the situation as well as a formula that will enable you to establish your taxable income and your tax liability.