SARS warns 200,000 taxpayers about big fines

As an increasing number of South Africans withdraw money from their retirement funds following the implementation of the two-pot system, the South African Revenue Service (SARS) is tracking down non-compliant taxpayers.

On 1 September 2024, South Africa’s retirement system saw its most dramatic overhaul since 1994, with individuals now able to withdraw a portion of their savings prematurely. 

In short, the two-pot system will split all future contributions to retirement or pension funds into two ‘pots’.

Two-thirds of every contribution goes into the retirement ‘pot’, and the assets in this component cannot be accessed before retirement. 

At maturity, these must be used to purchase a retirement income product, such as a living annuity or guaranteed life annuity.

One-third of every contribution goes into the savings ‘pot’, from which one pre-retirement withdrawal of R2,000 or more can be made per tax year.

Despite warnings from several asset managers that withdrawals should only be made if absolutely necessary, thousands of South Africans have withdrawn money from their retirement funds since 1 September 2024.

In a recent media release, SARS said it had received over 1.2 million applications for tax directives for withdrawals from the two-pot system’s Savings Withdrawal Benefit. 

Of the total number of applications 1.15 million tax directives were approved for funds to be released. 

SARS said the remainder were declined for various reasons, including incorrect identity numbers and tax numbers.

The taxman said a total gross lump sum of R21.4 billion has been paid out to date.

“SARS would like to thank retirement fund management entities for their friendly and professional cooperation that has allowed SARS to play its part effectively and efficiently by speedily issuing the volumes of tax directives needed to date,” the revenue service said.

One of the reasons asset managers warned South Africans against withdrawing money from their savings pot unless absolutely necessary is the tax implications that come with withdrawals.

Tax is imposed on a withdrawal at a marginal tax rate ranging between 18% and 45%, depending on their scales.  

“Despite this public information, there are taxpayers who are wilfully understating their incomes,” SARS said.

SARS Commissioner Edward Kieswetter said, “SARS is deeply concerned that 213,654 taxpayers have been identified where they have declared incorrect taxable income with the view to have a more favourable tax rate.” 

“If a taxpayer understates their income, they are intentionally involved in evading their tax obligation. A penalty will be imposed on taxpayers who have understated income.” 

“Finally, I wish to caution taxpayers to refrain from this conduct that borders on criminality as there are real consequences for this behaviour.”

South Africans are encouraged to heed the taxman’s warning, as SARS has been on a compliance crusade over the past year.

In its efforts to increase tax revenue through higher compliance, SARS has cracked down on non-compliant taxpayers, imposing fines and even jail sentences for some delinquent taxpayers.

High net-worth individuals, in particular, have become one of SARS’ biggest targets.

SARS launched its High Wealth Individual (HWI) Unit in April 2021 to provide clarity and certainty to HWI taxpayers.

This unit aims to facilitate these individuals’ compliance with their tax regulations by offering specialised services.

“Our focus is to promote voluntary compliance, enhance revenue collection, and foster a fair tax environment,” SARS explained.

“As much as the HWI Unit is dedicated to assisting taxpayers with their legal obligations, we are equally committed to detecting and deterring non-compliance.”

SARS’ HWI Unit’s mandate is to deal with the complexity of HWI taxpayers’ tax affairs and afford them a differentiated and dedicated end-to-end service.

“By delivering an efficient service to HWI taxpayers, the HWI Unit aims to improve voluntary compliance,” the revenue service said.

This year, SARS increased its crackdown on HWIs by introducing a new initiative targeting these taxpayers.

Tax Consulting South Africa said SARS started sending these taxpayers an introduction note to their “dedicated relationship managers”.

“The note is framed as a shift in how SARS interacts with its high-value taxpayers, offering a more personalised approach to tax compliance and advisory services,” it said.

The revenue service defines an HWI as someone with gross assets worth R75 million or more.

“This group of taxpayers plays an important role in South Africa’s economy and in sustaining revenue growth,” SARS said.