There is a nasty truth about receiving a SARS refund and it is you should NEVER want to receive one. When I tell people this they look at me with disbelief, and why wouldn’t they? Who doesn’t want to receive money? I’ll break down my personal experience with SARS refunds and why they aren’t always seen as a good thing.
The most common question people ask me
Submitting South African tax returns can be an interesting experience. It’s one I have had the pleasure of experiencing many times over the past years. The biggest anomaly is the gratitude
received for the simple submission of an individual’s tax return. Often this gratitude (above the monetary remuneration) is sheer appreciation which extends into other forms such as gifts and
referrals. It is at the end of the day an annual required service. It is just like renewing your license disk of your car each year and can be a fairly straightforward process.
A big aspect of the overwhelming appreciation I receive when clients receive refunds and they proclaim their fear that if they had not submitted the return correctly they would not have
received the refund from SARS. It is often the case that clients receive refunds year in year out and therefore value us undertaking the submission on their behalf as a “boutique” service offering and hold us “tax practitioners” in high esteem.
I often get hounded by my clients saying “How much money will I get back?” followed by “and when will I receive my refund?”
Why you don’t want a tax refund
The reason you do not want to receive a refund that your annual tax return is a reconciliation with SARS and not a submission of taxable income.
If you are a salaried individual, your tax is deducted monthly and paid over by your employer. If you earn any other income outside the scope of a salary – even if you are a salaried employee and earn income outside your salary you would constitute as a provisional taxpayer. This results in you needing to submit a payment on the additional income items bi-annually.
That being said, after your taxes have been paid over monthly or bi-annually your tax return becomes a reconciliation with SARS. It will be on the amount you have been paid to the amount you should have been paid.
On this premise, receiving a refund only means that you have overpaid your taxes and in theory never should have paid that money over to SARS in the first place.
Most payroll systems that employers use do tend to add in a marginal amount of additional tax to ensure that taxes are not underpaid and result in penalties. This results in salary earners, more often than not, receiving refunds of under R 1,000.
What should I do now?
As SARS refunds indicate an overpayment of tax, you have actually lost out due to the time value of money. As the adage of old says “a bird in the hand is worth two in the bush”. What I mean here is that by only getting your money a year later you have lost out on the interest you could of earned on it and your money is worth less because of inflation. Even if you would have spent it anyway – you do not want to be entitled to a refund. SARs are an arm of government and unfortunately for the taxpayer the deal can be unfairly one sided.
Should you underpay your tax, SARS will levy interest and penalties against these amounts you should have paid. This is if your estimation falls under 90% of the actual taxable income. It will thus make it safer for individuals and companies to continue to “overpay” their tax and receive the annual refund.
In the ideal world, you won’t get a refund nor do you have to pay in. This is because you have optimised your money and earned the best outcome for yourself. This is what you should be hoping
Cover image: Ziphozonke Lushaba, Independent Media