In an effort to improve its revenue collection, the South African Revenue Service (SARS) has established an illicit economy unit that will be re-introduced in April 2019 to strengthen its tax collection process.
One of the functions of this unit is to ensure religious institutions and their employees comply with existing tax legislation and that everyone that is liable to pay tax is in fact paying their taxes. Even as a Public Benefit Organisation (PBO), religious institutions are not exempt from tax compliance audits.
Religious institutions must apply to have PBO status. Failing to apply and receive PBO status would make these organisations fully taxable like any other entity. PBOs only qualify for certain tax exemptions, specifically income tax and may include any one of the following exemptions depending on the case at hand: donations tax, estate duty; and transfer duty.
Although PBOs, such as religious organisations are tax exempt, the SARS has become concerned about these institutions’ tax compliance relating to their other revenue streams.
PBOs do not have full exemption on the income they receive. Income tax could arise when a religious institution engages in business activities that fall outside of their exempt activities. Examples of business activities giving rise to trading income could be from a bookstore or a coffee shop which would generate a profit from sales.
PBOs are liable to withhold PAYE from their employees who receive salaries and/or fringe benefits such as vehicles, accommodation, etc. PBOs are also regulated by Section 30 (3) (iv) (d) of the Income Tax Act in terms of the amounts paid to employees which cannot be excessive in comparison to what is considered reasonable in the sector.
The amounts paid to employees of religious institutions came under scrutiny after the “high-flying” lifestyles of some of the South African spiritual leaders came to light which has since been escalated to The Asset Forfeiture Unit and the Hawks.
Should it come to SARS’ attention that employees are receiving exceptionally high salaries, the organisation could lose its PBO status if corrective steps are not taken in the notice period prescribed by the Commissioner in terms of Section 30 (5) of the Income Tax Act.
SARS are also investigating religious organisations not registered as PBOs that have been receiving donations from congregants with claims that they are tax free. Congregants donate large sums of money under the false pretences that they will receive some tax relief.
SARS is still engaging with religious institutions and investigating the growing non-compliance in this sector. This is just one of SARS’ efforts to ensure tax exemptions are being correctly applied and that all taxpayers are compliant.
Nicole van Reenen
Accounts Clerk, Durban