(c) South Africa Institute of Chartered Accountants. Contact SAICA for permission to reproduce this article., Tax

Turning tales of perception into facts of reality

By Madelein Grobler

Many tax practitioners and members in business (MIB) can tell a tale around their struggles around South African Revenue (SARS) Service passing unexplained journal entries on the statement of accounts for many years. SAICA has also taken part in this tale, continuously raising the concern during SARS engagements − since April 2015!

SAICA did a pay-as-you-earn (PAYE) survey during November 2018 with the purpose of confirming the frustrations members experience with unexplained PAYE journals and to clarify what the trends of the frustrations are.

Fact-finding 1: Unexplained journals

In respect of the prevalence of unexplained journals appearing on the PAYE account, 84% of tax practitioners confirmed that a material number of taxpayer clients were affected (ie more than 25% of total clients) and 53% of MIB experienced journal discrepancies. 

The general lack of communication by SARS was also prominent from the survey results. Only 1% confirmed that SARS always provide reasons for the reconciling items being passed as journal entries within the Employer Statement of Account (EMPSA), either automatically or when a specific request for reasons is submitted to SARS − leaving 99% of taxpayers with uncertainty.

The findings allude to SARS falling short in ‘maintaining’ taxpayers’ accounts by keeping accurate transactional data and informing taxpayers as to why changes have occurred, including the passing of journals.

Fact-finding 2: Clearing out refunds in favour of taxpayers

SARS practice to nullify tax refunds lying in favour of the taxpayer on the SARS account through the use of journals was confirmed by 60% of the survey respondents. It also occurs in the form of passing journals with ‘additional assessment’ as described in the EMPSA, without an accompanying letter of assessment.

The legality of assessments by mere journal adjustment is questionable, as it does not seem to be included in the definition of ‘assessment’ or ‘penalty assessment’ in the Tax Administration Act 28 of 2011 (the TAA). A journal entry should be a mere consequence of recording or correcting another lawful process such as an issued additional assessment, lawfully raised penalty/interest or communicated allocation on the taxpayer account. A mere journal on the taxpayer SARS account cannot be regarded as compliance with the law in regards to the issuing of an assessment and/or penalty assessment.

The clearing out of tax refunds without any notification is also in contravention of the TAA. Survey respondents noted, however, that 93% of the time this is being done. The TAA imposes an obligation on SARS to issue a notice of assessment and keep a record of such an assessment as well as the required particulars thereto.

Fact-finding 3: Reconciling and allocation of payments within the EMPSA

If you work with SARS payments you are aware that each SARS payment form is pre-populated with a unique payment reference number (PRN), enabling the taxpayer to match actual payments made to SARS.

63% of the respondents to the survey confirmed that the SARS system loses the PRN (as it is replaced with zeros) when various journals are processed within the EMPSA. SARS practice makes it extremely difficult, near to impossible, for taxpayers to reconcile payments and contravenes SARS’ obligation to maintain a taxpayer’s account for each taxpayer.

SARS also falls short of their obligation to record details for all tax periods of tax payments made by or on behalf of the taxpayer when it levies additional interest prior to allocating payments that have been made by such taxpayers. 83% of the respondents in the survey confirmed this SARS practice.

Taxpayers are experiencing that SARS re-allocate payments originally made for the skills development levy (SDL) and Unemployment Insurance Fund (UIF) in order to net off PAYE reconciling items resulting from journal entries being passed in the EMPSA. It results in penalties and interest being levied on the SDL and UIF shortfalls that are being fictitiously created by the journals. 70% of the respondents in the survey confirmed that they have experienced such practice, either themselves within their business or via a tax client’s payroll, within the past year.

Interestingly, the TAA provides that SARS may only re-allocate a payment made by the taxpayer on the date that the payment is received and provided there is an older outstanding tax debt, penalty or interest at that specific time when payment is made.

Fact-finding 4: Resolving EMPSA issues

The SARS Service Charter provides that SARS will attempt to respond to a tax query within 21 business days of receipt thereof. This practice has however not realised as far as it relates to EMPSA issues, as only 11% of the survey respondents indicated that they receive a response from SARS within 21 days after requesting SARS to resolve.

SARS also fall short in providing reasons for not adhering to their timeline, and when taxpayers follow up, the EMPSA query is logged anew (as an escalation), resetting the 21 business days again.

The SARS practice of deferring these matters to branches and the dispute resolution process is a considerable additional cost and time wastage not just for taxpayers, but also puts further strain on SARS channels to resolve matters, which by SARS’ own admission, are under significant resource strain.

Fact-finding 5: Impact and cost burden to business

The above account maintenance challenges result in a huge administration burden resulting in significant cost to taxpayers in managing their tax accounts properly. 68% of MIB respondents have a dedicated resource or alternatively set such function as a KPI for an internal resource to review and reconcile the EMPSA on a regular basis.

The frequent fluctuations create risks in doing business in that a taxpayer’s compliance status can change overnight, which artificially results in the creation of tax liabilities and affects the taxpayer’s tax clearance certificate (TCC) due to PAYE non-compliance. From the survey performed it is estimated that almost 1 500 businesses whose TCCs were rejected may be negatively impacted in doing business, as they cannot tender or in certain circumstances, actually lost a tender due to unexplained journals.


Overall, the survey was persuasive in that it confirmed the frustrations experienced by taxpayers in respect of SARS passing unexplained journals in the EMPSA as facts, including specifically journals clearing out of tax credits, allocating payments incorrectly and raising of interest and levying of penalties on these journals.

Based on SAICA’s survey, unexplained journals seem to be numerical changes made by SARS to the taxpayer’s account which have either no description or there is no proper legal explanation as to why it was done or how.

SAICA has made a detailed submission to the Office of the Tax Ombud (OTO) on 17 January 2019 in respect of the fluidity of the EMPSA and only time will tell if the OTO may bring a fairy tale ending to tax practitioners and SAICA once the OTO completes its review.

Madelein Grobler is SAICA Project Director: Tax Thought Leadership and Research.

This article was originally published in the July 2019 issue of ASA.