What SARS’ statement on religious institutions really means

In a recent statement, Mark Kingon, the acting commissioner of the South African Revenue Service (SARS), made it clear that the revenue service would ensure religious institutions – which are usually exempt from tax – are tax compliant.

This is according to Tertius Troost, Tax Manager at Mazars, who says that this statement shows SARS is taking its commitment to improving its revenue collection efforts seriously. “In the 2019 Budget Speech, the inefficiencies at SARS was featured as one of the major concerns regarding tax revenue collection in South Africa. This led to a number of widely publicised changes being made at SARS, including the creation of a unit focusing on the illicit economy and improving its ability to collect taxes from all of its existing avenues.” 

Tertius Troost

He explains that the heightened interest towards religious institutions falls under the latter category. “The acting commissioner was not saying that any of the rules regarding the tax status of religious institutions would change, and it certainly should not be interpreted as SARS declaring that churches would now be taxed. Rather, SARS intends to make sure that all of the existing tax legislation directed at religious institutions and their employees are followed, and that everyone that is liable to pay tax is indeed paying their fair share.”

Employees who receive salaries or fringe benefits such as housing, vehicles or other services as a direct result of their employment from religious institutions, are not exempt from paying tax. This was made clear by Kingon, who stated that SARS will in all likelihood conduct lifestyle audits on certain employees of religious institutions in order to ascertain whether they are indeed being taxed correctly and that they are not in fact avoiding taxes that they rightfully owe.

“Looking at the churches themselves, SARS may start by confirming that these religious institutions are in fact registered as Public Benefit Organisations (PBOs) with the Tax Exemption Unit (a unit within SARS)”, says Troost.

He adds that there are also a number of existing regulations that apply to religious institutions. “One of the interesting points to note here is that a PBO cannot pay employees amounts that are deemed to be excessive with regard to what is generally considered to be reasonable in the sector in relation to the service rendered.”

If SARS does, in fact, find that some church employees are being paid unreasonably high salaries, it could lead to further action being taken and even result in the church losing its status as a PBO, says Troost.

“We believe that this is the first of many similar commitments that SARS will make across various business sectors as it starts to tighten up its systems and procedures for collecting the taxes that Treasury is due. This is a promising development as SARS begins to ensure that tax exemptions are indeed being utilised correctly and that all taxpayers contribute their fair share,” he concludes.