Tax Compliance and Incentives in the Scrap Metals Industry
In light of the recently proposed regulatory changes within the scrap metal industry, tax practitioners play a crucial role in ensuring their clients are compliant with both the tax laws and industry-specific regulations.
Tax Compliance
Working with a company in the scrap material industry involves understanding the specific tax regulations that apply. Below we will highlight the essential tax considerations for these businesses.
Understanding the Scrap Material Industry
The scrap material industry deals with collecting, processing, and selling recyclable materials like metal, paper, and plastic.
The key players involved are the collectors, processors, and sellers of scrap materials.
Key Tax Obligations
Scrap material companies in South Africa must comply with several tax requirements, including:
Income tax considerations
Deduct business expenses from total revenue to determine taxable income:
Business expenses include costs of collecting, processing, and selling scrap materials.
Capital allowances: include depreciation on machinery and equipment used in the business.
Environmental expenses are costs related to environmental protection and compliance.
Apply the corporate tax rate (currently 27% for companies with effect from 1 April 2023).
Compliance and Record-Keeping
Maintain detailed and accurate records of all transactions, expenses, and income.
The new regulations requires accurate registers of all the transactions including details of the buyers and sellers the company engaged with in that year of assessment.
Value-Added Tax (VAT)
Registration is mandatory if the company’s taxable supplies exceed R1 million in 12 months. VAT Standard rate is 15%.and must be filed on time to avoid interest and penalties.
Customs and Excise Duties
Ensure that the relevant duties are calculated and paid if the company imports/export scrap materials.
Employee Taxes (PAYE, UIF, SDL)
PAYE (Pay-As-You-Earn) should be deducted from employees’ salaries.
UIF (Unemployment Insurance Fund) 1% is deducted from the employee and 1% is paid by the employer.
SDL (Skills Development Levy) is 1% of the total salary bill if annual payroll exceeds R500,000.
Important Tax Deadlines
Provisional Tax is paid twice a year (first period is 6 months into the tax year, second is at the end of the tax year).
Income Tax Return is submitted annually by the date specified by SARS.
VAT Returns are due every two months.
EMP201 Returns are submitted monthly for PAYE, UIF, and SDL.
Common Pitfalls and Tips
Ensure all cash transactions are properly recorded to avoid discrepancies.
Accurately value stock to ensure correct income reporting.
How Can Tax Practitioners Assist
Tax practitioners can assist clients by:
Developing strategies to minimise tax liabilities through legitimate means such as deductions, credits, and exemptions specific to the scrap metal industry.
Advise clients on the most tax-efficient business structures, whether sole proprietorships, partnerships and types of business corporations.
Planning for large transactions, such as the purchase of equipment or mergers and acquisitions, to ensure they are structured in a tax-efficient manner.
Let your client in the scrap metal industry know about the services you provide using the free CIBA email template below!
Client Acceptance and Due Diligence Procedures
The implementation of the amended Regulations for Dealers and Recyclers under the Second-Hand Goods Act (SHGA) of 2009 introduces stringent requirements that necessitate comprehensive client acceptance and due diligence procedures by tax practitioners.
Client Acceptance Procedures
Tax practitioners should establish rigorous client acceptance procedures to ensure that they are not inadvertently supporting illegal activities. This involves verifying the legitimacy of scrap metal dealers by checking their compliance with the SHGA, ensuring they have a satisfactory Tax Compliance Status, and validating their business registrations. Practitioners should also assess the potential risk associated with new clients by reviewing their past compliance history and their operations' transparency.
Due Diligence Under the Tax Administration Act
The Tax Administration Act mandates thorough due diligence to uphold the integrity of financial systems. For tax practitioners working with scrap metal dealers, it is essential to:
Verify the accuracy of the client's financial statements and records, particularly concerning purchases and sales of scrap metal.
Ensure that clients maintain a robust system for recording transactions, which aligns with the new input-output reporting requirements.
Assist clients in setting up and maintaining the Metal Trading System, ensuring that monthly electronic reports are accurately and promptly submitted to the International Trade Administration Commission.
Advise clients on maintaining a satisfactory Tax Compliance Status, a prerequisite for registration under the new regulations.
Keep up to date on key industry regulations with CIBA’s Accountant in Practice Plus Tax subscription
What You Will Learn from the Accountant-in-Practice Plus Tax Series
By joining this series, you'll have monthly access to webinars that cover a wide range of topics, including ethics, financial reporting, auditing, law, technology, management, and taxation. This series will equip you to:
Stay updated on the latest laws and understand how they affect your business, your practice, and your clients.
Prepare compliant financial statements quickly and accurately.
Produce trustworthy financial reports.
Gain a solid understanding of the regulations and laws in your field.
Accurately calculate and file tax returns.
Offer informed tax advisory services.
Learn how to conduct business valuations.
Improve your skills in business advising.
