SARS may soon require tax reference numbers from PBOs
“But when you give to the needy, do not let your left hand know what your right hand is doing,” Matthew 6:3. When it comes to taxpayers claiming deductions for donations to PBOs, this kind of ambiguity can shield serious tax fraud. Armed with a recent amendment, SARS may soon require more information from PBOs.
Nicole Copley, founder of ngoLAW, believes SARS may soon require PBOs to supply the tax reference numbers of their donors.
The legal mechanism for this comes from the phrase, “such further information as the Commissioner may prescribe by public notice,” recently added to section 18A of the Income Tax Act.
SARS has yet to issue such a public notice. However, if or when published, Copley believes the “further information” will be the tax reference numbers of donors. “We’ve since had meetings with SARS, and our initial feeling was right. It’s tax reference numbers. SARS calls it third-party data that will need to be assembled by the organisations issuing the section 18A receipt.”
SARS did not elaborate on what further information may entail. However, they did refer Accounting Weekly to an explanatory memorandum which states, “Third party reporting will be extended in future to cover the receipts issued.”
When is this public notice likely to be issued? SARS stated that no date has been set. “I think it’s going to happen within the next one or two filing seasons,” says Copley.
It’s best to be prepared
If this requirement does materialise, Copley believes it would be helpful for accountants to encourage their PBO clients to start collecting tax reference numbers. “Particularly people who’ve got repeat donors and people who are giving monthly donations.” Copley believes it could be overwhelming for PBOs to assemble this data once the requirement to do so comes into effect, particularly because people are often reluctant to give away their tax reference
numbers.
The downside to this potential new requirement is that it places an additional administrative burden on PBOs. Large, well-funded PBOs are more likely to be able to adhere to requirements compared to smaller PBOs. Compliance is already a significant problem in the sector.
SARS is not concerned about further administrative requirements saying, “The current legislative provisions already require section 18A approved institutions to keep records of all tax-deductible receipts issued during any tax period, for provision to SARS when called upon to do so.”
Trying to get ahead of the bad actors
SARS is attempting a careful balancing act. Any new requirements placed on PBOs will strain their resources. However, tax abuse of section 18A undermines revenue collection.
Until recently, SARS had scant capacity to verify whether section 18A deductions were legitimate unless an audit occurred. Copley explains that SARS’ systems didn’t check the validity of PBO numbers that taxpayers entered when claiming a charitable donation.
“It didn’t matter what number you put in there. You could put in your granny’s birthday,” says Copley. “However, in the 2017 tax filing year, we suddenly started getting mayday calls from all sorts of organisations, particularly those with many small donors who are perhaps not that tech literate. They were putting in a number, but now their claims were bouncing.”
Fraudsters have found a workaround, explains Copley. “Instead of people making up numbers, they’ve switched to harvesting real PBO numbers from the source website.” For this reason, Copley has advised her clients to stop posting their PBO numbers publicly.
To fight this abuse, SARS will have to verify what the donor and PBO’s left and right hands are doing, hence the likelihood of SARS requiring tax reference numbers of PBOs in the future.
