The South African Revenue Service (SARS) will engage religious institutions with the intention to investigate possible tax non-compliance in this sector. The decision follows SARS’ own preliminary investigation, its meeting with the CRL Rights Commission and general reports suggesting that certain religious organisations and leaders are not in compliance with tax laws and may be enriching themselves at the expense of tax compliance and their altruistic and philanthropic purpose.
SARS also acknowledges that a number of religious organisations are indeed complying with their tax obligations. Religious institutions may apply to SARS to be exempted from the payment of Income Tax and certain other taxes in terms of certain sections of the Income Tax Act. Once such tax exemption status is granted, there are a number of specific criteria that have to be complied with, including but not limited to:
Conducting activities in a non-profit manner with an altruistic or philanthropic intent;
No such activity is intended to directly or indirectly promote economic self-interest of any person other than by way of reasonable remuneration paid for services rendered;
Religious institutions are prohibited from directly or indirectly distributing funds to any person other than in performing their religious activity
SARS is also concerned that proper taxes on trading activities that are unrelated to religious activities, as well as Pay As You Earn (PAYE) on remuneration and other benefits, are not being paid in terms of legislation. Over and above this, SARS has further found a number of religious institutions issuing tax deductible receipts in terms of section 18A of the Income Tax Act, 1962, for donations towards religious activities. This is not permitted in terms of the Income Tax Act, 1962.
These entities are encouraged to use the SARS Voluntary Disclosure Programme to regulate their taxes. SARS will be reaching out to the CRL Rights Commission and faith community to raise awareness about the relevant tax obligations of religious institutions where applicable.
Should you require advice in this regard please do not hesitate to contact us for professional advice.