The taxing of waiters and others who earn voluntary incomes – from tips, for example – may come under scrutiny in the 2017 National Budget Speech.
Minister of Finance, Pravin Gordhan is expected to announce new tax rates in his Budget Speech on 22 February 2017.
Patricia Williams, tax partner at Bowmans law firm noted that to promote equality and broaden the tax base more equitably, a new law may be introduced to deem all voluntary or other payments paid by customers for services rendered, as paid by the employer.
In this way, employee tax would be payable in the same manner as for other equivalent income earners, Williams said.
“One of the fundamental constitutional values is equality. However, technicalities of our tax system sometimes do not promote equality among people in similar circumstances.”
The legal expert highlighted an example where a normal salaried employee earning over R75,000 per year is currently subject to employees’ tax, whereas waiters who earn the same amount ordinarily escape employees’ tax on a technicality.
“Waiters should be paying income tax on these amounts, but because ‘tips’ are paid by the restaurant’s customers and not the restaurant itself, the waiters are supposed to submit an income tax return and declare and pay the relevant taxes themselves, instead of having employees’ tax deducted as the amounts are earned. Practically, these taxes are lost to the fiscus,” Williams said.
She pointed out that restaurateurs have always argued that it is very difficult for them to know how much waiters receive in ‘tips’.
“This might have been the case when most bills were paid in cash, but these days by far most restaurant bills are paid via credit card, or other forms of electronic transfer of funds. This should enable restaurateurs to determine amounts received by waiters much more accurately,” Williams said.
“With a small amount of extra effort, even cash receipts could be included in the reporting of tips,” the expert said.