Since March 2020, many small to medium enterprises (“SMEs”) have had to shut their doors for good, as a result of the economic lockdown across South Africa as a result of the COVID-19 pandemic, and for those who were holding on by a thread, the riots of July 2021 were the last straw.
At the time on lockdown being implemented world-wide, the South African Revenue Service (“SARS”) implemented relief to these SMEs in the form of “COVID-19 Relief”, which reflected on their tax returns and assessments on a monthly basis. The question now is, will the revenue authority show the same mercy to SMEs affected by the recent riots?
South Africa’s state-owned insurer, SASRIA, expects the insurance claims from the recent looting to far exceed what it can cover, and may very well need to partner with National Treasury to enable the full coverage of all insurance claims, resulting from riot damage.
This being said, upon payment of the claim, the SME will be covered for loss and damage of equipment, trading stock, and structural damage in some case, but the loss of revenue will be the owner’s burden, and not that of the State. Likewise, the SMEs’ tax obligations will, at this stage, see no reprieve from SARS, with Pay-As-You-Earn (“PAYE”) and Value-Added Tax (“VAT”), in the case of supplies purchased, still be due from the SME.
The SME Solution
Without SARS making any public announcement in the onset of the riots, it is up to SMEs to find the most amicable solution to both their financial and tax affairs, which solution may come in the form of a Compromise of Tax Debt Application (“the Compromise”) with the revenue authority.
The Compromise is aimed at aiding taxpayers, both individual and corporate, to reduce their tax liability by means of a Compromise Agreement (“the Agreement”), which is entered into with SARS.
The effect of entering into the Agreement, is having your tax liability greatly reduced, to an amount which is affordable to the taxpayer, granting the much-needed reprieve, and aiding the taxpayer on the road to recovery.
Once the agreement is duly executed, and payment is made as proposed by the taxpayer, and accepted by SARS’ Compromise Committee, the balance of the liability due to SARS is written-off by the revenue authority.
Insuring Your Financial Future
In order to protect yourself from SARS and cure the symptoms for once and for all, it remains the best strategy that you always ensure compliance.
Where you find yourself on the wrong side of SARS, there is a first mover advantage in seeking the appropriate tax advisory, ensuring the necessary steps are taken to protect both yourself and your bank balance from paying the price for what could be the smallest of mistakes. However, where things do go wrong, SARS must be engaged legally, and we generally find them utmost agreeable where a correct tax strategy is followed.
As a rule of thumb, any and all correspondence received from SARS should be immediately addressed, by a qualified tax specialist or tax attorney, which will not only serve to safeguard the taxpayer against SARS implementing collection measures, but also being specialists in their own right, the taxpayer will be correctly advised on the most appropriate solution to ensure the healing process is completed.