Tax debt is an easy enough term to define; being an amount of tax that is “due and payable” to the South African Revenue Service (SARS) in terms of the Tax Administration Act or TAA, however, this is just the tip of the iceberg. It will often be a costly consequence and can cause financial distress to those uninformed victims whom it affects.
Luckily, if the silent killer of a tax debt enters your doors, there are still ways to protect yourself to eliminate the potential threat.
How a Tax Debt Arises
A tax debt usually arises out of negligence, however, there are instances whereby it is a case of intentional non-payment or further compliance infringements.
It is important to know primarily, where a tax debt can originate from. The usual culprits here are:
- Administrative penalties on late or non-submission of tax returns;
- Estimated assessments resulting from a failure to submit tax returns;
- The submission of tax returns, without any payment thereon;
- Partial payment of a tax liability, or unpaid interest and penalties;
- Entrusting an incompetent advisor with your tax compliance; and
- SARS issuing an additional assessment, which you are unaware of.
Criminality of Non-Compliance
Section 234 of the TAA outlines the acts, and omissions that SARS consider as criminal offences, relating to non-compliance with tax Acts. This section further states that any person who wilfully commits one of the listed acts, or wilfully / negligently fails to act, may be liable, upon conviction, to a fine, or imprisonment of up to 2 years.
This is only the tip of the iceberg, however, as Section 235 of the TAA goes even further, speaking to tax evasion, and obtaining undue refunds through fraud or theft. This comes with a 5-year potential imprisonment:
Therefore, the ultimate burden lies with the taxpayer to discharge, when a tax debt is owed, including why they should be eligible to request the much-needed financial reprieve from SARS and keep their heads above water.
There are various tax relief measures which SARS has made available to assist these drowning taxpayers.
SARS’ Debt Management Team, in conjunction with either the SARS Asset Forfeiture Team, or Sheriff of the Court, are empowered to initiate a number of collection proceedings against the non-compliant taxpayer, including, but not limited to:
- Collection of outstanding tax debt via Third-Party Appointment i.e., Employer, Bank, or Debtor;
- Issuing of a judgment and credit bureau blacklisting;
- Attachment and auction of taxpayers’ assets;
- Asset repatriation of any offshore interests; and
- Forced Liquidation/Sequestration of the taxpayer’s estate.
Fortunately, a taxpayer can make a Request for Suspension of Payment, with the assistance of a tax attorney, when they have received a Letter of Demand from SARS that they intend to dispute.
If successful, SARS can either temporarily suspend the payment of tax or a portion of the tax thereof, pending the outcome of the dispute.
Section 164(6) of the Tax Administration Act states that even if a request is denied, SARS cannot initiate collection proceedings until ten (10) business days have elapsed since the denial of the request.
Alternate Avenue for Resolution
It is also important to take cognisance of the tax debt relief measures as contained in the TAA, where a taxpayer does not have legal merits to pursue an objection but has difficulty in settling their tax debt. In such cases, a Compromise of Tax Debt application (the Compromise) is always available to the taxpayer.
The Compromise is aimed at aiding taxpayers to reduce their tax liability by means of a Compromise Agreement (the Agreement), which is entered into with SARS. Where SARS is approached correctly, and the taxpayer’s financial circumstances warrant it, a tax debt can be reduced, and the balance paid off in terms of the Compromise.
In the end, total tax compliance is the ultimate goal, be it through the rectification of an error by SARS or securing a settlement which is more affordable to the taxpayer in a given instance.
It is easy to be unaware of the full financial risk faced when dealing with SARS, but it is important that taxpayers have cognisance and understanding when it comes to a tax debt; what it means, how it comes about and how you can disarm SARS, before the fatal blow is dealt.
Additionally, section 256(3) of the TAA enables taxpayers who have successfully concluded either a Deferral of Payment or Compromise of Tax Debt agreement to apply for a compliant TCS pin, despite their tax debt.
Law-abiding taxpayers who seek to address their tax debts can remedy their non-compliance and save their businesses by playing open cards with SARS. Enlisting the help of astute tax attorneys will assist businesses to navigate the intricacies of the tax debt relief mechanisms, and simultaneously stave off bankruptcy. It is vital that taxpayers act sooner rather than later before SARS comes knocking.