Warning over tax debt in South Africa – what you need to know
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Experts from Tax Consulting have raised concerns over tax debt and have labelled it a ‘silent killer’.
Jashwin Baijoo, the head of strategic engagement and compliance and Kiara Naidoo, a tax attorney, wrote that there are often consequential distressing financial effects when a tax that is due and payable is not met.
Tax debt refers to all outstanding taxes owed to the South African Revenue Service (SARS) that have not been paid on time. More often than not, they result from frequent errors or miscalculations made when filing annual tax returns.
It can, however, be a result of intentional non-payment or further compliance infringements.
Tax Consulting SA said it is important to know primarily where a tax debt can originate from, namely:
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
SARS is issuing an additional assessment, which you are unaware of
Criminality of Non-Compliance
According to Tax Consulting SA, section 234 of the Tax Administration Act outlines the acts and omissions that SARS consider 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,” said the tax firm.
“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.”
Duties of the taxpayer
Ultimately, the burden lies with the taxpayer to discharge when a tax debt is owed, including why they should be eligible to request financial reprieve from SARS.
Tax Consulting SA added that there are various tax relief measures which SARS has made available, including SARS’ Debt Management Team, that, in conjunction with either the SARS Asset Forfeiture Team or Sheriff of the Court, is empowered to initiate a number of collection proceedings against the non-compliant taxpayer.
These collection proceedings include:
Collection of an 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, Tax Consulting SA said.
The firm added that 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.
Other methods
Where a taxpayer does not have legal merits to pursue an objection, they can apply for a Compromise of Tax Debt.
The two experts said that a Compromise is aimed at assisting taxpayers in reducing their liability by means of an agreement with SARS where the taxman is approached, and the taxpayer’s financial circumstances warrant it, a tax debt can be reduced with the balance being paid off in terms of the agreement.
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, said Tax Consulting SA.
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