SARS DEBT: Pay it. Arrange it. Compromise it. Or dispute it.
Opening your SARS statement and seeing an outstanding balance can be overwhelming. Maybe the debt arose after an assessment you were not expecting. Maybe your business went through a difficult period and cash flow simply was not there. Maybe penalties and interest have accumulated over time. Or perhaps you do not agree with the assessment in the first place.
Whatever the circumstances, ignoring SARS debt rarely makes it disappear.
But owing SARS money does not necessarily mean that you have to pay the entire amount immediately. The Tax Administration Act provides taxpayers with several mechanisms to deal with outstanding tax debt. The right solution depends on one important question: Do you agree that you owe the money, and if so, can you afford to pay it?
OPTION 1: I OWE SARS, BUT I CAN’T PAY EVERYTHING NOW
If you accept the debt but simply cannot settle the full amount immediately, a payment arrangement may be available.
Section 167 of the Tax Administration Act allows SARS, subject to certain requirements, to enter into an agreement permitting a taxpayer to settle a tax debt either at a later date or through instalments over an agreed period.
This may be appropriate where, for example:
you are experiencing temporary cash-flow difficulties;
you expect your financial position to improve;
future income or receipts will enable you to settle the debt; or
immediate collection would cause financial hardship while an instalment arrangement would still allow SARS to recover the debt.
SARS considers payment arrangements subject to qualifying criteria and may require financial information or security. Importantly, outstanding returns and reconciliations generally need to be brought up to date before SARS will consider the arrangement.
A payment arrangement also does not make the debt disappear: the full debt remains payable and interest may continue to accrue.
The objective is simply to make repayment manageable.
OPTION 2: I CANNOT REALISTICALLY AFFORD TO REPAY THE FULL DEBT
Sometimes the problem is more serious than temporary cash flow.
The taxpayer may simply not have the financial means to repay the entire SARS debt — even over an extended period. This is where a compromise of tax debtmay become relevant.
Under sections 200 of the Tax Administration Act, SARS may, in qualifying circumstances, agree to accept less than the full amount outstanding in satisfaction of a tax debt.
A compromise is not an automatic discount, and it is not simply a matter of asking SARS to reduce the balance.
The purpose of a compromise is broadly to allow SARS to secure the highest net recovery reasonably available while taking into account the effective administration of the tax system.
In practical terms, the taxpayer must demonstrate their financial position comprehensively and transparently.
SARS may require documents including:
recent Annual Financial Statements;
bank statements;
a 12-month cash-flow forecast;
a complete list of assets and liabilities;
a debtors age analysis, where applicable;
the prescribed Collection Information Statement; and
a detailed motivation explaining the proposed settlement amount and where the money to fund that offer will come from.
The strength of a compromise application therefore lies in the financial evidence and the motivation supporting the offer. It is not enough to say: “I cannot afford to pay SARS.” The application needs to demonstrate why full recovery is unlikely, what the taxpayer can realistically afford, and why accepting the proposed compromise may produce a better recovery for SARS than alternative collection measures.
OPTION 3: I DON’T AGREE THAT I OWE SARS THIS MONEY
This is an entirely different situation.
If the debt arose from an assessment that you believe is incorrect, the appropriate solution may be to dispute the assessment, rather than simply arranging to pay it.
Depending on the circumstances and applicable time periods, this may involve requesting reasons, lodging an objection and, if necessary, pursuing an appeal.
But there is an important catch: Disputing a debt does not automatically stop SARS from collecting it.
South Africa operates on the principle commonly referred to as “pay now, argue later.”
A taxpayer who disputes or intends to dispute an assessment may therefore need to submit a separate request for suspension of payment under section 164 of the Tax Administration Act. If granted, this can suspend SARS's ability to recover the relevant disputed tax while the dispute is being dealt with, subject to the provisions of section 164.
This can be an extremely important step in protecting a taxpayer's cash flow while a genuine tax dispute is being resolved.
WHY YOU SHOULD NOT IGNORE SARS DEBT
Doing nothing is usually the most expensive option.
SARS has extensive debt-collection powers under the Tax Administration Act. Depending on the circumstances, these can include appointing a third party under section 179 — such as a bank, employer or debtor — to pay money held for or owed to the taxpayer directly to SARS.
SARS may also pursue civil recovery and, in appropriate circumstances, attachment of assets, sequestration or liquidation. And while the debt remains outstanding, interest can continue to increase the amount payable.
The earlier the problem is addressed, the more opportunity there generally is to determine the correct course of action before matters progress to enforcement.
THE MOST IMPORTANT THING? DON’T PANIC.
Tax debt happens for many reasons.
Businesses experience cash-flow problems. Individuals receive unexpected assessments. Returns are corrected years later. Deductions are disallowed. Penalties accumulate. Previous tax affairs may not have been managed properly.
A large SARS balance can feel impossible when you first see it. But a SARS debt balance is the beginning of the conversation — not necessarily the end of it.
Depending on your circumstances, the solution may be: Pay it. Arrange it. Compromise it. Or dispute it.
The important part is identifying which option applies to you and taking action before SARS takes action first.
WE UNDERSTAND. AND WE CAN HELP.
Dealing with SARS debt is not simply about completing a form.
A successful strategy requires understanding how the debt arose, whether it is legally payable, what your financial position allows, and which remedy under the Tax Administration Act is appropriate.
We assist individuals and businesses with:
reviewing SARS Statements of Account and identifying the source of outstanding debt;
assessing whether an amount should be paid or disputed;
objections and appeals;
section 164 suspension of payment applications;
section 167 deferred and instalment payment arrangements;
sections 200–202 debt compromise applications;
preparation of Collection Information Statements and supporting financial documentation; and
engagement with SARS Debt Management where collection action has commenced.
If you owe SARS money, the worst strategy is often silence.
Talk to us. Let us understand how the debt arose, assess the options available to you and help you find a way forward.
