A taxpayer, who is an attorney, is owing SARS R37000 since 2019. He has not made any payment arrangement with SARS. Since COVID19 his income from the practice drastically dropped to the extent that he could not even afford to pay SARS. He is seeking advice on how he can deal with the issue now. He is worried that this might cause a serious problem in the long run if it is unattended. Kindly advise.
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
Yes, it will cause a problem if it is not attended to and we are surprised it has not done so yet. An instalment arrangement would be appropriate.
Section 167(1) of the Tax Administration Act, provides that a senior SARS official may enter into an agreement with a taxpayer in the prescribed form under which the taxpayer is allowed to pay a tax debt in one sum or in instalments, within the agreed period if satisfied that -
(a) criteria or risks that may be prescribed by the Commissioner by public notice have been duly taken into consideration; and
(b) the agreement facilitates the collection of the debt.
Section 168, of the same Act, is relevant to your request, and reads as follows: A senior SARS official may enter into an instalment payment agreement only if -
(a) the taxpayer suffers from a deficiency of assets or liquidity which is reasonably certain to be remedied in the future;
(b) the taxpayer anticipates income or other receipts which can be used to satisfy the tax debt;
(c) prospects of immediate collection activity are poor or uneconomical but are likely to improve in the future;
(d) collection activity would be harsh in the particular case and the deferral or instalment agreement is unlikely to prejudice tax collection; or
(e) the taxpayer provides the security as may be required by the official.
We submit that the “full financial analysis” would refer to all, but the last one, of the above. Its purpose is to give SARS information relating to the financial position and income in respect of the taxpayer.
In general terms, financial analysis is the process of evaluating businesses, projects, budgets and other finance-related entities to determine their performance and suitability. Typically, financial analysis is used to analyse whether an entity is stable, solvent, liquid or profitable enough to warrant a monetary investment. When looking at a specific taxpayer, it would basically involve an analysis by focusing on the income statement, balance sheet, and cash flow statement.