Disputed or Undisputed Tax Debt, That is The Question

Disputed or Undisputed Tax Debt, That is The Question

• 08 April 2024
• Accounting
• Adv Christel van Wyk

Taxpayers and their advisors absolutely dread dealing with outstanding tax debt. Because of uncertainties around SARS’ tax debt collection powers and duties as well as taxpayer rights and obligations, they are not always well prepared to follow the correct debt management steps. This lack of clarity may lead to unnecessary mistakes, which may have dire consequences, for example SARS taking tax debt collection steps when one least expects it. Inevitably, taxpayers have endless sleepless nights.

Importantly, a clear distinction must be made between two available tax debt management options namely:

• a suspension of payment request for disputed tax debt (section 164(2) of the Tax Administration Act, 28 of 2011 (the Act)); and
• a compromise request for undisputed tax debt (section 201 of the Act).

Problems arise, however, when one believes tax debt to be disputed but due to an incorrect process followed, it becomes undisputed. This means the tax debt becomes due and payable and instead of a suspension of payment request, one may in this instance have to request SARS to enter into a deferral arrangement or to conclude a compromise agreement for a reduced amount.

Take the example where a taxpayer decided in good faith to amicably engage with SARS and instead of noting an appeal within the prescribed time frame of 75 business days, making a written settlement offer. SARS has no discretion to extend the 75-day appeal time frame.

In this case, the taxpayer misunderstood the process and thought that a settlement offer may be made at any time. Unfortunately, a settlement offer may only be made at any time after an appeal was noted, and there must accordingly be a formal dispute in process as contemplated in Chapter 9 of the Act. Once the taxpayer had noted an appeal, a settlement offer would indeed be a possibility. In the present example, however, the taxpayer’s amicable intent cost him dearly. The effect of this incorrect step was that the underlying dispute became final, and the tax debt became due and payable.

The available tax debt management options were to either pay the full outstanding debt in one amount, enter into an instalment payment agreement to defer full payment or to request a compromise for a reduced amount. In the circumstances, the taxpayer requested a compromise, and was required to make a full disclosure as prescribed in section 201 of the Act. Significant detail of assets and liability, income and expenses, connected parties as well as a specific amount offered must be included in the motivation and the taxpayer has 10 business days to provide full detail. The taxpayer is required to sign the written request and warrant the correctness of the information. In terms of the SARS Service Charter, SARS has 90 business days within which to conclude the compromise agreement, or such longer period as may be required. SARS must have regard to, among other things, whether the compromise will result in collection of a greater amount than would otherwise have been recovered, and whether there will be a saving in the costs of collection of the outstanding tax debt. A compromise is furthermore prohibited in various circumstances, including where the taxpayer was party to an agreement with SARS to compromise an amount of debt within a period of three years before the current request for compromise, where the compromise may prejudice other creditors and where the taxpayer’s tax affairs are not up to date.

The importance of following the correct procedures in managing the underlying tax issues, as well as outstanding tax debt, cannot be overemphasised.

Join Adv van Wyk May 10 where she will provide useful insight and guidance on Tax Debt Management options, more specifically a request for suspension of payment and a request for compromise.

• Click here for a short introduction video
• Click here to book for the event

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