Flexible Repayment Plan for Mining Client

Flexible Repayment Plan for Mining Client

• 30 January 2025
• Tax Administration
• The Tax Faculty Tax Specialist

This article is based on tax law for the year ending 29 February 2025.

Question:

One of my clients, a PTY operating in the mining industry, has fallen behind on VAT/PAYE payments. SARS has appointed a collection agency, and we have opted to arrange a payment plan. However, SARS requires the taxpayer to commit to a fixed repayment amount, which is not feasible due to the volatility of cash flow in the mining sector.

While the client is willing to commence a repayment plan and propose an amount, the concern is that any default may render the agreement null and void, exposing them to further collection actions by SARS.

Given that a fixed repayment plan is not a viable option, what alternatives are available to ensure SARS does not proceed with aggressive collection measures? Would SARS consider a more flexible approach, such as percentage-based payments tied to revenue?

Answer:

1. The Problem / Facts

The taxpayer, a PTY operating in the mining industry, is unable to commit to a fixed repayment plan for VAT and PAYE arrears due to irregular income flows caused by volatility in the industry. This places the taxpayer at risk of default, which could result in further collection measures, such as SARS nullifying the repayment plan or initiating enforcement actions.

2. Applicable Law

• VAT Arrears: Governed by the VAT Act 89 of 1991, specifically Sections 28 and 31, which require the timeous payment of VAT.
• PAYE Arrears: PAYE obligations fall under the Income Tax Act 58 of 1962, particularly Paragraph 2 of the Fourth Schedule.
• Fixed Repayment Plan Issue: Under Section 167 of the Tax Administration Act 28 of 2011, a taxpayer may enter into an instalment payment arrangement. However, defaulting on this plan may lead to its revocation under Section 168, triggering immediate enforcement actions.
• Volatile Income: Section 167(2) of the Tax Administration Act 28 of 2011 allows SARS to create flexible repayment plans that consider a taxpayer’s ability to pay.
• Collection Steps by SARS: Sections 176 to 179 of the Tax Administration Act 28 of 2011 empower SARS to take enforcement actions such as appointing third-party collection agencies, issuing garnishee orders, or attaching and selling a taxpayer’s assets to recover outstanding tax debts.

3. Application of the Law to the Facts

To mitigate the risk of default and prevent SARS from taking further collection steps, the following strategies can be considered:

1. Negotiating a Flexible Payment Arrangement with SARS

• Approach SARS under Section 167 of the Tax Administration Act 28 of 2011 to request a customised repayment plan that aligns with the taxpayer’s fluctuating income.

• Provide financial evidence, including cash flow forecasts, to demonstrate the mining industry’s irregular revenue cycles.

2. Applying for a Compromise of Tax Debt

• Under Section 200 of the Tax Administration Act 28 of 2011, the taxpayer may apply for a tax debt compromise, potentially reducing the total outstanding liability based on their financial position.

3. Regularly Updating SARS About Income Volatility

• Maintain open communication with SARS regarding cash flow challenges and negotiate revised repayment terms when necessary. SARS may be open to adjusting payment terms at its discretion.

4. Making Provisional "Good Faith" Payments

• Even if a fixed repayment plan is not viable, the taxpayer should make regular payments towards their arrears, as far as their financial position allows. This demonstrates good faith and may reduce the likelihood of SARS enforcing aggressive collection measures.

A proactive approach in negotiating a tailored repayment arrangement with SARS is crucial, given the taxpayer’s irregular cash flow. 

0 COMMENTS

LEAVE A COMMENT