In recent times the South African Revenue Service (‘SARS’) has been clamping down on those taxpayers who have outstanding tax debts due. The impact of COVID-19 on tax revenues in 2021 resulted in tax revenue forecasts having been revised downwards by R312bn from the 2020 Budget forecast. This was attributed to both the sluggish economy and the effects of the COVID-19 lockdown. With a disrupted year of business activities and the negative impact on revenue collections, taxpayers now more than ever, need to be vigilant, proactive and organised when it comes to understanding their tax affairs and dealing with SARS. One such revenue collection mechanism increasingly used by SARS is the issuance of letters of demand to taxpayers. Such outstanding tax debts do not need to be new/recent tax debts but can span over a period of years.
The receipt by taxpayers of letters of demand for payment often creates undue stress and panic, which can result in a slow reply to SARS. It is therefore important, as a starting point, for taxpayers to know their remedies. The diagram below contains some key points that taxpayers should take note of upon receipt of a letter of demand from SARS.
It is crucial for taxpayers to understand which of the following remedies are available to them to mitigate or suspend collection steps by SARS or third-party appointments by SARS in satisfaction of the taxpayers’ tax debt or even judgment taken against the taxpayer.
1. Payment of the full tax debt:
a. Taxpayers can elect to pay the full amount due to SARS in satisfaction of the outstanding tax debt in terms of section 169 of the Tax Administration Act, No 28 of 2011 (‘TAA’).
b. This is the appropriate remedy where the taxpayer has sufficient resources to pay the outstanding tax debts and will ensure that no collection steps are taken by SARS.
2. Instalment payment plan:
a. Taxpayers can apply for an instalment payment arrangement with SARS in terms of section 167 read with section 168 of the TAA.
b. This is the appropriate remedy where the taxpayer can demonstrate a shortterm cash flow problem and is unable to settle the tax debt in one payment. In addition, the payment plan must facilitate the collection of the debt and ideally be presented to SARS at the highest possible instalment over the least amount of time.
3. Suspension of payment:
a. Taxpayers can apply for the suspension of payment of a (disputed) tax debt in terms of section 164(3) of the TAA.
b. This is the appropriate remedy where the taxpayer intends to submit or has already submitted a formal dispute and does not have sufficient resources to pay the assessments raised by SARS.
4. Compromise of debt:
a. Taxpayers can apply for the compromise their (undisputed) tax debt in terms of section 200 of the TAA.
b. This is an appropriate remedy where the proposal will provide a higher return to the fiscus than liquidation, sequestration, or other collection measures and if the compromise is consistent with considerations of good management of the tax system and administrative efficiency.
5. Settlement of the dispute:
a. Taxpayers can apply for the settlement of a (disputed) tax debt in terms of section 146 of the TAA.
b. This is an appropriate remedy if it is, inter alia, to the best advantage of the state to settle the dispute in whole or part on the basis of fairness and equity to the taxpayer and SARS.
This article first appeared on pwc.co.za.
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