Here are your options if you owe Sars money

The South African Revenue Service (Sars) has the right to collect tax debt it is owed the minute a tax return is submitted and an assessment is issued, whether or not the taxpayer agrees with the assessment.

Taxpayers should be proactive when managing their tax debt. They must understand the options available. Choosing the wrong one could close the door to the dispute resolution process.

Carmen Westermeyer, tax partner at Maitland and Associates, says it is important to remember that it is not only the individual or the company that becomes liable for tax debt.

The representative taxpayer, who is the face of the company or trust to Sars, as well as withholding agents who collect taxes on behalf of Sars, are all taxpayers. “Often, the taxpayer is all three,” Westermeyer said during a recent webinar hosted by The Tax Faculty.

Third-party appointees, such as banks or your employer who is ordered to withhold money from your account or your salary, respectively, and any person who is subject to requests to aid with collections under an international tax agreement, are potentially liable for tax.

Taxpayers should not rely on a strategy that gives them the impression that Sars won’t go after tax debt. “Sars will go after the person who is most likely able to pay the debt.” This includes shareholders, representative taxpayers, your bank, or your employer.

There are a few options once a tax debt becomes due and payable.

The first option is to pay timeously if you agree with the amount. However, if you disagree with the quantum, you can follow the dispute resolution process.

“Under common law debt management, someone can never be made to pay an amount they dispute, but with tax, it is different.” The pay-now-argue-later principle is entrenched in our tax regime.

Suspension of payment

A taxpayer may request a suspension of payment if he intends to object to the assessed amount.

Sars must consider the compliance history of the taxpayer, whether the taxpayer can “run away” with the money during the suspension period, or whether any fraud was involved when deciding whether to grant a suspension of payment.

Sars also has the power to revoke the suspension if it deems the objection to be frivolous, or if the taxpayer poses a security risk.

“If at any point the objection is unsuccessful, or you have reached the end of your legal proceedings (without success), then the suspension is automatically revoked.”

Westermeyer adds that Sars must issue a notice of the decision to revoke the suspension. Collection proceedings cannot begin before 10 business days after Sars has issued the notice.

Instalment plan

If the taxpayer agrees with the assessment but is cash-strapped, then an instalment plan could be on the table.

“The only time Sars cannot institute collection proceedings against a taxpayer (issue a third-party appointment letter or getting a sheriff’s order to attach assets) is when you have an agreed instalment plan,” Westermeyer says.

The taxpayer must be able to show a deficiency in assets and liquidity, but with the prospects of earning income or profits soon. Sars must be convinced the deferral is unlikely to prejudice tax collections.

“These agreements are always revocable if you do not bring your part,” Westermeyer warns. “Keep to the plan and remain tax compliant.”

If the taxpayer does not have an instalment plan or an approved suspension of payment request, it is “open season on third-party appointments or the sheriff arriving at your door with a court order to have your assets removed”.

The taxpayer has five days to object to the third-party collection request.

Compromise or write-off

There is also the option of reaching a compromise with Sars, or to request a write-off of the debt. The two may have similar outcomes (no more debt), but they have very different legal consequences.

Westermeyer says a compromise is in essence only a “temporary write-off”. Although Sars agrees to compromise a part of the debt and not to pursue the rest, it has not waived the claim against the taxpayer.

With a write-off, Sars accepts the amount as a full and final payment of the debt. In practice, this rarely happens. Sars will mostly accept a compromise only where the debt can become recoverable again.

Sars will consider, among other things, whether there will be a saving on the cost of collection; whether they can collect the tax debt earlier if they do not go the compromise route and how they will be able to collect the biggest amount.

Sars will not consider a compromise if the taxpayer’s tax affairs are not up to date, if the taxpayer had a compromise within the past three years, and if the company is about to be liquidated.

Sars can also revoke the compromise if all the facts were not disclosed.

Westermeyer emphasises that the objection, appeal, and debt management processes run separately. “Sars cannot take any of your actions in the debt management process as proof of guilt or agreement with Sars when it comes to the objection process.”

When a taxpayer, for whatever reason, pays the tax debt, it cannot be used in the objection process as proof of guilt. There is no legal connection. The two processes run independently, she says.

Amanda Visser is a freelance journalist who specialises in tax and has written about trade law, competition law and regulatory issues.

Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies. The information in this article does not constitute financial planning, legal or tax advice that is appropriate to every individual’s needs and circumstances.