Do you owe SARS Tax Debt?  Here Are Your Options available...

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There are numerous ways for taxpayers to owe SARS a tax debt, and this is an issue that cannot be delayed or ignored – immediate action is required to prevent SARS from exercising their broad debt collection powers. 

In this article, we will look at how tax debts arise, how taxpayers are notified, what your options are if you do not dispute the tax debt but are unable to pay, and what must be done if you do wish to dispute the tax debt. To avoid SARS’ debt collection process, taxpayers can make a payment arrangement, request a compromise, and request a suspension of payment during a tax dispute, all of which are best addressed with professional tax assistance. 

“Tax debtors are expected to accept responsibility for their tax obligations and to organize their affairs so that they can discharge those responsibilities when necessary.” Tax obligations should be given the same priority as other responsibilities.

It is best to file returns and make payments on time to avoid tax debt, penalties, and interest. However, for a variety of reasons, taxpayers may be unable to meet these requirements on time, resulting in a tax debt owed to SARS. 

While the taxpayers’ agreement and ability to settle this debt will determine the specifics of each taxpayer’s response, all tax debts should be handled in the same manner: promptly and with professional assistance. 

If you or your company owes taxes, take action right away! An agreement with SARS to defer the tax debt for later payment or payment by installments may be reached in certain circumstances and with the right professional assistance. 

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How do tax debts arise?

Administrative penalties for late or non-submission of tax returns, failure to submit tax returns, submission of returns without payment, partial payment of tax liability, or a SARS audit assessment can all result in tax debts. 

How would you know about tax debt? 

Individuals and businesses should check their compliance status with SARS on a regular and proactive basis, or obtain a statement of account on the various taxes payable, either from their accountant or via the SARS Contact Centre, eFiling, and the SARS MobiApp, to confirm if SARS is owed any amounts. 

SARS is also required to notify taxpayers of issued assessments, notifications, or communications by sending a message to the taxpayer’s last known phone number or email address. This makes it critical to keep your SARS contact information up to date and to check your compliance status or statement of account whenever you receive an email or SMS from SARS. 

No dispute, but can’t pay now? 

In many cases, a taxpayer may not contest the existence or amount of a tax debt but is unable to make the required payment by the due date. 

Based on the specific facts of each case, there are two options to consider in this case. 

The first is a payment arrangement

SARS offers a deferment or an instalment payment plan for the outstanding tax debt. Taxpayers can request and enter into an instalment payment arrangement with SARS, which allows them to pay their outstanding debt, including applicable interest, in one lump sum or in instalments over time (up to 36 months). This agreement is subject to certain qualifying criteria, such as the payment arrangement covering the entire debt and all non-compliance, which means all returns and/or recons must be correctly submitted. 

Until recently, taxpayers could only make payment arrangements through a SARS-appointed debt collector, in person at a SARS branch, via the debt management regional email addresses, or via the My Compliance Profile (MCP) on eFiling. 

SARS recently implemented the Enhanced Debt Management process to assist taxpayers with outstanding debt in initiating a Payment Arrangement request for Personal Income Tax (PIT), Corporate Income Tax (CIT), Value-Added Tax (VAT), Pay-As-You-Earn (PAYE), and administrative penalties through eFiling. 

If approved, the repayments are loaded into the taxpayer’s bank account via eFiling. Any unpaid debt will continue to accrue interest, and any breach of the terms will result in the termination of the payment agreement and the resumption of normal collection proceedings. 

The second is a compromise agreement

When a taxpayer cannot afford to pay the tax debt owed to SARS, he or she may apply for a compromise agreement as a last resort. A SARS Debt Compromise is a process in which a taxpayer requests that SARS permanently or temporarily “write-off” a large portion of their debt, with the balance being paid in full immediately on the condition that the taxpayer complies with any SARS conditions. 

It is important to note that a temporary write off is generally just a suspension of debt recovery, and the debt may still be recoverable during the prescription period, which is 15 years under the Act. A senior SARS official must consider several factors before agreeing to a compromise. However, no compromise will be granted in several circumstances, such as if the taxpayer’s other tax affairs are out of order or if the taxpayer has previously reached a compromise agreement with SARS. 

A compromise cannot also be considered if the taxpayer contests the debt. If a matter is being challenged or appealed, the taxpayer must withdraw the challenge or appeal before a compromise can be considered. 

Professional assistance is essential if you want to reach an agreement with SARS. 

Disputing a tax debt? 

Taxpayers frequently disagree with SARS assessments. While taxpayers have the right to contest an assessment by filing an objection, it is important to note that filing an objection or an appeal with SARS does not suspend or postpone payment of the tax debt. The “pay-now-argue-later” principle, as it is aptly named, applies to all tax debt. To prevent SARS from instituting collection proceedings on a disputed tax debt, two steps must be taken: 

Lodge an objection in dispute of the assessment AND submit a “Request for Suspension of Payment.” 

Between the dates, SARS receives the request and 10 business days after SARS issues its decision to grant or decline the Suspension of Payment request, the taxpayer is protected from all SARS collection procedures. 

A Suspension of Payment request can only be granted by a senior SARS official after several factors are considered, including the taxpayer’s compliance history and whether the dispute is the result of fraud. 

If a Suspension of Payment request is granted, SARS may not initiate collection proceedings for the tax debt in dispute until the objection or appeal is resolved. However, interest will be charged on the outstanding debt. 

If SARS denies the Suspension of Payment request, the taxpayer has the option of requesting a payment plan from SARS. If the dispute process is not followed, the Suspension of Payment is also revoked. 

Following the conclusion of the objection or appeal, a revised assessment will reflect the resulting tax debt and the payment due date. If the revised tax debt is not paid on time, SARS may initiate collection action. 

Why you must act promptly and professionally

It is a criminal offense to fail to file a tax return on time, and it is also a criminal offense to fail to pay. If you are unable to pay a tax debt to SARS and do not follow the proper procedures, SARS has the legal authority to collect the debt. SARS, on the other hand, states that when determining the best way to deal with outstanding tax obligations, it will give significant weight to the tax debtors’ individual circumstances and compliance history, such as lodging correct returns and documents and paying taxes on time. SARS’ debt collection powers include issuing a judgment and blacklisting a taxpayer; obtaining a preservation order in relation to taxpayer assets; attaching and selling taxpayer assets, and bringing a lawsuit. Even if the debt is disputed, a taxpayer may be subjected to sequestration or liquidation proceedings. In fact, your savings or income may be jeopardized. 

This is because SARS can access data in relation to every bank account registered in your name using your ID number and can also recover tax debt through third parties who hold money on your behalf, such as a bank, an employer, an insurance company or an attorney.   

Due to recent changes to the tax laws, there have been increasing reports of SARS collecting ‘outstanding tax debts’ from taxpayers’ bank accounts, without the taxpayers’ consent. While SARS can indeed do this without any judicial oversight, it is important to know that SARS is required by law to follow specific steps prescribed by the Tax Administration Act (TAA) before doing so.   

These include receiving an assessment from SARS outlining how much is owed and when it is due, as well as a final demand for payment outlining available debt relief mechanisms contained in the TAA; and recovery steps that SARS may take if the tax debt is not paid. Taxpayers who can demonstrate serious financial hardship may apply to SARS for a reduction in the amount or an extension of the period over which the amount must be paid within 5 business days of receiving the final demand. 

If no response is received from the taxpayer within 10 business days of receipt of the final demand, a senior SARS official may authorise a third party to collect the tax debt. However, if SARS occurs, However, if SARS fails to follow the steps outlined in the TAA, collection proceedings may be deemed illegal and in violation of the TAA, and the taxpayer may seek redress from SARS through its Complaint Management Office (CMO), the Tax Ombud, or legal action. Again, professional assistance is strongly advised in these cases. 

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