The South African Revenue Service (SARS) is targeting representative taxpayers for company tax debts to reduce the country’s corporate tax deficit.
South Africa’s economy is only expected to grow by around 0.3% in 2023. However, SARS’ target for revenue collection growth is between 4% and 6%.
So far, SARS has achieved revenue collection growth of only 2.6% due to declining corporate income taxes and increased VAT refunds.
SARS deputy commissioner Johnstone Makhubu told the 10th Tax Indaba that tax collections have fallen R22 billion short of the Finance Minister’s February budget estimates for the first five months of the 2024 financial year.
Tax Consulting SA’s head of strategic engagement and compliance, Jashwin Baijoo, said SARS is dead set on filling at least the corporate tax pothole.
Amongst other avenues, SARS is exploiting the Tax Administration Act, which provides for instances in which the representative taxpayer, employer, or vendor will be held personally liable for a company’s tax debt.
Section 153 of the Tax Administration Act defines a ‘representative taxpayer’ as a person responsible for paying another person’s tax liability as an agent.
In this Act, a representative taxpayer includes a person who:
- Is a representative taxpayer in terms of the Income Tax Act;
- Is a representative employer in terms of the Fourth Schedule to the Income
Tax Act; or
- Is a representative vendor in terms of section 46 of the Value-Added Tax Act.
It further states that among the liabilities of a representative taxpayer is that they are “subject to the duties, responsibilities and liabilities of the taxpayer represented” and “liable for the amount of tax specified by a tax Act”.
“Unlike the pre-Covid error, these representatives must err on the side of caution, as SARS has rapidly upskilled its Debt Management Team for swift and potentially fatal collections, to your bank account at least,” Makhubu warned.
While SARS is aggressive with their collections, the organisation does, in the Notice of Personal Liability, allow the implicated individual to contest their personal liability.
However, Makhubu warned that this is not the “fire escape” it may sound like since proving no personal liability entails what could be construed as an admission on why the taxes were not paid and what better use the funds were put to.
He explained how, in discharging the burden of personal liability, certified bank statements must be submitted to SARS across all accounts, which could include those of the representative taxpayers themselves.
“In conjunction with this, the last five years’ worth of Annual Financial Statements and Management Accounts must be submitted to SARS, confirming there was no mismanagement of funds or improper performance of financial duties,” he said.
However, this is not the end of the Tax Debt road, as representative taxpayers have only ten business days from receipt of the Notice to put everything together and get it to SARS.
The Notice also acts as a Notice of Final Demand, meaning any shortcoming or failure to satisfy SARS will result in physical collection steps being initiated against the appointed individual.
Makhubu said the first step is knowing if you are a representative taxpayer, employer or vendor, as set out in the Tax Administration Act.
“To protect yourself from falling victim to the fiscal pothole to be filled, it remains the best strategy to always ensure individual and company compliance,” he said.
“Where you find yourself on the wrong side of SARS, there is a first-mover advantage in seeking the appropriate tax and legal representation.”
“This will not only serve to safeguard the taxpayer against SARS implementing collection measures but also ensure the taxpayer is correctly advised on the most appropriate and affordable compliance strategy.”