SARS’ Edward Kieswetter under pressure

The South African Revenue Service (SARS) is offering payment arrangements to indebted taxpayers in a last-ditch attempt to fill the growing fiscal pothole.

Tax Consulting SA’s head of strategic engagement and compliance, Jashwin Baijoo, said the organisation has recently noted SARS officials reaching out directly to indebted taxpayers to offer payment arrangements if they cannot fully pay their debt.

He explained that this is a strategic move on SARS’ part as it is a way to alleviate the pressure on the fiscus. This pressure was caused by the drastic decline in corporate income tax collection this year.

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. 

In particular, the mining sector’s contribution to the fiscus has sharply declined as commodity prices weakened and the country’s failing state-owned enterprises impacted their sales. 

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. 

Therefore, to reduce the deficit, Baijoo said SARS is approaching indebted taxpayers in “a last-ditch attempt to collect what they can”.

“Whilst this may come across as SARS relieving your stress, in reality, these emails are last-ditch attempts by SARS to collect what they can to fill the ever-growing fiscal pothole,” he said. 

Baijoo said this strategy has also seen SARS return to outsourced debt collection – if a taxpayer does not make any attempt to pay, SARS will hand them over to external debt collectors.

This happens in cases where SARS has “hit a stone wall”, and it is not the first time the organisation has outsourced its debt collections.

When this happens, taxpayers will receive a correspondence stating, “Notice of Intention – Handover to External Debt Collectors”.

“It was further confirmed by SARS at the 10th Annual Tax Indaba that these notices have yielded good collections,” Baijoo said. 

“From a market perspective, this is most likely based purely on taxpayer fear of being handed over.”

However, Baijoo said there are some strategies to keep the collectors at bay.

“We have seen, in select cases, some empathy shown by the revenue authority, where a large tax debt has snowballed and become wholly unaffordable to the taxpayer.”

He said that, in most instances, this is either due to mounting interest and penalties or an adverse shift in financial circumstances.

Taxpayers wishing to rectify historical non-compliance by voluntarily approaching SARS have legal routes to do so.

For example, the Compromise of Tax Debt is one such route aimed at helping taxpayers reduce their tax liability through a Compromise Agreement entered into with SARS.

Entering into this agreement could significantly reduce one’s tax liability to an affordable amount, Baijoo explained.

“This grants some reprieve and aids the taxpayer in regaining both peace of mind and some financial certainty,” he said.