Finance

SARS kisses R36 billion goodbye

During the last financial year, the South African Revenue Service (SARS) wrote off over R36 billion in taxpayers’ debt, which came as a surprise to many given how strict the government body has been on compliance.

This was explained by Jashwin Baijoo, Associate Director and Head of Strategic Engagement & Compliance at Tax Consulting SA, and Junaid Bhayla, Admitted Attorney at Tax Consulting SA.

According to Baijoo and Bhayla, the latest SARS Annual Report demonstrates the revenue collector’s willingness to permanently or temporarily write off taxpayer debt.

The latest SARS Annual Report reveals that the tax authority wrote off a staggering R36.15 billion in taxpayer debt during the 2023/24 financial year, which includes both permanent and temporary write-offs.

It also includes compromised write-offs, which relate to agreements with taxpayers for SARS to forgo a portion of the tax debt, provided that doing so would secure the highest net return from the debt recovery.

This area increased notably, from R1.52 billion to R4.16 billion in the last financial year. Overall, SARS’ revenue loss increased by R1.48 billion from R34.96 billion in the previous period.

“SARS’ amicable approach to debt relief may come as a shock to taxpayers, especially in light of the revenue collector’s strategic objectives, which Commissioner Kieswetter has been driving,” Baijoo and Bhayla said.

Under Edward Kieswetter, SARS has emphasised making non-compliance both difficult and costly, with even minor mistakes leading to hefty punishments.

“Despite the stricter enforcement on non-compliant taxpayers, including hefty fines and stints behind bars, SARS remains committed to helping taxpayers who seek voluntary compliance, trying to make it easy,” Baijoo and Bhayla said.

“For those who are early adopters of the correct legal compliance approach and simply cannot afford to settle their entire tax liability in one shot, options like debt compromises and deferrals remain available.”

As more South Africans face mounting tax bills they cannot afford, SARS has ramped up its collection efforts. In a recent media statement, the authority reported an increase in final demands and deferred payment agreements.

These measures, while effective in boosting compliance, have not necessarily led to increased revenue collection. Instead, they reflect SARS’ recognition of the financial hardship faced by many taxpayers and its willingness to resolve debt cases amicably where relief is warranted.

The 2023/24 Annual Report attributes the increase in write-offs to a rise in debt compromises and permanent write-offs, which allows SARS to differentiate between temporary and long-term solutions for struggling taxpayers.

However, Baijoo and Bhayla said that SARS has shown an understanding towards the plight of taxpayers and has come to the party in terms of resolving such debt cases amicably, where taxpayers qualify for relief.

“SARS’ increased inclination to consider, and, where appropriate, grant tax debt relief to taxpayers who are facing true financial hardship, remains steadfast,” they said.

“This is applicable to any form of tax debt, whether it pertains to Income Tax, PAYE or VAT, for individual taxpayers, companies and trusts, and is a saving grace to many taxpayers when handled correctly and legally in engagements with SARS.”

Taxpayers who are unable to pay their full tax debt and without legal grounds to dispute it can apply for a Compromise of Tax Debt, Baijoo and Bhayla explained.

This agreement, negotiated between SARS and the taxpayer, reduces the total amount owed, enabling the taxpayer to settle the reduced balance under the agreed terms.

Even in more complex cases, such as those involving cryptocurrency income, SARS adheres to a structured process.

Taxpayers receive a Letter of Demand detailing the outstanding amount and the deadline for payment. What many may not realise is that tax laws provide relief options designed to help manage these debts.

A Compromise of Tax Debt allows taxpayers to manage their financial burden while ensuring SARS recovers at least part of the owed amount. If approached correctly, this process can significantly reduce the taxpayer’s liability, making it easier to meet their obligations.

Dealing with tax debt can be daunting, but ignoring it only worsens the situation, Baijoo and Bhayla said.

Delayed action leads to mounting interest and penalties, making it harder to settle the debt. It’s crucial for taxpayers to address these issues before SARS escalates collection efforts.

Taxpayers who act quickly and responsibly can avoid severe consequences. Whether it’s a temporary payment plan or a long-term compromise, SARS has demonstrated its willingness to work with those genuinely seeking a solution.

“It is easy to take a wrong turn when dealing with SARS, but it is important that taxpayers have cognizance and understanding when it comes to a tax debt: what it means, how it comes about and how you can navigate SARS before hitting a dead end,” they said.

“Should taxpayers find themselves dealing with tax debt that is unaffordable, it is advisable that quick action be taken to prevent further interest and penalties being piled on to an already precarious situation.”

“In these instances, it is recommended to obtain the help of a tax attorney, well versed in tax debt negotiations, to safely provide assistance in navigating the available tax debt relief solutions.”

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