Warning to South African taxpayers

Ignoring tax debt can lead to severe financial consequences, but taxpayers can avoid such outcomes by proactively engaging the South African Revenue Service (SARS) through legal avenues like a Compromise of Tax Debt or payment deferrals.

This is according to Jashwin Baijoo, Associate Director and Head of Strategic Engagement & Compliance at Tax Consulting SA.

“When it comes to a tax debt owed to SARS, burying your head in the sand will not protect you while the imminent threat to your bank balance ‘blows over’,” Baijoo said.

“In fact, it is more likely you will resurface to find your savings having been attached by SARS, with no legal recourse of recovery.”

Baijoo explained that many businesses, celebrities, and affluent individuals have learned the hard way that ignoring tax debt doesn’t make it disappear.

The recent court case of JBSA Props and Another v Commissioner for SARS and Others highlights this reality.

In this case, JBSA went into business rescue on 26 May 2020, which was terminated only on 13 December 2021.

JBSA owed SARS a VAT debt of around R24 million, of which R9 million accrued prior to approval of the business rescue plan and a further R15 million accrued between approval of the plan and termination of business rescue.

JBSA argued that SARS had tacitly agreed to compromise the post-commencement tax debt.

However, South African tax law clearly states that any compromise of tax debt must be documented in writing and signed by both a senior SARS official and the taxpayer.

As no such agreement existed, the court dismissed JBSA’s application.

Baijoo advised that when faced with tax debt, the solution lies in addressing the matter directly and legally with SARS.

Two primary options are available for taxpayers struggling to settle their dues.

In the first place, there is the Compromise of Tax Debt application, which is designed to help taxpayers reduce their tax liabilities.

“When it comes to cutting your tax debt, there can be no cutting corners, and SARS must be legally and correctly approached the first time around.”

“Where a taxpayer does not have legal merits to pursue any form of dispute pertaining to the tax debt but has difficulty in settling their full dues, a Compromise of Tax Debt application may be available to the taxpayer.”

To successfully compromise on the tax debt, the taxpayer needs to show current financial hardship and estimate their net worth.

Once approved, the taxpayer can settle the remaining debt either through a lump sum payment or in instalments.

This agreement is documented in writing, ensuring both parties are clear on the terms.

Importantly, this option applies to all tax types – whether for personal income tax, corporate income tax, VAT, or PAYE – and is available to individuals, trusts, and companies.

Another option is a deferral of payment arrangement for taxpayers who do not meet the requirements for a compromise but cannot pay their tax debt in full.

This allows taxpayers to pay off their debt in instalments over an agreed period, providing temporary relief while avoiding penalties for non-payment.

“Little known fact; SARS can instruct a bank to empty out bank accounts and make payment on a tax debt due, without the account holder’s authorisation,” Baijoo said.

“This is nothing out of the ordinary and is seen even in the JBSA case where both Nedbank and Investec made direct payments to SARS.”

“This evidences how easy it is to be punished for taking a wrong turn when dealing with SARS.”

He stressed that where taxpayers find themselves dealing with unaffordable tax debt, they should take quick action to prevent further interest and penalties from being piled on to an already precarious situation.

“In these instances, it is recommended to obtain the protection of a Tax Attorney, well versed in tax debt negotiations, to safely aid in navigating the available tax debt relief solutions.”