With the Covid-19 pandemic now largely in the rearview, the South African Revenue Service (“SARS”) has been strategically ramping up its tax collection and compliance drives. In the wake of the 2023 budget speech, SARS announced unprecedented revenue collection figures, being a direct result of its increased focus on making non-compliance costly, and voluntary compliance easy. Finance Minister Enoch Godongwana affirmed the media statements by Commissioner Kieswetter, in early February, echoing that the increase in collection dividends, means no additional or increased tax implementations are required for the forthcoming fiscal period.
Over the last two years, many South Africans were placed in a difficult position – be compliant in terms of taxes or giving a lifeline to the businesses they had built through blood, sweat, and tears. SARS has shown great empathy in these situations and has historically been quite amicable to aiding these taxpayers, however, this mercy is quickly running out with indebted taxpayers.
What you sow…
With aggressive audits and verifications of taxpayer returns, not to mention additional scrutiny now faced on intra-group loans, and the dreaded grey listing, SARS has drastically increased the number of letters of final demand issued to non-compliant taxpayers. The issue here, is that a number of business owners, even post-demand, choose to adopt a ‘head-in-the-sand’ approach when it comes to their tax compliance status, ignoring the dire consequences.
Businesses who disregard SARS’ correspondence may discover that SARS has simply reached into their bank account or started attaching their assets as a debt recovery mechanism. Sadly, despite these collection measures by SARS, these businesses are still unable to settle their tax debts.
Further adding fuel to the fire, taxpayers find themselves unable to submit tenders to attract vital new business opportunities, as they cannot obtain a compliant Tax Compliance Status (“TCS”) pin. As a result of these difficulties, many businesses find their cash flow and very survival threatened, as they are unable to secure new streams of income to repay their existing tax debts.
This inability to settle their tax debts ultimately cripples the growth of many taxpayer’s businesses, with their financial position consisting of unpaid expenses and growing debtors’ bills. Against this grim outlook, their tax debt continues to snowball with interest and penalties each and every month.
The good news
Edward Kieswetter, the Commissioner of SARS, has famously stated that the organization strives to make compliance easy, and non-compliance costly and difficult for taxpayers.
In line with this strategic goal, SARS has afforded taxpayers the opportunity to become compliant by utilizing the debt relief mechanisms in the Tax Administration Act (“TAA”). These debt relief mechanisms include a Deferral of Payment arrangement where a tax debt is repaid in instalments, or a Compromise of Tax Debt where a portion of a tax debt is written off.
Additionally, section 256(3) of the TAA enables businesses who have successfully concluded either a Deferral of Payment or Compromise of Tax Debt agreement to apply for a compliant TCS pin, despite their tax debt. Having a compliant TCS pin in hand will enable taxpayers to secure crucial new business opportunities and improve their overall financial position.
Law abiding taxpayers who seek to address their tax debts are able to remedy their non-compliance and save their businesses by playing open cards with SARS. Enlisting the help of astute tax attorneys will assist businesses to navigate the intricacies of the tax debt relief mechanisms, and simultaneously stave off bankruptcy. It is vital that taxpayers take action sooner rather than later, before SARS comes knocking.
Written by Jashwin Baijoo, Head of Strategic Engagement & Compliance at Tax Consulting SA; Richan Schwellnus, Tax Associate at Tax Consulting SA