I HAVE A TAX DEBT WHAT ARE MY OPTIONS?

Often at times, taxpayers find themselves in a position where they have tax debts owing to SARS. Generally, there is no real plan on how that debt can be managed or paid. Such debts can arise in a number of different ways. Examples are returns being submitted without payment, late submission of returns, submission of EMP501 recons where there has been an under declaration or a SARS audit.

Luckily for taxpayers, the Tax Administration Act (“TAA”) allows for various mechanisms to deal with such debts in order to enable the taxpayer to manage the debt without being charged criminally, held personally liable or having to enter into liquidation/sequestration proceedings.

Before delving into the debt management mechanisms at the taxpayer’s disposal, it is of paramount importance that the taxpayers understand the general flow of the SARS debt collection process. Their process, in essence, comprises of six steps. Briefly the steps they follow are:

1. They make direct contact with the taxpayer either via email or telephonically;
2. They issues a final demand (which has to conform to certain requirements);
3. Issue a third-party appointment notice in order to have the third party pay over money to SARS that is owing to the taxpayer;
4. Obtain a civil judgment (notably this is done without the need to issue summons);
5. Obtain a writ of execution; and
6. Instruct the sheriff to attach, remove and sell the goods.

So, what mechanisms are available to taxpayers in order to manage their debt?

COMPROMISE OFFERS:
Section 200 through to 204 of the TAA contains a mechanism referred to as a compromise offer. If successful, SARS will write off a portion of the debt owed with the remainder to be paid off over an agreed time period. Such an offer is largely based on a financial and legal analysis. So not only will such an application require astute awareness relating to the legalities but will also require an incisive understanding of financial and accounting principles. Although the requirements contained in the relevant sections may seem rather simple, the actual analysis and submissions are rather timeconsuming and laborious.

Further to the above, such an offer will require a well-crafted and detailed application. Finally, it will also require liaison with SARS in order to manage collection steps, personal liability and criminal prosecution.

DEFERRED PAYMENT ARRANGEMENTS: Section 167 of the TAA contains a mechanism referred to as a Instalment Payment Arrangement, or more commonly referred to as Deferred Payment Arrangements (DPAs). DPAs allow for the tax debt to be paid off over a period of time as agreed upon between SARS and the taxpayer. Unlike a compromise offer, the debt will be paid in full with no debt being written-off. However, similar to a compromise offer, this will require a financial and legal analysis followed by a well-crafted application to be submitted to SARS.

DPAs can be carefully used in order to manage the cash flow and overall debt of the taxpayer. This is also a mechanism that will allow for the taxpayer to be tax compliant in order to obtain their tax compliance status (TCS). This is also a very useful mechanism to use in conjunction with a compromise offer where a TCS is required in order to generate the cash flow to make a compromise offer. It should however be noted that this brings about its own nuances in as far as the application and timing of the various mechanisms go.

REQUESTS FOR REMISSION OF PENALTIES & INTEREST: Another mechanism at the disposal of taxpayers is to request for the remission of penalties and interest on their tax debts. This is another way in which the tax debt can be reduced. Sections 215 to 218 of the TAA allows for penalties to be remitted, whilst SARS may consider remitting interest under s187(6) – exceptional circumstances such COVID-19, or serious financial hardship to only name a few.

Such requests are submitted via eFiling. More often than not, these applications must make reference to an exceptional circumstance as set out in s218. It is also noteworthy that should these applications be disallowed, they are open to objection and appeal proceedings.

TAX COMPLIANCE STATUS:

Although not necessarily referred to as a remedy, a tax compliance status may be of paramount importance to taxpayers. Without the so-called TCS taxpayers may be unable to receive payments (eg CSD) as a result of agreements requiring that they be TCS compliant. Further to this, they may not be able to tender for any new work due to their TCS not being favourable.

There are numerous ways to ensure this status is obtained, this could be through manual override codes, status challenges and other debt management mechanisms (such as those referred to in this article).

Although section 31 of the ITA does not impose a hierarchy of methods, SARS prefers the traditional methods, which is the CUP, RP and CP methods. Of these methods, the CUP method is most preferred.

At TRM we have a dedicated team of tax specialists that have both the legal and financial expertise to assist you in managing your tax debt efficiently. Combined, the dedicated team also has in excess of 20 years’ worth of experience working for SARS.

Intellectual property disclaimer:
The contents of any article published by Pieterse Sellner Erasmus should not be construed as professional legal advice.