SARS launches expedited tax-debt compromise process

The South African Revenue Service has opened a window of opportunity for taxpayers who are struggling to pay their tax debts.

The Tax Administration Act (TAA) allows SARS to reach a compromise with taxpayers who cannot pay their debt in full. SARS has introduced an expedited debt compromise process, which kicked off on 13 October.

It will, however, not be available to taxpayers such as former Prasa chief executive Lucky Montana, who has been embroiled in a protracted legal wrangle with the tax authority. The process applies only to tax debt that is not being disputed. Both SARS and the taxpayer must agree there is a tax liability that the taxpayer cannot pay in full.

SARS recently met with recognised controlling bodies (RCBs) such as the South African Institute of Taxation, the South African Institute of Chartered Accountants, and the Chartered Institute for Business Accountants (CIBA) to work closer together to improve tax compliance.

The RCBs oversee the conduct of their tax practitioner members to uphold the integrity of the tax system. Their role and authority are derived in law, particularly the TAA.

“Tax practitioners are vital enablers of South Africa’s fiscal system and fiscal citizenship. In guiding taxpayers, they are also central to SARS’s strategic intent to promote voluntary compliance,” SARS Commissioner Edward Kieswetter said after the meeting with the RCBs.

CIBA chief executive Nicolaas van Wyk says SARS recognised that partnering with the RCBs and their tax-practitioner members is an effective way to collect outstanding taxes.

CIBA has established a centre for tax debt management that will act as a help desk for taxpayers and tax practitioners participating in the expedited compromise process.

According to Van Wyk, it will offer confidential initial consultations, connect taxpayers with vetted legal and tax experts, and escalate issues or bottlenecks to SARS.

Rapid debt recovery

The process is part of a general alignment and commitment between SARS and the RCBs to find ways to recover debt rapidly within the provisions of the TAA. Although the debt compromise process will start with RCBs, it may later be extended to all taxpayers, depending on the results.

There are a few conditions to the process. The debt must be undisputed, and the tax debt must be older than 12 months. Entities subject to specific legal processes (such as liquidations, estate, and business rescue cases) and companies that have been deregistered are excluded. Cases subject to criminal investigation and audit and cases within the write-off process are also excluded.

Applicants must provide comprehensive relevant supporting documentation with their submissions. It is important that disclosures are accurate, failing which SARS might not even consider applications.

SARS will revert to normal enforcement actions against non-compliant taxpayers who choose not to participate in the compromise process. “To make non-compliance hard and costly, such enforcement will include writs of execution of court judgments,” SARS warns.

Throwing down the gauntlet

SARS has over the years consistently protected taxpayer confidentiality, even when there has been suspicions of tax avoidance. However, in the Montana matter, SARS has thrown down the gauntlet.

In a statement earlier this month, SARS noted it is empowered to publicly disclose taxpayer information where it is necessary to counteract false statements that may undermine the integrity of and public confidence in the tax system.

It invoked its power in the Montana matter and stated that the former Prasa CEO has an outstanding tax debt of more than R55 million. As a compromise, Montana offered R5.4m.

However, in the latest twist in the Montana saga, the High Court in Pretoria granted SARS an order to sequestrate his estate to pay his tax debts.

Tax debt owed to SARS

The overall estimated tax liability owed to SARS is R96 billion, but it may include cases under review or subject to revised assessments.

“Disputed debt, where the amount or basis is contested, follows its own objection-and-appeal system. Separating the two avoids legal complexity and allows SARS to deliver quicker relief,” says Van Wyk.

He adds that SARS has been managing a large backlog of long-term debts, some more than a decade old, and traditional enforcement has had limited returns.

“Launching a targeted, time-bound campaign allows SARS to recover funds faster, test its modernised systems, and rebuild trust with taxpayers. It’s also a reflection of the commissioner’s new approach: shifting from enforcement against practitioners to partnership with them,” Van Wyk adds.

SARS has established dedicated account teams and technical resources, including online appointment systems for tax practitioners, to support the process and resolve operational challenges. The period for submissions ends on 31 December.

Amanda Visser is a freelance journalist who specialises in tax and has written about trade law, competition law, and regulatory issues.

Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies.