The latest Sars Annual Report demonstrates the revenue collector’s willingness to permanently, or temporarily, write-off taxpayer debt, with a staggering R36.15-billion written off in the 2023/24 Financial Year.

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. From these objectives, the most daunting for taxpayer’s is that of making non-compliance both hard and costly. When read in conjunction with the laundry list of potential criminal convictions in the tax acts, even the smallest of mistakes may cost taxpayers dearly.

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. 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.

The Compromise Clock Is Ticking

With an increased number of the population facing hefty tax bills which they cannot afford, and Sars ramping up its collection, many feel it is only a matter of time before the tax man comes knocking. Despite this, Sars has shown an understanding to the plight of taxpayers and have come to the party in terms of resolving such debt cases amicably, where taxpayers qualify for relief. 

Bearing credence to the reprieve provided by Sars, the revenue collector’s 2023/24 Annual Report revealed revenue losses in the amount of R36.15-billion, which is net of reinstatements and recoveries. The increase in revenue losses from the prior year, is due to an increase in Compromises of Tax Debt and permanent write-offs provided by Sars. In drawing a differentiation between permanent and temporarily write-offs, Sars’ Annual Report notes the below:

Assertive Collections or Amicable Payment Arrangements

Sars’ media statement on 30 October 2024, confirmed significant increases in the issuance of final demands, as well as deferred payment arrangements. It is self-evident that Sars’ enhanced compliance initiatives are bearing fruit in volume and getting taxpayers compliant, even though it has yielded lower returns for the revenue authority.

Sars’ increased inclination to consider, and, where appropriate, grant tax debt relief to taxpayers who are facing true financial hardship, remains steadfast. 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. But what exactly does this mean?

Let’s Talk Compromise

Sars follows the same protocol for any tax debt that is outstanding, including those cases which involve more nuanced sources of income, including crypto assets. This means that the taxpayer will be sent a Letter of Demand indicating what the outstanding debt is, as well as, including a time frame in which the taxpayer must settle the debt. What Sars doesn’t tell the taxpayer is that the tax laws provide for various tax debt relief measures that are available, in order to provide the taxpayer relief and a feasible way forward. 

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.  

The Compromise is aimed at aiding taxpayers to reduce their tax liability by means of a Compromise Agreement, which is entered into with Sars. Where Sars is approached correctly, and the taxpayer’s financial circumstances warrant it, a tax debt can be reduced, and the balance paid off in terms of the Compromise. 

In the end, total tax compliance is the ultimate goal, be it through the rectification of an error by Sars or securing a settlement which is more affordable to the taxpayer in a given instance.

Approach Sars Before They Approach You

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.

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.

Written by Jashwin Baijoo, Associate Director and Head of Strategic Engagement & Compliance at Tax Consulting SA; and Junaid Bhayla, Admitted Attorney at Tax Consulting SA