This year, South African taxpayers find themselves in a unique position to manage their tax obligations with greater flexibility. According to Finance Minister Enoch Godongwana's recent Medium Term Budget Policy Statement (MTBPS), the South African Revenue Service (SARS) is projected to fall short of its revenue collection target by R22.3-billion by the end of the year—a significant gap from February's budget forecast. This shortfall highlights the deep financial struggles affecting both individuals and businesses across the country, says Kabelo Moutloaste, Tax Debt and Accounting Senior Specialist at Latita Africa.

SARS Commissioner Edward Kieswetter offered insights into the challenges SARS is facing, noting on The Money Show with Stephen Grootes that the agency has been impacted by economic conditions as many people seek to defer or restructure their tax debts. Kieswetter states, “We’ve seen many people not disputing their debts. We’ve actually worked through more cases this year, (year-to-date) than last year. More people are asking us for debt repayment arrangements, which also means that we will not recover debt that is due to the state because people are just experiencing hardship.” 

Leveraging Payment Deferrals and Compromises in Challenging Times

Moutloaste states that for taxpayers, the current economic climate provides a valuable opportunity. SARS’s flexibility toward tax debt deferrals and compromises is allowing many to manage their financial obligations more effectively. Payment deferral arrangements, in particular, help taxpayers align their payments with their cash flow, preventing immediate penalties and giving them the breathing room they need.

But for those facing significant tax debt, a compromise may be the most powerful tool available. A tax debt compromise is an agreement with SARS where taxpayers pay only a portion of their tax debt, with the remaining balance forgiven. This option not only reduces the total debt burden but also alleviates penalties and interest, often resulting in a significantly lower amount owed to SARS. In today’s tough economic climate, many taxpayers who simply cannot afford their tax debts are using this option to achieve long-term financial relief.

In both cases, it is crucial to understand that the taxpayer needs to keep their current compliance in order as this may affect SARS consideration of a payment arrangement request due to continued non-compliance. 

Why Now is the Right Time to Act

SARS’s openness to deferrals and compromises is certainly welcomed, but this level of cooperation is not often long-lived. To those taxpayers who need this relief, it is better to act sooner rather than later, explains Moutloaste. With the help of an experienced tax debt firm, preferably one with a strong legal component, taxpayers can negotiate a compromise or deferral that meets their financial capabilities and significantly reduces their outstanding balance. This can be particularly valuable for those who would otherwise struggle to repay their debt, allowing them to secure financial stability in the long term. With the SARS’s short fall in revenue, taxpayers are left pondering SARS’s next move to increase collections. Now is the time to take action, before this window of grace closes.

Written by Kabelo Moutloaste, Tax Debt and Accounting Senior Specialist, Latita Africa