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- SARS imposes penalties for failing to file returns and interest on unpaid tax. If you do not respond to a letter of demand, SARS can instruct third parties such as your bank to collect the outstanding tax on its behalf.
- If you cannot pay what you owe, it is best to enter into a payment arrangement to pay the amount off over time.
- If you owe tax and have incurred penalties and interest, you can apply for a Compromise of Tax debt.
- For more financial stories, go to the News24 Business front page.
If you are struggling to pay tax you owe or you think you have outstanding tax that you cannot afford to pay, the worst thing to do is to put your head in the sand and hope for the best.
If you are unsure if you owe any tax, or how much that might be, get in touch with the South African Revenue Service (SARS) via SMS, email or by contacting the SARS contact centre.
Even if you know you do not have the cash to pay tax that is due, doing nothing is usually the worst thing you can do. SARS applies penalties for filing your tax return late and also charges interest on outstanding taxes.
The penalty for failing to submit a return is between R250 and R16 000 a month, depending on your taxable income. You will incur this penalty for every month the return remains outstanding for a maximum of 35 months.
The interest you will incur on your outstanding tax debt is market-related, calculated on the daily balance owing and compounded monthly. This means you will incur more debt the longer you leave your taxes outstanding.
If you do not file a tax return when you are obliged to do so, SARS is empowered to raise an estimated assessment of the tax for which you are liable and to proceed to collect that tax. SARS uses information from many sources, such as your bank accounts, property deeds and vehicle registrations, to track down non-compliant taxpayers and assess what they owe. It can also appoint tracing agents when necessary to find you.
SARS can instruct third parties such as your bank or your employer to collect the tax it has calculated you owe from your bank account or salary. If you wait for this to happen, you will have much less control over your finances and having your debt handed over could ruin your credit report.
It is much better to file your returns and make use of SARS’s repayment terms for outstanding debt.
It’s the law
Failing to pay the tax you owe is a criminal offence under the law.
You cannot claim you were unaware you needed to pay tax or were not informed. You can also not use a change of contact details as an excuse because taxpayers are obliged to ensure that the contact details SARS has on record for them are up to date.
You can change your contact and banking details on the SARS eFiling website, often without visiting a SARS branch.
What can SARS do if you don’t pay
The due date by which you must pay outstanding tax is generally at the end of the month following the assessment. Should you fail to pay SARS by the deadline, it will send reminders to pay, before sending a Final Letter of Demand.
The final letter of demand gives you 10 days in which to either:
- Pay the debt;
- Request a deferral of payment or a payment arrangement to pay off what you owe over a period of months or years;
- Negotiate a compromise of tax debt with SARS, offering the possibility of writing off some or all of the amount outstanding; or
- Lodge a dispute.
If you do not pay the debt and have applied for a payment arrangement or compromise or lodged a dispute, you must also request a suspension of payment.
If successful, this will stop SARS from continuing with collection measures, giving you or your tax adviser time to collate all the documentation needed to support the payment arrangement, compromise or dispute.
If you ignore a final letter of demand, your debt will be handed over to the SARS debt management team and money in your bank account can be seized without further notice.
SARS’s debt management team can instruct a third party – such as your bank, employer or even a customer - to pay what you owe directly to it. This is known as an ITA88 deduction.
A third party instructed to attach your funds and pay them to SARS does not have legal recourse to reject such an instruction. In terms of the Tax Administration Act, a third party that fails to comply could be found guilty of an offence and held personally liable for the debt.
SARS internal debt management team could also apply for a Certified Statement of the Courts, which is like a civil judgment. This allows the sheriff to attach and auction your assets to settle your debt. This statement is likely to negatively affect your credit report.
Assets held offshore are not safe, either. An order can be obtained compelling the assets to be repatriated to South Africa. In this case, as an errant taxpayer you might find your right to trade or to travel restrained in the interim.
SARS could even apply to liquidate or sequestrate your estate.
Should SARS’s internal attempts to recover the debt fail, SARS will hand you over to an external debt collector. The external agents will be professionals with more resources than SARS, including access to collection attorneys.
Debt relief
When it comes to paying the tax you owe, SARS offers a number of debt relief mechanisms.
A payment arrangement
You can request a payment arrangement or instalment payment of your outstanding debt through the eFiling system or by calling the SARS call centre.
Before SARS will enter into such an arrangement with you, however, you must file all your outstanding returns.
Compromise of tax debt application
If you agree that you owe the tax, but can't afford to pay it you can enter into negotiations with SARS to have any interest and penalties as well as potentially a portion of the capital amount written off. In terms of the agreement, you must agree to settle the balance.
To qualify for this debt relief, you must approach SARS and submit evidence of your situation and the need for relief.
Lodge a dispute
If you disagree with the amount SARS says you owe, you can lodge a dispute through eFiling.
A dispute should ideally be brought to SARS’ attention timeously - before SARS has issued a final notice for the outstanding debt.
Disputes are heard by an independent debt committee at SARS, which is guided by the law as well as the rules of the organisation. The committee does have some discretion.
Remember, the tax ombud can only hear complaints about how SARS administers tax legislation – it cannot hear disputes about the interpretation of the law.
To contact the tax ombud see: SmartAboutMoney - where to complain
Your options if you can’t pay
SARS’s stated objective is to make non-compliance "hard and costly for taxpayers who are unwilling to comply". But another key objective is to "make compliance easy, and sometimes seamless for taxpayers wishing to comply".
You should not wait until SARS sends you a letter of demand, but should rather approach the tax authority with details of your financial difficulty and actively seek a solution. It is in everyone’s best interest for a payment arrangement to be reached.
Whatever the reason for your tax debt, whether it is a change in your financial situation due to a job loss or a business failure, or perhaps a smaller debt to SARS ballooning after attracting penalties and interest, ignoring the problem will only make things worse.
Why you may be incurring tax debt
If you are being paid a salary, you are taxed through the Pay As You Earn (PAYE) system that obliges employers to calculate the tax owing on the salary earned, deduct it from employees’ earnings and pay it directly to SARS.
If you earn income through sources other than a salary – for example, from a business in your own name, from renting property or as a freelancer or consultant – you will usually get paid in full and no tax will be deducted from the payments made to you.
You are obliged to register for tax and declare your income.
You can register for eFiling here: https://secure.sarsefiling.co.za/app/register.
If you earn untaxed income above a certain level, you will need to register for and pay provisional tax.
This is a system that ensures taxpayers declare earnings and pay income tax during the year, rather than just at the end of the tax year when their income tax return is assessed.
READ | Learn more about provisional tax
If you are an employee who is paying PAYE on your salary but have another source of income, you may owe SARS tax.
Rental income on a property, income from a side hustle, interest income and capital gains are not accounted for in the tax payments made on your behalf by your employer and must be declared to SARS in your tax return.
If this additional income is not declared and the tax paid to SARS, you are likely to be accumulating tax debt.
Written with assistance from Jashwin Baijoo, Head of Strategic Engagement and Compliance, at Tax Consulting South Africa.
This article was first published on SmartAboutMoney.co.za, an initiative by the Association for Savings and Investment South Africa (ASISA).
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