The unprecedented postponement of the 2025 Budget Speech has left many people uncertain about South Africa’s financial future.
Even though the budget speech was not delivered, speculation on key tax changes nonetheless abounds, including a 2% increase to the VAT rate, and as always, the threat of a “wealth tax” hanging over the affluent taxpayer.
Amidst the uncertainty, one thing remains clear, the need for tax revenue collection has never been greater. Sars has never taken a harder stance on the collection of outstanding tax debts, including now targeting crypto traders, and increased scrutiny on Trust reporting.
While the country may be uncertain of the financial implications and guidance to be shed from the budget speech, you can be certain that if you do not resolve outstanding tax debts with Sars, they will come for you, and everything you have worked so hard for.
Sars Is Certain About Its Collection Strategies
Picking the lowest hanging fruit 1st, outstanding tax debts are Sars’ prime target, which now includes a new taxpayer segment – cryptocurrency traders, all 5,8 million of them!
The increased, and enhanced strategy to drive broader taxpayer compliance, whilst fulfilling its mandate of tax revenue collection, evidences, clearly, Sars’ intention to promote voluntary tax compliance, whilst ensuring non-compliance is both hard and costly.
With Sars beginning with the end in mind, it comes as no surprise that letters of Final Demand and Notifications of Audit are being issued across various taxpayer segments, providing both the carrot and stick.
Taxpayers have 10 business days on receipt of a Final Demand, to either pay the alleged debt in full, enter into a deferral of payment arrangement, enter into a compromise agreement, or file an objection to dispute the merits of the debt.
Clarity of Correct Tax Compliance
Where a taxpayer does not dispute the merits of a debt owed to Sars but simply cannot afford to settle the debt in a single payment, tax debt relief options become an attractive saving grace in such times of uncertainty and difficulty.
To the consolation of indebted taxpayers, tax debt relief may be sought on all tax types, whether it is Personal or Company Income Tax, VAT, or PAYE. We find Sars is often amicable to entering into payment arrangements, permitting indebted taxpayers to settle their obligations over a number of months.
The downside is that this payment plan option includes interest and penalties, but does protect the taxpayer from collections measures being implemented by Sars, and judgments being taken against the taxpayer.
Whilst the payment arrangement allows much-needed breathing room for the taxpayer’s finances and protects against Sars swooping in and draining the taxpayer’s bank accounts or taking a civil judgement and blacklisting the taxpayer, it does not have a tangible tax debt write-off.
A Compromise, on the other hand, includes the possibility of fully writing off interest and penalties, together with pushing for a reduction in the capital tax debt amount. This is the preferred solution where the taxpayer cannot afford to settle the outstanding debt amount and experiences true financial hardship, beyond just low savings and high debts. This is ultimately the most financially beneficial solution.
Various elements must be met to qualify for a compromise of tax debt, and where Sars is approached correctly and legally, they are amenable to large write-offs and reductions to the debt.
Both agreements must be reduced to writing and signed by the respective parties, to give certainty on the amounts and terms of settlement relating to the outstanding debt.
The First-Mover Advantage
In order to protect yourself from Sars, it remains the best strategy that you always ensure compliance. Where you find yourself on the wrong side of Sars, there is a first-mover advantage in seeking the appropriate tax advisory, providing certainty, and ensuring the necessary steps are taken to protect both yourself and your bank balance from paying the price for what could be the smallest of mistakes. However, where things do go wrong, Sars must be engaged legally.
As a rule of thumb, any and all correspondence received from Sars should be immediately addressed, by a qualified tax specialist or tax attorney, which will not only serve to safeguard the taxpayer against Sars implementing collection measures but also be specialists in their own right, the taxpayer will be correctly advised on the most appropriate solution to ensure their tax compliance.
* Baijoo is an associate director and head of strategic engagement & compliance and Bhayla is a tax attorney at Tax Consulting SA.
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