In the current climate with taxpayers having to juggle, amongst other things, the devastating effects of Covid, with the unforeseen losses of the civil unrest, it may be that some could find themselves in a difficult position to deal with expected and unexpected tax liabilities. 

When taxpayers are faced with a tax liability, it must from the outset be decided whether the liability will form part of a dispute with SARS, or whether the taxpayer accepts the liability. This is so as disputed and undisputed tax liabilities can be treated differently, utilising different tools found in the Tax Administration Act 28 of 2011 (“the TAA”). 

If the taxpayer does not agree with the tax liability based on fact or law, our advice is to engage the dispute process. Unfortunately to bury one's head in the sand will not absolve any taxpayer from the tax liability that remains due and payable in this instance, due to the general rule of “pay now, argue later”. When the tax liability is disputed, and circumstances (including financial circumstances) so dictate, taxpayers can apply, and SARS may allow for a suspension of payment. The suspension of payment is an exception to the general rule of “pay now, argue later”. A suspension of payment does not eliminate a tax liability but postpones same whilst the dispute is alive. Naturally the outcome will determine whether the tax liability is due or not. The suspension of payment application is made in terms of section 164 of the TAA, and SARS considers various factors when allowing or disallowing it. A decision by SARS to disallow a suspension of payment is capable being reviewed. 

The TAA provides for various other mechanisms which are available to taxpayers, such as the instalment payment agreement or the compromise.
The instalment payment agreement (“the Deferral”) is a hybrid tool, in that it is available when the tax liability is either disputed or undisputed. Section 167 and 168 of the TAA governs this application. In essence, the Deferral allows taxpayers to pay the tax liability in instalments, within an agreed to period. A Deferral does not eliminate a tax liability. The Deferral is generally entered into when taxpayers do not have necessary liquidity or assets to pay the liability immediately. It is possible to defer a portion of the liability. The Deferral is an appropriate tool where circumstances so dictate and has the effect of remedying a non-compliance status.

The TAA provides for SARS to write off or compromise a portion of the tax liability, as opposed to only deferring same. Section 200 to 207 governs the compromise arrangement. The compromise only applies to undisputed liabilities and where circumstances justify a compromise. It is therefore critical for taxpayers to consider whether their liability is capable of being disputed in a bona fide manner, before applying for a compromise. Once the liability is compromised, the taxpayer cannot dispute the debt. The effect of the compromise agreement is that the taxpayer undertakes to pay an amount which is less than the tax liability due, in full and final satisfaction of the tax debt, whilst SARS undertakes to permanently ‘write off’ the remaining portion of the tax liability. 

Dealing with the tax liability in one or more of the ways discussed herein (such as a Deferral, suspension of payment or compromise) is not an arbitrary decision, but rather fact specific and these facts must speak to the appropriate legal provisions. For example, the facts will be evidenced by the supporting documents to be evaluated, such as bank statements, management accounts, annual financial statements and no outstanding compliance obligations. 

Never take the ostrich approach, as a tax liability left unattended can grow exponentially.  Understand what your tax liability is and how it arose, whether you agree therewith and then deal with it in an appropriate manner. You’ll be well advised to consult with your tax attorney or tax adviser in this regard.