If you are in debt with the South African Revenue Services (Sars) or received a notice of final demand, there’s no need for panic, says Thomas Lobban, Tax Legal Specialist at Latita Africa.
"You’re not the first and you won’t be the last; there are generally honest ways to get through this without taking big hits," he says. Which is exceptionally good news now that Sars is upping its debt collection game to never-before-seen levels of efficiency.
A word of advice
The first and most important step is for you to take action immediately.
"The last thing you want is to stay shell-shocked and just stand there like a deer in headlights," advises Lobban. "You must do something proactive right now."
Because if you don’t, you can be sure Sars will. That includes collecting the tax debt from third parties, like your employer, your bank, your investment broker or anyone else who owes you a buck. Sars is also empowered, where necessary, to attach your assets in order to collect on the tax debt.
So, tick-tock, time’s a-wasting.
Clean the slate, bottom up
The second step might simply be to admit that if you’re in trouble, you’ve either been trying to do it all yourself - and you’ve been getting it wrong. Or, you’ve been receiving poor advice and bad service from a tax advisor who’s not up to speed on tax or tax law themselves. You might even “know a guy”, and it goes belly-up (or worse, nowhere at all).
That doesn’t mean you should blame yourself, only that you acknowledge it’s time for a radically new approach – working with someone who knows what they’re doing.
Just recently, Sars Commissioner Edward Kieswetter mentioned 53 tax practitioners who remain non-compliant in their own tax affairs. This, he said, "explains, in part, how they advise their clients and why their clients are equally delinquent." Ouch.
"There can often also be a correlation drawn between how well you resolve your tax debt and the competency of the tax advisor who mediated with Sars on your behalf," says Lobban.
So, above all, perhaps don’t try to fix the problem using the same party that got you into it in the first place.
Your options
There are really only two conditions that make a difference: Sars got their sums or facts wrong, or Sars got their sums and facts right.
If they are wrong, you can work with your new tax practitioner to dispute their assessment and bring the tax debt back to reality.
If Sars is right, then you may face a tax debt that is onerous or downright unaffordable.
However, you still have two saving graces at your disposal.
Defer the debt
First, you can negotiate with Sars to defer the debt, which means developing a payment plan that allows you to pay it off in reasonable instalments.
Deferment is also handy in some cases where you intend to dispute the assessment, because of Sars’ "pay now, dispute later" policy – it can cushion you from an immediate and possibly unaffordable full settlement.
Compromise the debt
Second, if you qualify, you can enter into a tax debt compromise agreement with Sars in terms of section 200 of the Tax Administration Act. This allows you to reduce your tax liability, sometimes substantially.
Be aware, though, that the compromise process involves an invasive assessment, requiring Sars to dig deeply into every aspect of your finances and personal wealth. And a final settlement must still be fair to the South African fiscus.
Get the law on your side
Any of these situations are best handled through a tax advisor with legal muscle to spare and a firm grasp of Sars’ often confusing and complex debt resolution processes. This is especially the case where there are other potentially problematic issues the taxpayer is facing.
Many tax practitioners – especially newly minted ones – don't usually have legal expertise or the experience to negotiate effectively with Sars in sensitive matters.
"But, rest assured that how well your practitioner deals with Sars will likely determine how beneficial the outcome is for you and how little stress you ultimately have to suffer," says Lobban.
Now go beat this thing!
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