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Waiver of tax debt

If a taxpayer is unable to pay a tax debt, Chapter 14 of the Tax Administration Act No. 28 of 2011 (the TAA) makes provision for the taxpayer to apply to the South African Revenue Service (SARS) for the debt to be written off or compromised, that is to say, partially written off.

SARS is in the business of collecting tax, not of waiving the payment of tax.  It is highly likely therefore that SARS will approve debt reductions or waivers under strict consequences like where it is impossible or uneconomic to collect the debt.

We highlight below the circumstances under which SARS may deviate from the general rule (general rule= assess and collect all tax debts) and take a decision to ‘write off’ a tax debt or not to pursue its collection.

Temporary write off tax debt

A senior SARS official may decide to temporarily ‘write off’ an amount of tax debt—

(a) if satisfied that the tax debt is uneconomical to pursue at that time; or

(b) for the duration of the period that the ‘debtor’ is subject to business rescue proceedings.

A decision by the senior SARS official to temporarily ‘write off’ an amount of tax debt does not absolve the ‘debtor’ from the liability for that tax debt. A senior SARS official may at any time withdraw the decision to temporarily ‘write off’ a tax debt if satisfied that the tax debt is no longer uneconomical to pursue and that the decision to temporarily ‘write off’ would jeopardise the general tax collection effort.

So, when is a tax debt uneconomical to pursue?

Tax debt is uneconomical to pursue if a senior SARS official is satisfied that the total cost of recovery of that tax debt will in all likelihood exceed the anticipated amount to be recovered in respect of the outstanding tax debt.

In determining whether the cost of recovery is likely to exceed the anticipated amount to be recovered, a senior SARS official must have regard to—

  1. the amount of the tax debt.
  2. the length of time that the tax debt has been outstanding.
  3. the steps taken to date to recover the tax debt and the costs involved in those steps, including steps taken to locate or trace the ‘debtor’.
  4. the likely costs of continuing action to recover the tax debt and the anticipated return from that action, including the likely recovery of costs that may be awarded to SARS.
  5. the financial position of the ‘debtor’, including that ‘debtor’s’ assets and liabilities, cash flow, and possible future income streams; and
  6. any other information available regarding the recoverability of the tax debt.
Permanent write off tax debt

A senior SARS official may authorise the permanent ‘write off’ of an amount of tax debt—

  1. to the extent satisfied that the tax debt is irrecoverable at law; or
  2. if the debt is ‘compromised’.
When is a tax debt irrecoverable at law?

Tax debt is irrecoverable at law if—

  1. it cannot be recovered by action and judgment of a court; or
  2. it is owed by a ‘debtor’ that is in liquidation or sequestration and it represents the balance outstanding after notice is given by the liquidator or trustee that no further dividend is to be paid or a final dividend has been paid to the creditors of the estate; or
  3. it is owed by a ‘debtor’ that is subject to a business rescue plan.

A tax debt is not irrecoverable at law if SARS has not first explored action against or recovery from the assets of the persons who may be liable for the debt.

Procedure for writing off tax debt

Before deciding to ‘write off’ a tax debt, a senior SARS official must—

  1. determine whether there are any other tax debts owing to SARS by the ‘debtor’.
  2. reconcile amounts owed by and to the ‘debtor’, including penalties, interest, and costs.
  3. obtain a breakdown of the tax debt and the periods to which the outstanding amounts relate; and
  4. document the history of the recovery process and the reasons for deciding to ‘write off' the tax debt.
Compromise of tax debt

A senior SARS official may authorise the ‘compromise’ of a portion of a tax debt upon request by a ‘debtor’, if—

  1. the purpose of the ‘compromise’ is to secure the highest net return from the recovery of the tax debt, and
  2. the ‘compromise’ is consistent with considerations of good management of the tax system and administrative efficiency.

As a debtor you can submit a request to SARS for compromise, the request must be signed by you the debtor and include a detailed statement setting out assets and liabilities, amounts received or accrued to you amongst other evidence and reasons for seeking a debt compromise.

The request must be accompanied by the evidence supporting the ‘debtors' claims for not being able to make payment of the full amount of the tax debt. The ‘debtor’ must warrant that the information provided in the application is accurate and complete. A senior SARS official may require that the application be supplemented by such further information as may be required.

Supporting documentation

Another consideration is that some entities may have lost their records as a result of the looting. It may also be possible that hard copy files with documentation for SARS purposes may have been destroyed in the looting or by fire. Again, storage facilities were also affected by the fire damage and or looting resulting in entities archives being destroyed or damaged as well.

It suffices to say that the issue of looting may have dire implications than meets the eye. It is currently not clear how SARS will deal with issues arising as a result of taxpayers having lost all their supporting documentation. As is known, SARS may request relevant supporting documentation when a taxpayer is expecting a refund, e.g. for VAT purposes. It is further not clear if SARS will consider the waiver of any penalties and interest that may arise as a result of not having the necessary supporting documentation.

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As discussed above, a taxpayer who applies to SARS for the writing off or compromise of tax debt in terms of Chapter 14 of the TAA must submit a formidable amount of documentation. The process takes a long time, however, the SNG Grant Thornton team is available and willing to assist with the process. This is a mechanism that is available according to the TAA and can be utilised by all taxpayers. Employers and taxpayers are also encouraged to utilise all the mechanisms offered by the government, e.g. deferral of PAYE payment obligations, ETI expansion, payment of excise taxes etc.