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.
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.
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:
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, your retirement fund 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.
Civil judgment
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.
If your tax affairs are not in order you will not be able to get a certificate of tax compliance from SARS. This may impact other aspects of your life. For example:
If you need to make use of the two-pot retirement system to withdraw from your retirement fund, SARS can use an ITA88 deduction to recover outstanding tax from your withdrawal.
You may be unable to retire from your retirement fund.
You may be unable to buy foreign currency or transfer money overseas.
You may be unable to make investments offshore.
You may be unable to get a visa or apply for residence in another country.
You may be unable to get a licence to practice your profession if you are for example, an accountant, lawyer, financial adviser or tax adviser.
You may be unable to sell property and transfer it into another person's name.
You may be unable to get any tax refunds on any tax returns you do file.
You may be unable to tender for some kinds of business such as government business.
You may be unable to obtain financing from a bank.
Your credit score may be negatively affected.
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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. Learn more about provisional tax
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Written with assistance from Jashwin Baijoo, Head of Strategic Engagement and Compliance, at Tax Consulting South Africa.
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.