Tax debts can be managed

Graeme Palmer, a Director in the Commercial Department of Garlicke & Bousfield Inc.

The 17th century French Finance Minister, Jean-Baptiste Colbert said, “the art of taxation consists of plucking the goose so as to obtain the most feathers with the least hissing.” There may be some hissing from taxpayers during the 2015/16 fiscal year as the South African Revenue Service (SARS) set about collecting tax to meet the R1.1 trillion target set by National Treasury. Taxpayers who fail to pay their tax timeously are likely to come under pressure from the SARS debt collection department as they endeavour to reach their target.

Generally tax must be paid by the day and at the place notified by SARS. Even if a taxpayer has lodged an objection or appeal against an assessment payment must be made timeously, the “pay now argue later” principle having been accepted by our courts. If a person has an outstanding tax debt, SARS may, after giving the person at least 10 business days’ notice, file with a competent court a certified statement setting out the amount of tax payable, which statement has the effect of a civil judgment in favour of SARS.

However, taxpayers who fall into arrears with tax do have options available to them. Section 167 of the Tax Administration Act, 2011 (“the Act”) allows SARS to enter into an agreement with a taxpayer where a tax debt is paid off in instalments. Although there is no prescribed period over which the tax debt must be repaid, it is unusual for SARS to agree to a period longer than 12 months.

If an instalment payment arrangement is not feasible because, for example, the monthly repayments are too high for the taxpayer to sustain, then a compromise can be considered. Section 200 provides that SARS may authorise the ‘compromise’ of a portion of a tax debt if certain conditions in the Act have been met.

If the taxpayer is a company, and is unable to reach an agreement with SARS on the repayment of the tax debt, it must be mindful of its obligations under the Companies Act, 2008, not to carry on its business recklessly by continuing to trade in circumstances where it cannot pay its debts as they fall due. In such event borrowing, business rescue, or even voluntary liquidation will need to be considered. Tax debts should be dealt with by taking advice from a tax practitioner, but never ignored.