Tax debt can be a significant burden for individuals and businesses alike, often leading to financial distress. Fortunately, under sections 192 to 207 of the Tax Administration Act, there are provisions that allow for the write-off or compromise of tax debts, providing a pathway for taxpayers to alleviate their financial burdens. This article delves into these sections, outlining the eligibility criteria, application process, and implications for taxpayers.

Tax debtors are expected to take responsibility for their tax obligations and to organise their affairs in such a way as to be able to discharge those responsibilities when required.

Although it is SARS’ duty to assess and collect tax debts rather than to forgo them, it may deviate from the strictness and rigidity of this duty if it would be to the best advantage of the State.

When deciding the most appropriate manner in which to deal with outstanding tax obligations, SARS will give considerable weight to the tax debtors’ individual circumstances and compliance history, for example, the history of lodging correct returns and documents and paying taxes on time. It may, however, occur that taxpayers cannot pay a tax debt or that it would be uneconomical to pursue a tax debt, hence the need for provisions dealing with the write-off or compromise of a tax debt.

Write off or waiver of tax debts

Tax may be written off temporarily or permanently when a debt is irrecoverable, and the effort and cost of pursuing it will prove ineffective, or pursuing it is a legal impossibility.

A temporary write-off is generally merely a suspension of the recovery of a debt, and the debt may still be recoverable during the prescription period. This period, under the Act, will be 15 years from the date a tax debt comes into existence. This is the date of assessment of tax or the date on which a decision that is subject to objection and appeal becomes final and gives rise to a tax liability by a taxpayer. However, a permanent write-off will be final.

Only a senior SARS official may approve a write-off, and absent this approval and a notice by SARS to the tax debtor that an amount of a tax debt is written off, no amount tendered or paid by a tax debtor can constitute a full and final settlement of a tax debt.

A temporary write-off is an internal decision that has no effect on a taxpayer, as the taxpayer is not absolved from liability. A tax debt is uneconomical to pursue if the total cost of recovery of the tax will, in all likelihood, exceed the anticipated amount to be recovered.

A permanent write-off is made by a senior SARS official when it is an integral part of a compromise or if the tax debt is irrecoverable by law.

Compromise of tax debts

The broad principle is that SARS is obliged to enforce the provisions of a tax Act to the fullest extent, to collect what is due and not forgo taxes.

A senior SARS official may authorise a compromise request by a taxpayer if the purpose of the compromise is to secure the highest net return from the recovery of the tax debt and the compromise is consistent with considerations of good management of the tax system and administrative efficiency.

A senior SARS official may decide to temporarily write off an outstanding tax debt if satisfied that it is uneconomical to pursue or for the duration of the period that the debtor is subject to business rescue proceedings under Chapter 6 of the Companies Act.

If the liability is not disputed but the taxpayer cannot pay, SARS may agree to compromise and write off a portion of the tax debt. Only a senior SARS official may approve a compromise agreement, and absent this approval and a notice by SARS to a tax debtor that the compromise is approved, no amount tendered or paid by a tax debtor can constitute a full and final settlement of a tax debt.

SARS does not have unfettered power to settle or compromise and is obliged to take into consideration various factors in the procedure for compromises. The debtors’ current, past and future circumstances must support a compromise, and SARS must be satisfied that no other creditor will be advantaged or disadvantaged. A creditor may, however, consent to being disadvantaged.

A compromise may not be concluded if a debtor’s other tax affairs are not up to date, if a debtor has entered into a compromise in the three years preceding the request for compromise, if other creditors intend to take insolvency proceedings against the debtor, or if a compromise will adversely affect broad taxpayer compliance.

Procedure for compromises

When entering into discussions concerning a compromise, a taxpayer is required to be open, honest and frank. SARS does not have to adhere to a compromise if material facts were not disclosed during the settlement, if facts were misrepresented, or if there was fraud. The negotiated terms are confidential unless disclosure is authorised by agreement.

A compromise must be initiated by a taxpayer who must submit a completed application that comprises a detailed statement containing prescribed information. SARS will need a thorough disclosure of the value of a debtor’s present ‘assets’, future prospects and transactions, the monetary value of any future right a debtor will forgo, and details of people connected to the debtor.

Before a compromise is concluded with a company or a trust SARS has to carefully consider whether another person may be personally liable.

A senior SARS official and the debtor must sign a compromise agreement setting out the amount payable by the debtor in full satisfaction of the debt, the undertaking by SARS not to pursue recovery of the balance of the tax debt, and the conditions subject to which the tax debt is compromised by SARS.

The above conditions may include a requirement that the debtor must comply with subsequent obligations imposed in terms of a tax Act, pay the tax debt in the manner prescribed by SARS, or give up specified existing or future tax benefits, such as carryovers of losses, deductions, credits and rebates.

Conclusion

Sections 192 to 207 of the Tax Administration Act provide essential avenues for taxpayers struggling with tax debt. By understanding the write-off and compromise options, taxpayers can navigate their financial challenges more effectively. It’s advisable for individuals or businesses considering these options to seek professional advice to ensure they understand the implications and processes involved. In doing so, they can take proactive steps toward financial relief and stability.