Tax debt tends to build in a predictable way. A return is submitted late, a penalty follows, interest starts accumulating on both the tax and the penalty, the next return gets delayed because the first one is still unresolved, and within two or three cycles the balance owed is considerably larger than the original tax and considerably harder to face.
Understanding what SARS is actually entitled to do about an unpaid debt is a useful reason to deal with it early rather than avoid it. Every remedy available to a taxpayer works better before collection steps begin, and gets harder once they have.
What SARS is actually entitled to do?
The Tax Administration Act gives SARS real collection powers, not just the ability to send reminder letters.
Among them:
- Appoint a third party: including your bank or your employer to pay amounts directly to SARS from money they hold on your behalf. This is one of the most common reasons taxpayers finally make contact, and it is far better addressed before it happens than after.
- Issue a civil judgment: for the outstanding debt, which affects your credit record.
- Attach and sell assets:in execution of that judgment.
- Institute sequestration or liquidation proceedings: in appropriate circumstances.
- Withhold your tax compliance status: which blocks tenders, contracts, and transfers of funds abroad.
- Hold a company director personally liable: in defined circumstances, for a company's tax debt.
None of these happen without warning, but none of them require your active involvement either. A debt that goes unattended does not stay static it accrues interest, and eventually SARS moves from correspondence to collection.
What you can actually do about it
First: establish what is genuinely owed
A meaningful share of tax debt is built on estimated assessments raised by SARS in the absence of a submitted return, and frequently much higher than the taxpayer’s actual liability would have been. Before doing anything else, bring any outstanding returns up to date. Submitting the correct figures often reduces the debt substantially, sometimes to a fraction of the estimated amount.
Second: request remission of penalties, where there are grounds
Administrative penalties and certain interest charges can be remitted where you have proper grounds recognised in the legislation. A brief statement that you were struggling financially is not, by itself, grounds the request has to set out the actual circumstances properly. If a remission request is refused, or only partly allowed, the refusal itself can be objected to.
Third: negotiate what you can genuinely afford
Where the debt is correct but can’t be settled immediately, SARS can agree to a deferred payment arrangement instalments over an agreed period. This only works if the instalment is one you can actually sustain. An arrangement that’s agreed and then breached is worse than having no arrangement at all, so be realistic about what you propose.
Fourth: consider a compromise, for debt that is genuinely unrecoverable
In defined circumstances, SARS can accept a reduced amount in full and final settlement of a portion of the debt. This is available where recovering the full amount isn’t realistically achievable, and where the compromise gives SARS a better outcome than the alternative typically liquidation or sequestration. It requires full disclosure of your assets, liabilities, income and expenditure, and it has to be motivated persuasively. It is not a negotiating tactic, and it should not be attempted casually.
The order matters
These four steps are listed in the order they should generally be worked through. There’s little point negotiating a payment arrangement on a debt that’s actually built on estimated assessments you haven’t yet corrected you might be negotiating to pay off money you don’t actually owe.
Frequently asked questions
Not on request. A compromise is a real remedy, available in defined circumstances, but it's granted on evidence full financial disclosure and a persuasive motivation not on hardship alone.
Yes. SARS can appoint a third party, including a bank, to pay over amounts held on your behalf. This is one of the clearest reasons to deal with an unpaid debt before collection steps start rather than after.
No, and bringing outstanding returns up to date is usually the single most effective first step available. Estimated assessments raised in the absence of returns are frequently much higher than the correct liability, and submitting the real figures often reduces the debt significantly.
This article is general information about South African tax and is not tax advice. Tax outcomes depend on the specific facts of each matter. See our Website Terms of Use for more.
Deal with it before SARS does
The earlier you deal with a tax debt, the more options you have. Tell us the position and we’ll set out what can realistically be done.