Deferring Payment of Outstanding Tax Liabilities

Most businesses in South Africa have been dealing with financial difficulties. The economy has been lacking because of various reasons. Companies have been incurring abnormal fuel costs because of loadshedding, access to credit is not attractive because of the increasing interest rates, and inflation has been on an upward trend. These are some of the reasons why businesses are unable to meet their short-term financial obligations. One of the monthly obligations that businesses are faced with are tax obligations to SARS. It becomes important for businesses to understand the options that are available to them if they are unable to settle their tax liabilities.

One of the remedies that are available for businesses when they cannot settle their tax liabilities is the deferral of payment request. Where a business can settle the outstanding liability within six months, the request can be done on eFiling for each outstanding tax liability. If the taxpayer wishes to settle the liability over a period that is greater than six months, the request can be done by completing a SIS001 form (Collection Information Statement).

A deferral of payment arrangement can be done in terms of s167 of the Tax Administration Act. In terms of the Act, “A senior SARS official may enter in an agreement with the taxpayer in the prescribed form under which the taxpayer is allowed to pay a tax debt in one sum or in instalments, within the given period if satisfied that:

(a)   criteria or risks that may be prescribed by the Commissioner by public notice have been duly taken into consideration; and

(b)  the agreement facilitates the collection of debt.”

 

Moreover, the following criteria, as outlined in s168 of the Tax Administration Act, need to be satisfied for a successful deferral of payment arrangement. According to s168, “A senior SARS official may enter in an instalment payment agreement only if:

(a)   the taxpayer suffers from a deficiency of assets or liquidity which is reasonably certain to be remedied in the future;

(b)   the taxpayer anticipates income or other receipts which can be used to satisfy the tax debt;

(c)   prospects of immediate collection activity are poor or uneconomical but are likely to improve in the future;

(d)   collection activity would be harsh in the particular case and the deferral or instalment agreement is unlikely to prejudice tax collection; or the taxpayer provides the security as may be required by the official.”

 

Prior to requesting a deferral of payment arrangement, the taxpayer needs to ensure that they are fully compliant with the submission of tax returns for all the tax types. A taxpayer’s request can be considered without supporting documentation if:

  • The arrangement relates to a tax liability that does not surpass R 100,000 and the requested payment arrangement does not exceed 11 months, or
  • The arrangement relates to a tax liability that does not surpass R 5,000,000 and the requested payment arrangement does not exceed six months.

 

It is mandatory for a taxpayer to provide supporting documentation for payment arrangements where:

  • The requested repayment period surpasses 11 months, and the outstanding tax liability does not exceed R 100,000.
  • The requested repayment surpasses six months, and the outstanding tax liability exceeds R 5,000,000.
  • All requests that relate to a tax liability that exceeds R 5,000,000.

 

The provision of supporting documents assists the taxpayer in proving their ability to settle the liability within the proposed timeframes. These may include but are not limited to:

  • Completed CIS001 form
  • Most recent audited Annual Financial Statements
  • Six month’s bank statements for all business accounts
  • A letter detailing the grounds under which the request is being made
  • Debtors’ listing
  • Creditors’ listing
  • List of business contracts that are ongoing with values for each contract
  • Cash flow forecast for a twelve-month period
  • Latest management accounts
  • Fixed Asset Register

 Conclusion

A successful deferral of payment arrangement can ensure that businesses that are faced with financial difficulties are able to continue doing business while also meeting their tax obligations. Being tax compliant ensures that businesses can enter further contracts without the risk of being rejected because of failure to pay taxes.

 

Author: Ms. Andiswa Matutu

Andiswa Matutu

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