There are provisions in the Tax Administration Act, 2011 which allow the South African Revenue Service (SARS) to enter into an agreement with a taxpayer where he may within an agreed period, pay a tax debt in one sum or in instalments.
Certain criteria must be met before a senior SARS official can conclude an instalment payment agreement. The taxpayer must suffer from a deficiency of assets or liquidity which is reasonably certain to be remedied in the future. Notwithstanding this deficiency, the taxpayer must anticipate that there will be income or other receipts which can be used to satisfy the tax debt. At the time of concluding the agreement the prospects of collecting the tax debt must be poor or uneconomical, but likely to improve in the future. Moreover, the deferral should not prejudice the collection of the tax debt.
If the taxpayer is a company the SARS official is likely to request security for payment of the tax debt in instalments. This could be in the form of a personal surety from the director or shareholder of the company. When signing a surety, the director or shareholder must be mindful that their personal assets will be at risk if the taxpayer defaults on the agreement.
The instalment agreement may contain conditions that SARS deems necessary to secure the collection of the tax. SARS may also terminate the agreement if a taxpayer fails to pay an instalment or comply with its terms. Furthermore, the Tax Administration Act allows SARS to modify or terminate the agreement if:
- the collection of tax is in jeopardy;
- the taxpayer furnished materially incorrect information in applying for the agreement; or
- the financial condition of the taxpayer has materially changed.
If SARS terminates or modifies the agreement because the taxpayer has not paid, complied with the terms, or the collection of tax is in jeopardy, then such termination or modification will be effective from the date stated in the SARS notice. If the reason for termination or modification is the furnishing of materially incorrect information or the change of the taxpayer's financial condition, then the termination or modification is effective 21 business days after the notice is sent to the taxpayer.
What is apparent from the Tax Administration Act is that taxpayers deferring payment of tax by an instalment payment agreement must be certain that they can keep to the agreed payment terms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.