Taxation is a cornerstone of national development. It’s how governments fund essential services such as healthcare, education, infrastructure, and public safety. But what if you’re unable to meet your tax obligations?

For taxpayers in South Africa facing financial hardship, the South African Revenue Service (SARS) offers mechanisms to assist in managing outstanding tax debt. These include entering into a deferred payment arrangement or applying for a tax debt compromise.

Exploring the SARS Debt Compromise Option

A debt compromise is a formal arrangement whereby a taxpayer asks SARS to accept a reduced amount in full and final settlement of an outstanding tax debt. This route is available to individuals, companies, and trusts who can demonstrate genuine financial distress and an inability to pay the full amount due.

The main objective behind this process is to recover the highest possible return for the state under the circumstances, while recognising that full recovery may not be feasible.

What Must Be Submitted?

Debt compromise applications require detailed disclosure. Section 201 of the Tax Administration Act 28 of 2011 lays out the mandatory supporting information that must accompany the request. SARS uses this documentation to assess the viability of a compromise.

Some of the key documents and disclosures include:

• A full list of assets and liabilities, valued at current market prices;
• A statement of income and expenditure for the 12 months leading up to the application;
• Details of any asset disposals made in the past three years;
• A written explanation outlining the reasons for requesting a compromise;
• Justification for why the taxpayer cannot settle the debt in full.

This is not an exhaustive list. A complete and accurate submission is crucial, as SARS will assess the information holistically to decide whether to accept or decline the proposal.

When Will SARS Reject a Compromise Request?

While the Act provides a framework for applying for a compromise, it also sets out situations where SARS will not consider or approve such requests. Common reasons for rejection include:

• The taxpayer has already benefited from a debt compromise within the last three years;
• The taxpayer’s tax returns or other compliance obligations are outstanding;
• Approval of the compromise would result in unfair prejudice to other creditors;
• There is evidence of bad faith or abuse of the process.

In addition to these, the Act lists other statutory grounds for rejection which should be carefully reviewed before applying.

Key Takeaway: Legal Guidance is Critical

The SARS debt compromise process is technical and document-heavy. The application must not only be complete but also persuasive, providing SARS with a reasoned basis to accept a reduced settlement.

Given the strict statutory criteria and potential for rejection, it is strongly advised that taxpayers consult a qualified tax professional or legal advisor before engaging SARS. A specialist can help assess eligibility, prepare the application, and manage correspondence with SARS to maximise the chances of success.

If you’re struggling with tax debt, don’t delay. Explore your options early and seek professional assistance to protect your legal position and avoid enforcement action.