Jashwin Baijoo, Legal Manager: Africa Tax and Compliance at Tax Consulting SA, suggests a solution for SMEs facing difficulties meeting their tax obligations.
In the midst of the ongoing Covid-19 pandemic, riots erupted in South Africa in early July, with mass looting taking place in both KwaZulu-Natal and Gauteng, leaving small business owners asking: “What now?”
Since March 2020, many small to medium enterprises (SMEs) had to shut their doors for good, which resulted from the economic lockdown brought on by the Covid-19 pandemic.
For those who were hanging on by a thread, the riots of July 2021 were the last straw.
At the onset of worldwide lockdowns, the South African Revenue Service (SARS) implemented relief for SMEs in the form of “Covid-19 Relief”, which reflected on their tax returns and monthly assessments.
The question now is, will SARS show the same mercy to SMEs affected by the recent riots?
South Africa’s state-owned insurer, SASRIA, expects insurance claims resulting from the recent looting and riot damage to far exceed what it can cover, and may very well need to partner with National Treasury in order to fully cover all claims submitted.
This said, upon payment of the claim, the SME will be covered for loss and damage of equipment, trading stock, and structural damage in some cases.
However, the loss of revenue will be the owner’s burden, not that of the State. Likewise, the SME’s tax obligations will, at this stage, see no reprieve from SARS, with Pay-As-You-Earn (PAYE) and Value-Added Tax (VAT), in the case of supplies purchased, still due from the SME.
The SME solution
Without any public announcement from SARS, it is up to SMEs to find the most amicable solution to both their financial and tax affairs. The solution could come in the form of a Compromise of Tax Debt Application (“the Compromise”) with SARS.
The Compromise is aimed at aiding taxpayers, both individual and corporate, to reduce their tax liability by means of a Compromise Agreement, which is entered into with SARS.
The effect of entering into a Compromise Agreement is that the tax liability is greatly reduced to an affordable amount, granting the taxpayer a much-needed reprieve to aid them on the road to recovery.
Once the agreement is duly executed and accepted by the SARS Compromise Committee, and payment is made as proposed by the taxpayer, the balance of the liability due to SARS is written off by the revenue authority.
Ensuring your financial future
The best strategy when it comes to tax matters is to always ensure compliance.
Where you find yourself on the wrong side of SARS, there is a first-mover advantage in seeking appropriate tax advice, ensuring that the necessary steps are taken to protect both yourself and your bank balance from paying the price for what could be the smallest of mistakes.
However, where things do go wrong, SARS must be engaged legally, and we generally find them to be most agreeable where a correct tax strategy has been followed.
As a rule of thumb, any and all correspondence received from SARS should be immediately assessed by a qualified tax specialist or tax attorney, which will serve to safeguard the taxpayer against SARS implementing collection measures.
They can also correctly advise taxpayers on the most appropriate solution to ensure the healing process is completed.
This post was based on a press release issued on behalf of Tax Consulting SA.