Using methods that might impact bank accounts, pensions, and salaries, the South African Revenue Service (SARS) has broad jurisdiction to collect unpaid taxes. SARS’s strong enforcement powers are demonstrated by the fact that it collected nearly R1.68 trillion in tax revenue in the fiscal year 2023–2024 alone, a 7.7% increase from the year before.
SARS uses the Tax Administration Act (TAA) to expedite debt recovery procedures to ensure compliance and curb tax evasion. NARS can instruct third parties, including employers and retirement fund administrators, to collect unpaid tax arrears straight from taxpayers’ financial assets thanks to Section 179 of the TAA.
A significant precedent in the collection of tax obligations was set by the recent Piet v. CSARS case, which brought to light SARS’s access to pension funds. As the IRS continues to broaden its scope through programs like the two-pot retirement system, this decision is a clear warning to taxpayers to put compliance first.
SARS and the Tax Administration Act (TAA):
The foundation of SARS’s power to collect overdue taxes is the Tax Administration Act (TAA). It gives SARS the authority to send direct notices to taxpayers or other parties, such as banks or administrators of pension plans, requesting that they send money owing to SARS. The purpose of this legislative mechanism is to guarantee the effective collection of outstanding tax debts.
According to tax expert Graeme Palmer, SARS will first send the taxpayer a final demand that details the actions they may take to get the back taxes they haven’t paid. SARS takes prompt action to enforce recovery if the taxpayer doesn’t reply.
- SARS is empowered under Section 179 to collect outstanding taxes from third parties, including by seizing earnings, garnishing salaries, and gaining access to pension assets.
- Notice Compliance: If a third party receives a notice, they must comply or give a good cause for not complying. Otherwise, they risk being held personally responsible for the tax obligation.
How Much Money Can SARS Get Back?
The authority of SARS encompasses a range of financial assets linked to the taxpayer. SARS can effectively collect debts from various sources because of this flexibility.
Generally, pension benefits are protected against creditors’ attachment by Section 37A of the PFA. Nonetheless, there are exclusions for deductions allowed by specific legislation, such as the Income Tax Act. Regarding outstanding tax arrears, the courts have clarified that SARS’ collection rights under Section 179 of the TAA precede these safeguards.
People who pay taxes frequently claim that these measures violate their constitutional rights, especially their entitlement to social security. Citing Section 36 of the Constitution, which allows for justifiable restrictions on rights for the greater good of the public, courts have, however, continuously upheld SARS’ conduct. These decisions emphasize maintaining tax compliance while balancing governmental interests and individual rights.
SARS’ Expanded Powers:
Implementing the two-pot retirement system has strengthened SARS’s capacity to collect unpaid taxes. With strict compliance requirements to handle tax obligations, this approach separates retirement funds into accessible and preservation components.
- Savings Component: Before taking an early withdrawal, taxpayers must pay off any unpaid taxes.
- Compliance Requirements: Before disbursing any monies to taxpayers, administrators of pension funds are mandated by law to pay off tax debts.
By preventing early access to retirement funds, this device ensures that tax obligations are not avoided.
Importance for Taxpayers:
Taxpayers are significantly impacted by SARS’s enforcement actions, particularly in terms of their planning and financial stability.
- Employer payroll systems allow for the direct garnishment of salaries and earnings.
- Once available, pension money might be used to pay off unpaid obligations, which would lessen retirement security.
- Timely Tax Filing: The chance of accruing fines and interest is decreased when tax returns are filed on time.
- Debt Resolution: To set up payment plans or negotiate settlements for outstanding debts, taxpayers should proactively contact SARS.
- Professional Advice: Taxpayers can avoid problems and maintain compliance by consulting with tax professionals or legal counsel.
SARS’s capacity to collect overdue taxes from various financial assets highlights the crucial necessity of tax compliance in South Africa. Taxpayers can prevent financial disruptions by being proactive and aware of the legal frameworks and consequences of SARS’ authority and by protecting their economic and personal well-being when legislation changes require them to be educated and, when needed, to obtain expert help.