The South African Revenue Service (SARS) continues to face challenges in collecting receivables and addressing disputes with taxpayers. The SARS Annual Report for 2023/24 highlights intensified efforts in tax debt collection and dispute resolution.
Ongoing SARS compliance and enforcement initiatives means implementing new strategies and refining processes to tackle challenges in enforcing tax compliance. Over R273 billion in receivables is currently targeted within various stages of the collection cycle. This work highlights the complex dynamics of tax administration in South Africa.
SARS’ initiatives focus on high-value taxpayer accounts, aged debts, and the high volume of tax disputes. These efforts aim to enhance taxpayer compliance across the board.
Navigating Section 164(2) of the Tax Administration Act
Disputed audit assessments present unique challenges for SARS. Section 164(2) of the Tax Administration Act requires SARS to suspend collection efforts on disputed amounts. This suspension remains until the dispute is resolved, except when the dispute is frivolous or poses a high collection risk. This provision offers taxpayers protection from enforcement actions during the dispute process. However, SARS can resume collections if necessary.
As of March 2024, SARS recorded R82.8 billion in assessments subject to dispute. This represents a 12.7% increase over the previous year’s R73.4 billion. Objections alone rose by 17.2%, totaling R26.5 billion, while appeals increased slightly by 0.7% to R56.3 billion.
SARS has improved its handling of these cases, finalising 98,191 arrangements, a 32% increase from the previous year. Despite these improvements, the high volume and complexity of disputes underscore the ongoing need for process refinement.
SARS faces significant challenges in recovering over R273 billion in receivables across various collection cycle stages. These challenges are worsened by high volumes of aged debt and cases involving deceased estates and liquidations. Businesses no longer operational account for roughly R134 billion of the receivables.
SARS compliance and enforcement initiatives to improve collections
SARS has implemented several initiatives to improve collections:
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System and process improvements
Enhancements in Third-Party Appointments (TPAs) have improved collections. Employer TPAs collected R2.6 billion, while bank TPAs reached R3.2 billion.
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Debt insourcing project
SARS allocated R62 billion to manage recent overdue debt. Temporary and seconded staff handled 349,360 cases. This initiative included issuing final demands and TPAs, resulting in over 248,000 phone calls.
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Debt outsourcing
SARS outsourced R13 billion in receivables to external service providers. This debt, aged over 36 months, has a low recovery rate (less than 15%). It includes R1.1 billion in temporarily written-off debt.
Managing significant receivables and high-value taxpayer accounts
High-value taxpayers, with debt balances exceeding R50 million, are a key focus for SARS. By March 2024, SARS identified 975 such accounts, up from 736 the previous year. These accounts now represent 45% of total receivables.
SARS has deployed targeted strategies to ensure compliance and collection in this segment. Of these cases, 568 were carried forward from prior years, amounting to R128.7 billion. An additional 407 new cases were registered, adding R76.8 billion in potential receivables.
SARS has also implemented more stringent debt classifications, particularly for cases involving possible criminal sanctions. Currently, R24.8 billion in debt is under direct investigation. Of this, R14.6 billion is linked to entity-level investigations. Collaboration with the National Prosecuting Authority (NPA) has strengthened SARS’ approach to handling complex, high-risk cases.
Performance in debt recovery initiatives
SARS has rolled out various initiatives to address debt recovery challenges. The TPA process has yielded strong results.
Employer TPAs collected R2.6 billion, while bank TPAs collected R3.2 billion. The Debt Insourcing Project allocated R62 billion to manage overdue debt. This enabled SARS to contact nearly 350,000 cases and issue numerous final demands.
External debt outsourcing initiatives targeted R13 billion in older receivables. These yielded mixed results due to the low recovery rate of these cases.
Increasing efficiency and enhancing compliance
SARS’ Dispute Resolution and Litigation Unit aims to resolve tax disputes efficiently. Key statistics from 2023/24 demonstrate the significant volume of disputes:
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Objections
SARS saw a 10% decrease in objections filed compared to the prior year. However, the average time to finalise objections rose from 48 to 58 days. The unit finalised 16% more objections than the previous year. Notably, 59% of objections were either fully or partially allowed.
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Appeals
Appeals declined by 2% during the fiscal year. SARS finalized 14,094 appeals, a 76% improvement compared to 2022/23. Most appeals (97%) were resolved using the Alternative Dispute Resolution (ADR) process, up from 95% the prior year.
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Collection efficiency and taxpayer compliance
SARS conceded fewer appeals, with the rate decreasing from 57% to 51%. Taxpayer withdrawal rates increased to 32%. This trend underscores SARS’ commitment to rigorously applying tax laws while reducing unnecessary litigation.
In conclusion
SARS compliance and enforcement involves continuous improvement of processes and policies to address debt collection and dispute resolution challenges. System enhancements, debt insourcing, and targeted outsourcing enable SARS to manage a large volume of receivables.
Efforts to navigate high-value taxpayer accounts and disputed assessments are ongoing. By focusing on efficiency and compliance, SARS aims to resolve disputes promptly, ensuring the integrity of South Africa’s tax system.
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| Andre Daniels | Head | Tax Controversy and Dispute Resolution | mail me | | Colleen Kaufmann | Senior Tax Attorney | mail me | |
| | Tax Consulting SA | | |
