SARS outlines how to apply for a tax deferral without being penalised

The South African Revenue Service (SARS) has published the process that businesses operating in South Africa should follow to request instalment payment arrangements without incurring penalties due to the Covid-19 pandemic.

The aim of deferring tax payments without incurring penalties is to alleviate the cash flow burden of tax compliant businesses during the pandemic economic crisis, notes Baker McKenzie Johannesburg.

This option applies to both small and larger businesses, as well as multinationals operating in South Africa, said Virusha Subban, a partner at Baker McKenzie.

Taxpayers making use of this relief scheme must be able to prove substantial and material financial hardships as a result of Covid-19.

Penalties will only be remitted if taxpayers are able to successfully prove the serious impact of Covid-19 on their business, Subban said.

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According to SARS, requests should be sent to dedicated SARS email addresses and should be made on a per entity basis. The email must contain a letter requesting deferral of payments, stating the reasons and specific tax periods applicable, stated Denny da Silva, senior tax advisor at Baker McKenzie.

“Further information to be included are the business’s latest financial statements and management accounts, a list of debtors and creditors, and cash flow projections for the next three months.”

Larger businesses with a gross income of more than R100 million, who can’t make a tax payment because of issues relating to the pandemic, can apply to defer tax payments without incurring penalties, the tax expert said.

In April 2020, it was announced that tax compliant Small, Medium and Micro Enterprises (SMMEs) with a turnover of up to R100 million, would be able to defer 35% of their employees’ tax payment for the months of April to July without incurring penalties and interest.

Further to this, smaller businesses with a gross income below R100 million are now able to apply for an additional deferral of payments without incurring penalties.

“Taxpayers should be aware that this is simply a deferment process and does not absolve them of their obligations towards SARS. If approved, the tax due will be paid in instalments, the upside being that penalties will not be levied on a successful application.

“However, no mention is made of interest being deferred and it must be accepted that interest will continue to run on any outstanding debt.

“Further, there is no mention of which taxes would apply. It can therefore be assumed that it would apply to any taxes due, which will be welcomed by all taxpayers,” said Da Silva.

Read: SARS warns of upcoming May deadline – here’s how it will go after those that don’t pay up

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SARS outlines how to apply for a tax deferral without being penalised