Undisputed tax debt collection realities: What investors should consider in post acquisition SARS exposure

The Budget Review attributes this shortfall to three key operational constraints: 

1. Delayed onboarding of additional debt collection personnel; 
2. A rise in disputed tax debts; and 
3. An increase in deferred payment arrangements. 

These factors point to a tax authority under pressure, one that is likely to intensify enforcement efforts in the coming periods. 

A Revenue Authority Under Pressure Means Higher Post Acquisition Tax Risk 

Where tax debt targets are missed and undisputed arrears continue to grow, a revenue authority naturally shifts its focus to enhanced audits, collections and verification measures. This creates a heightened environment of compliance risk for investors acquiring South African businesses. 

The 2026 Budget Review discloses that South Africa’s total outstanding tax debt stands at R646 billion, of which R518.2 billion is undisputed - meaning SARS views it as collectible without further legal determination. This enormous backlog of enforceable tax debt significantly increases the probability that SARS will pursue outstanding liabilities aggressively, including those arising before a transaction but discovered after closing.  

Stronger Enforcement: Banks, Legal Action and Audit Focus 

SARS has already intensified its enforcement posture. The Budget Review notes that SARS is: 

• Enhancing collaboration with banks to identify suspicious refunds and improve real time monitoring; and 
• Expanding legal teams to accelerate civil judgment processes. 

For investors, this signals a future in which historical tax exposures will attract more rapid, more coordinated and more assertive enforcement, especially after control of a target company has changed hands. 

Areas Most Likely to Face Heightened SARS Scrutiny Post Acquisition 

While the risk profile varies by sector and transaction type, certain tax areas are almost guaranteed to attract SARS’s attention in 2026 and beyond: 

• VAT refunds, particularly where refund cycles are irregular or unusually large. 
• Unreported or underdeclared output tax. 
• Transfer pricing arrangements, especially involving multinationals and related party cross border transactions. 
• Historical corporate income tax estimates. 
• Transactions that are required to be reported under the Reportable Arrangements regime. 
• These areas, individually or combined, present material risk of reassessment which can reshape deal economics if uncovered post acquisition. 

Why Warranties and Indemnities Are Not a Safety Net on Their Own 

Although warranties and indemnities (W&I) in sale and purchase agreements (SPAs) are standard mechanisms to manage historical tax risk, they have one fundamental limitation: 

SARS is not a party to the SPA. 

This means SARS remains fully entitled to pursue the acquired entity for historical tax liabilities, regardless of what the buyer and seller agreed contractually. W&I clauses merely determine who pays whom, not whether SARS may enforce. 

Accordingly, unexpected SARS assessments issued after closing can have substantial consequences, including reduced cashflows, impaired working capital, altered valuation assumptions, delays in integration, erosion of the economic benefits of the transaction, increased time involvement from management, and increase in advisor cost. 

The Role of Tax Due Diligence and Post Acquisition Health Checks 

Given the intensified enforcement landscape, investors should prioritise both wider and deeper tax due diligence before completing a transaction. This is especially true where the target operates in high-risk sectors such as mining or financial services. 

Where due diligence is limited or where a transaction has already been concluded, post-acquisition tax health checks are essential. These can help identify legacy exposures, unresolved disputes, incorrect VAT treatments, payroll noncompliance, transfer pricing gaps, or misstated provisional tax positions. 

Even issues that appear minor can escalate quickly in a climate where SARS is actively closing collection gaps. 

Conclusion 

Budget 2026 paints a clear picture: despite robust performance in certain tax streams, SARS faces significant pressure from the scale of outstanding, undisputed tax debt and its missed collection targets. The authority’s sharpened enforcement posture, coupled with operational enhancements in bank collaboration and legal recovery, means that post acquisition SARS exposure is now a more material risk than in previous years. 

For investors, rigorous tax due diligence and targeted post-acquisition reviews are no longer optional; they are essential steps in safeguarding deal value, managing historic liabilities, and ensuring a stable financial platform for growth.   

Author 

Marilize de Kock