LISTEN | Tax refund expectations drive desperate consumers to loan sharks

Consumers are increasingly falling into debt by borrowing against expected tax refunds before the money reaches their bank accounts.

Many are left disappointed and struggling when the payout is lower than expected.

National Debt Advisors debt counsellor Sharon Mmitsi said the organisation had seen a surge in people seeking debt counselling since the start of the tax filing season this month. Consumers approach their office after making financial commitments and borrowing money based on expected tax refunds from the SA Revenue Service (Sars).

“We often see consumers taking short-term loans or borrowing money because they have been told they are going to receive a certain amount from Sars. They start spending money they have not yet received,” Mmitsi said.

She said many consumers were caught off-guard when deductions such as penalties, outstanding tax debt or interest reduced their expected refunds.

“They then need help to repay the money they borrowed,” she said.

Mmitsi said while some people may appear excited about receiving a tax refund, their actions are largely driven by financial pressure rather than celebration.

“The economy is very difficult at the moment. Everything is expensive and the money people earn is not enough to cover household expenses. When they see that they are expecting a tax refund, they think they will finally be able to cover expenses they have been struggling with, or settle some of their debt,” she said.

She said the trend had become more noticeable after the Covid-19 pandemic and worsened with the introduction of the two-pot retirement system.

“When people apply for a two-pot withdrawal, they see the amount they expect to receive, but they don’t investigate whether there are tax deductions or penalties. They start spending or borrowing against money they don’t yet have,” she said.

According to Mmitsi, many consumers postpone paying essentials such as rent, school fees and groceries because they expect the refund to fill the gap.

“They believe that once the money reflects, they will be able to cover everything. But when the amount is less than expected, they are forced to borrow even more money just to meet their basic obligations.”

She warned that this often traps consumers in a cycle of debt, particularly when they rely on expensive short-term loans.

Mmitsi urged taxpayers to avoid making financial decisions until the refund is in their accounts.

“The first thing you need to do is request your statement of account before making any refund or big spending decision. Check for outstanding returns, penalties, interest or tax debt.

She advised consumers to use refunds wisely.

“When the money comes in, use it to reduce expensive debt or pay off accounts with high interest rates. And if you are already struggling, seek professional debt counselling before taking on more debt.”

Sowetan