This article deals with SARS’ powers contained in section 179 of the Tax Administration Act (‘the Act’), whereby SARS can appoint a third party holding any funds of the taxpayer, such as a bank, the taxpayer’s debtors or the taxpayer’s employer, to pay the funds to SARS and not to the taxpayer. The power is draconian but has been held to be lawful under the Constitution.
Before SARS may use section 179 it is legally required to issue a final demand to the taxpayer reminding them of the tax due to SARS. The law requires that the final demand must be issued ten business days before the letter appointing the third party is issued. SARS is not required to issue the final demand where the collection of the tax will be prejudiced.
It must be noted that SARS can appoint the taxpayer’s bank as a third party under section 179 and this will have the result that any funds in the taxpayer’s account must be to SARS and not the taxpayer until the tax debt is settled.
In the case of an employee, SARS can instruct the employer to deduct the amount from the taxpayer’s salary and pay that to SARS instead of to the employee. The Act recognises that an employee needs funds to live on and if the third party appointment or garnishee is too onerous the taxpayer can, within five business days of the appointment, request that the monthly amount deducted is reduced to take account of the taxpayer’s basic living costs.
|Failure to engage will result in SARS using its powers to ensure collection of tax due.|
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If the person appointed is unable to comply with the third party appointment instruction they must inform SARS thereof, as well as the reasons therefore. SARS may then withdraw or amend the instruction.
The person appointed as the third party by SARS must adhere fully to the instructions set out in the letter appointing the bank, employer or other person as the third party. Failure to comply with SARS’ instructions can result in the third party becoming personally liable to SARS for the amount of the tax debt. In addition, the failure to comply with section 179 as required can give rise to a criminal offence under section 234(n) of the Act. If convicted, the third party can face either a fine or a period of imprisonment.
It is important that taxpayers pay their tax debts as and when they fall due. If they are unable to settle the amount due to SARS they should talk to SARS and make arrangements with SARS to pay the tax due over a period of time. The failure to engage with SARS will result in SARS using the powers it has in the Act to ensure collection of the tax due.
It is clear that SARS can appoint the taxpayer’s bank or employer or any other person as a third party under section 179 of the Act. It is critical that the person appointed by SARS complies with section 179 and pays the specified amount of tax to SARS, failing which the third party can be held personally liable for the amount due to SARS by the taxpayer and worse still could face prosecution under section 234 of the Act.
Dr Beric Croome is a Tax Executive at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, April 2018.