South African Revenue Service’s Powers to Collect Tax from Taxpayers

Once a taxpayer has submitted a tax return to the South African Revenue Service (“SARS”) they will receive a tax assessment reflecting either an amount refundable to them or an amount payable to SARS. 

Where an amount is reflected as payable the taxpayer is required by law to pay the tax due by the date specified on the notice of assessment. 

Failure to pay the tax on time will result in the taxpayer being subjected to interest on the late payment of the assessed tax and furthermore, SARS may then resort to the powers contained in the Tax Administration Act (“TAA”) to ensure that the tax is paid.

If a taxpayer receives an assessment and is unable to pay for whatever reason it is important that they engage with SARS failing which SARS will exercise the powers contained in the law to ensure that the tax is paid.

Under the provisions of the TAA and particularly section 179 thereof SARS is empowered to issue a notice to a person who holds or owes any money, including a pension, salary, wage or other remuneration for or to a taxpayer requiring that person to pay the money to SARS in satisfaction of the taxpayer’s outstanding tax debt and not to pay the funds over to the taxpayer.

SARS is therefore empowered to issue a notice, for example to a taxpayer’s bank or the taxpayer’s debtors and instruct that person to pay any monies due to the taxpayer not to the taxpayer but to SARS. 

The Courts have previously examined similar provisions and found that such powers do not violate the provisions of the Constitution as they are commonly found in democracies to ensure that taxpayers pay tax which is due to the fiscal authorities.

It must be noted that where a person receives a notice from SARS instructing them to pay over an amount  held by them to SARS and not the taxpayer they are precluded from informing the taxpayer of the receipt of such notice. 

The person in receipt of the notice is obliged by law to pay over whatever funds they hold to SARS failing which that person is personally liable for the amounts paid to the taxpayer instead of to SARS.

Furthermore, where a person chooses to disregard of the notice they can be convicted of a criminal offence under the provisions of section 234(n) of the TAA.

If your tax assessment shows you owe SARS, 

you are required by law to pay up by the date specified 

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jack191 

SARS is required to issue a final demand to the taxpayer demanding payment of the tax due before the notice is issued to a third party instructing them to pay over whatever funds are held for the taxpayer to SARS. 

Inevitably, any person receiving a notice from SARS demanding that whatever amounts held by them for a person are to be paid over to SARS and not that person will not know if SARS has complied with its statutory obligation to have informed the taxpayer of the amount of tax due and to have in fact demanded payment of the tax from the taxpayer. 

Under section 179(5) of the TAA, SARS must issue a final demand at the latest 10 business days before the notice is issued to the person instructing them to pay over amounts held by them for the taxpayer to SARS and not that taxpayer.

Invariably the first time that a person will become aware of the fact that SARS has issued the notice to a bank or the taxpayer’s debtors is when they receive information that amounts have been paid over to SARS instead of the taxpayer concerned.

In the case of a notice received by a bank, it is submitted that where the taxpayer is in overdraft the bank is not obliged to pay monies over to SARS such that the taxpayer’s overdraft facility is increased on the basis that the bank does not actually hold funds due to the taxpayer.

The notice issued by SARS remains valid until the amount is paid over to SARS or until SARS withdraws the notice. In addition to appointing a third party to pay over amounts held for the taxpayer to SARS, SARS  can also file a statement with the Court which constitutes a judgment against the taxpayer which will impair the taxpayer’s credit rating and can be used as a basis on which to liquidate or sequestrate the taxpayer, as the case may be.

Previously SARS collected the tax debts due to it by utilising its own staff but it has recently outsourced the collection of certain tax debts to third party debt collectors who are independent of SARS. 

Where taxpayers owe SARS tax they may therefore receive a call or other communication from a person employed by NDS Credit Management, CSS Credit Solutions or Lekgotla Trifecta Collections acting on instructions of SARS to collect tax debts. 

The debt collectors appointed by SARS are legally obliged to adhere to the confidentiality provisions contained in the TAA and will be remunerated by SARS for debts collected by them from taxpayers. 

It does appear surprising that SARS has resorted to the appointment of external debt collectors who have to be paid for their services whereas previously SARS staff would appear to have been quite efficient in collecting tax debts due by taxpayers.

It is important though that taxpayers who are indebted to SARS make arrangements to pay the tax due failing which SARS will utilise the draconian powers contained in the law to ensure the payment of tax due to SARS.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, August 2016

Request by SARS for Information from South African Taxpayers Regarding Related Parties Abroad

In terms of chapter 5 of the Tax Administration Act No. 22 of 2011 (the “TAA”), the South African Revenue Service (“SARS”) is empowered to seek information from taxpayers to ensure that the returns that they have submitted to SARS are complete.

Originally, the TAA did not provide a means for SARS to compel taxpayers to supply information relating to foreign related entities. In practice, SARS would request information from taxpayers pertaining to overseas subsidiaries or on other occasions indicate that they wished to conduct an audit in the country in which the foreign subsidiary was located. 

It is clear from a review of South African and international law that SARS’ powers do not extend beyond the borders of South Africa and that it would have been unlawful for SARS officials to arrive in a foreign country to conduct an audit on a company or entity located abroad. That is the reason why States conclude double taxation agreements to eliminate double taxation but also to allow for co-operation between States and to receive information from a taxpayer located in one jurisdiction for transmission to a revenue authority in another country. 

Thus, SARS could only procure information from another country under either a bi-lateral tax treaty or in accordance with the Convention On Mutual Administrative Assistance In Tax Matters which allows for a revenue authority in one country to seek assistance from another revenue authority to audit and investigate the affairs of the taxpayer located in the other country.

Countries such as Canada and Australia have historically had provisions in their fiscal legislation allowing the revenue authority to request information from domestic taxpayers regarding entities related to the domestic taxpayer which are located abroad. 

It was therefore no surprise that section 46 of the TAA was amended by way of section 42 of the Tax Administration Laws Amendment Act No. 23 of 2015 which now confers on SARS the power to call for information from a South African taxpayer in respect of a connected person located abroad.

Thus, section 46 (2) now provides that a senior SARS official may require relevant material from a taxpayer held or maintained by a connected person as defined in paragraph (d)(i) of the definition of connected person contained in section 1 of the Income Tax Act 58 of 1962, as amended in relation to the taxpayer where that person is located outside South Africa.

The definition of connected person is comprehensive and this article does not seek to analyse the scope of that definition but taxpayers must remember that the connected person definition particularly in relation to a company is very wide and clearly would apply where, for example, a South African company owns more than 50 % of the equity shares or voting rights in a company located abroad, or meets certain other requirements specified in paragraph (d)(i) of the definition of connected person.

Section 46 also regulates the time period within which information located abroad must be provided to SARS. Where the information is held by a connected person in relation to a South African taxpayer, the taxpayer must supply the information within 90 days from the dates of SARS’ request for the information and it is important that SARS when calling for the information relating to the connected person located abroad sets out the consequences should the taxpayer fail to provide the information requested. 

It must be noted that the time period referred to is 90 days and not business days as defined in section 1 of the TAA and thus in determining the period available within which to respond taxpayers would need to take account of calendar days and not business days.

Where a taxpayer fails to provide the information requested by SARS in accordance with section 46 of the TAA it must be noted that the material in question may not be produced by the taxpayer in any subsequent proceedings with SARS unless a competent court directs otherwise on the basis of circumstances beyond the control of the taxpayer and any connected person referred to in paragraph (d)(i) of the definition of connected person as defined in the Income Tax Act in relation to the taxpayer.

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It is interesting to note that other countries have a similar provision that where a taxpayer declines to provide information relating to a foreign related entity that information cannot be used in subsequent proceedings against the revenue authority of that country. 

Thus, Section 46 (9) of the TAA which provides that information may not be used by the taxpayer should they not make it available to SARS is not uncommon.

It is important to remember also that that where a taxpayer is assessed by SARS , the onus is on the taxpayer in accordance with section 102 of the TAA to prove that an amount, transaction, event or item is exempt or otherwise not taxable, or that an amount or item is deductible or maybe set off. 

Thus, should a taxpayer not provide the information to SARS it may become very difficult for the taxpayer to discharge the burden of proof as prescribed in section 102 of the TAA.

In addition, the failure to provide information to SARS is specifically regarded as a criminal offence under section 234 of the TAA. 

Thus, taxpayers should not lightly refuse or neglect to furnish information to SARS when called upon to do so, including information relating to a connected person located abroad.

In addition, the failure to provide information, particularly information held by a connected person abroad, could be construed as obstructive and result in an increase in the understatement penalty which SARS may seek to impose if SARS adjusts the taxable income of the taxpayer.

Thus, taxpayers who are requested to provide information held or kept by a connected person as envisaged in section 46 read together with the definition of connected person in section 1 of the Income Tax Act need to be aware of the consequences should they fail to provide the information to SARS timeously.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, March 2016. 

One-Way Traffic with SARS

TAXPAYERS face various obligations imposed on them as a result of the provisions of the Tax Administration Act, No 28 of 2011. 

Where, for example, a taxpayer fails to submit a tax return timeously, the Commissioner: South African Revenue Service is compelled to impose the penalty provided for in section 211 of the Tax Administration Act. 

Where a taxpayer receives an assessment and fails to pay the tax reflected thereon within the time period allowed, the Commissioner is empowered to file a statement at the court, which has the effect of a civil judgment against the taxpayer, and once such judgment has been obtained, SARS can seek to execute on the strength of that judgment.

Alternatively, the Commissioner may direct any third party holding funds on behalf of the taxpayer to pay these over to the Commissioner and not to the taxpayer.

The tough provisions of the Tax Administration Act against taxpayers is not balanced by available remedies against SARS officials who fail in their obligations

These are but a few examples of the draconian powers which the Commissioner has in addressing the failure on the part of the taxpayer to comply with their obligations imposed under this act. But what remedy does a taxpayer have where the Commissioner and his officials fail to adhere to the obligations imposed on them under the Tax Administration Act?

Section 42 of the act requires that a SARS official involved in, or responsible for, an audit under the provisions of the act must, in the form and in the manner as may be prescribed by the Commissioner by Public Notice, provide the taxpayer with a report indicating the stage of completion of the audit. The Commissioner published the required Public Notice on 1 October last year, setting out the timing of submission of the report to the taxpayer under audit, as well as the details to be contained in that report.

In summary, those taxpayers who were subjected to an audit prior to the commencement of the Tax Administration Act on 1 October 2012 were entitled to receive a report advising as to the stage of completion of the audit no later than 31 December 2012. We did receive a number of reports advising as to the stage of completion of the audit, but in a large number of cases, such reports were not submitted to taxpayers as required.

Where the audit on the taxpayer’s affairs commenced after October 1 2012, the Commissioner is required to submit a report to the taxpayer advising as to the status of the audit within 90 days of the date of the audit’s commencement. Such reports are not being issued as required, and the question therefore arises what a taxpayer is entitled to do where the Commissioner’s officials fail to comply with their statutory obligations.

Unfortunately, the Tax Administration Act itself does not contain any remedy for the taxpayer, and the taxpayer would only have recourse to the courts, on grounds that the Commissioner has failed to comply with the taxpayer’s right to administrative justice enshrined in the Constitution and as fleshed out in the Promotion of Administrative Justice Act, No 3 of 2000.

Where a taxpayer fails to pay tax when payable, the Commissioner is empowered to seek a civil judgment for the recovery of the tax in terms of section 172 of the Tax Administration Act. Previously, under the provisions contained in section 91 of the Income Tax Act, No 58 of 1962, as amended, the Commissioner was not required to inform the taxpayer that it was intended to seek a judgment against the taxpayer. 

The Tax Administration Act now requires at section 172(1) that SARS is required to give the taxpayer at least 10 business days’ notice of the intention to file a statement at the Court which would have the effect of a judgment against a taxpayer. The only basis on which SARS is not required to give the taxpayer prior notice of taking judgment against the taxpayer, is where SARS is satisfied that giving notice would prejudice the collection of the tax. 

Unfortunately, we are seeing too many cases where the Commissioner has proceeded to take judgments against the taxpayer after 1 October 2012 without affording the taxpayer the 10-day notice period. Once a judgment has been taken against the taxpayer, the only recourse available would be to seek SARS’s assistance in withdrawing the certified statement filed at the Court under section 176 of the Tax Administration Act, or, alternatively, to launch proceedings in the High Court for an order rescinding the judgment.

Once a taxpayer has been subjected to an audit, SARS, invariably, will issue an additional assessment to the taxpayer, and the taxpayer will then have to decide whether to dispute the adjustments made and to lodge a formal objection against that assessment. The Constitutional Court, in the Metcash case, ruled that the so-called “pay now argue later” rule was valid, and did not violate the rights contained in the Constitution. 

However, a taxpayer is entitled, under section 164 of the Tax Administration Act, to request that SARS postpones the payment of the tax pending the finalisation of the objection or appeal.  The taxpayer is required to submit a well motivated application requesting postponement of payment of tax pending an objection or appeal, and must remember that, should the dispute finally go against the taxpayer, that interest will remain payable from the date on which the assessments were issued to the taxpayer. This can cause a significant burden on a taxpayer where the dispute takes years to resolve.

It must be remembered that, under section 164(6) of the Tax Administration Act, SARS may not take recovery steps against the taxpayer while the taxpayer’s request for postponement of payment of tax in dispute is being considered. 

In practice, it has happened too often that a taxpayer has filed an objection and simultaneously requested a postponement of payment of tax, under either section 88 of the Income Tax Act or section 164 of the Tax Administration Act, and does not receive a response from the Commissioner whether their request for postponement of payment has succeeded. In some cases, SARS has taken steps to recover the tax in dispute despite the fact that they have requested postponement of payment of tax in dispute.

Where a taxpayer receives an additional assessment from SARS, it is necessary that the taxpayer be advised as to the reasons for the adjustments made in the calculation of taxable income or any other adjustments made in assessments issued to the taxpayer for other taxes. 

In many cases, the SARS officials will comply with their statutory obligations and supply taxpayers with reasons for adjustments made in the calculation of taxable income, but, unfortunately, this is not always the case.

Taxpayers are entitled to call for reasons for adjustments made to assessments in terms of rule 3(1)(a) of the Rules Governing Objections and Appeals and, should the Commissioner fail to supply the reasons requested, it would be necessary to launch an application to the Tax Court under rule 26 of the Rules Governing Objections and Appeals.

Where a taxpayer disputes an assessment issued by the Commissioner, not all disputes proceed to the Tax Court, as many disputes are now resolved via the Alternative Dispute Resolution procedure. Once the matter has been settled, the taxpayer and SARS conclude a settlement agreement, and the taxpayer is deemed to have withdrawn their objection and appeal against the assessments issued by SARS, and SARS is then required to issue amended assessments to give effect to the settlement agreement.  

Again, we are currently seeing many instances of settlement agreements being concluded without adjustments being made to the affected assessments. As a result, taxpayers conclude a settlement agreement, pay what is required under that agreement and then receive demands for the full amount which was originally in dispute. A taxpayer can compel SARS to adhere to the settlement agreement only by launching an application to the High Court, which should not be necessary if SARS dealt with the matter timeously and properly.

SARS has extensive powers to gather information from taxpayers and should a taxpayer fail to comply SARS can take various steps against the taxpayer. 

Many taxpayers applied for relief under the Voluntary Disclosure Programme and Taxation Laws Second Amendment Act 6, No 8 of 2010 which came to an end on 31 October 2011. SARS took a long time to evaluate the thousands of applications received and it was common for SARS to advise a taxpayer that their application had been considered and that the taxpayer must return the signed VDP agreement within five working days despite the fact that SARS has had the application for a period of almost 17 months. 

Once the VDP agreement was signed the taxpayer had to complete the VDP returns which were not dealt with in the law and invariably taxpayers were given a very limited period of time to attend to the completion of those returns. The imposing of undue pressure on taxpayers and their advisers in this manner is inequitable.

The fact that officials do not adhere to their obligations under the Tax Administration Act results in an increase in costs incurred by taxpayers, which currently cannot be recovered from SARS unless an action is instituted in the High Court and the court awards costs against SARS on a punitive basis.

The Tax Administration Act creates a legal framework to create the office of Tax Ombud, and it is hoped that the creation of that office will alleviate some of the issues identified above. SARS also requires under the Tax Administration Act that all tax practitioners are registered with SARS, and a controlling body which may take disciplinary action against tax practitioners who do not adhere to the provisions of the law and the rules regulating tax practitioners. 

Procedures are set down whereby complaints against tax practitioners will be dealt with, but the process whereby a taxpayer can lodge a formal complaint against the misconduct of a SARS official is not well-known or publicised, and it is questioned whether this procedure exists. 

It is unfortunate that the Tax Administration Act does not contain a specific remedy to taxpayers where SARS officials fail to adhere to their obligations imposed on them under the Tax Administration Act.

■ Dr Beric Croome is a tax executive at ENS. This article first appeared in Business Day, Business Law and Tax Review, 8 April 2013. Free image from ClipArt