Sneaky change in tax admin Act
SARS: AWARDS ITSELF 30-DAY ‘INTEREST-FREE’ HOLIDAY
Taxpayers will need to be more vigilant when submitting returns, making payment.
The SA Revenue Service (Sars) is mandated to pay a taxpayer interest if they have overpaid their taxes, and likewise, the taxpayer is mandated to pay Sars interest if Sars has made an overpayment to the taxpayer.
The rationale for the payment of interest is to compensate a party for the economic loss of not having had use of those funds.
The interest should run from the date that the party is short of the funds, to the date that the shortfall is paid.
This holds true for when the taxpayer must pay Sars interest, but not when Sars is mandated to pay the taxpayer interest.
In fact, in a recent amendment to the Tax Administration Act (TAA), Sars has awarded itself a 30-day “interest-free” holiday.
There is a common law right to claim interest on a contract unless interest is waived by agreement between the parties.
If the contract is silent on the rate of interest, the court has held that interest should then be paid at the prescribed rate (Crookes Brothers Ltd v Regional Land Claims Commission for the Province of Mpumalanga & others (590/2011) [2012] ZASCA 128).
The TAA has provided for the payment of interest as follows:
Where an overpayment is made by:
Sars to a taxpayer: interest runs from the time the excess amount was paid by Sars (the effective date) until the date that the taxpayer has repaid Sars (Section 187(3)(g)).
The taxpayer: interest runs from the later of the effective date or the date that the excess was received by Sars, until the date the taxpayer is refunded (Section 188(3)(a)). here, the taxpayer and Sars were on an equal footing.
The sneaky amendment
The TAA was updated when the proposed amendments were promulgated in January.
Included in the amendments was a new insertion – Section 187(3)(h) – which provides that Sars is only required to calculate interest on an overpayment after a 30-day period has elapsed – in effect giving Sars an “interest-free” window. Taxpayers, however, remain liable to Sars for the interest on Sars’ overpayment from the date of payment.
Bowmans senior associate Julia Choate says the insertion “appears to skew the status quo in Sars’ favour. Although we have yet to see how Sars will implement this amendment in practice”.
Choate explains that the “rationale for this amendment is to provide Sars with enough time to review and correctly classify any overpayments; so that if the taxpayer has existing tax debts, the “excess” amount can be set off; so that Sars does not calculate and pay interest to taxpayers who simultaneously owe Sars outstanding tax and interest”.
But surely Sars should not be given an interest-free period?
Choate warns “taxpayers will need to be considerably more vigilant when submitting returns and making payment to Sars, to ensure that they are not “penalised for accidentally paying Sars too much money”.
The interest-free holiday is likely to cause tension between Sars and taxpayers, particularly where Sars is dragging its feet in completing an audit, or in ascertaining the refund amount is correct.
Insertion skews status quo in Sars’ favour