Last re­sort for SARS to ef­fect col­lec­tion of dues

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Beric Croome

Where tax­pay­ers ig­nore SARS as­sess­ments and notices of de­mand, SARS is able to rely on sec­tion 99 of the tax act to en­sure col­lec­tion

THE Com­mis­sioner: South African Rev­enue Ser­vice re­cently in­di­cated that it would utilise its pow­ers con­tained in sec­tion 99 of the In­come Tax Act 1962, to se­cure pay­ment of penalty as­sess­ments is­sued by SARS to de­fault­ing tax­pay­ers for non-or late ren­di­tion of in­come tax re­turns.

A num­ber of com­men­ta­tors have ques­tioned whether SARS’s power to ap­point an agent is valid in light of the bill of rights con­tained in the Con­sti­tu­tion of the Re­pub­lic of South Africa, Act 1996, as amended.

It is im­por­tant that tax­pay­ers re­mem­ber the process SARS must fol­low, prior to it ini­ti­at­ing the col­lec­tion of tax by re­ly­ing on sec­tion 99 of the In­come Tax Act. SARS must, firstly, is­sue an as­sess­ment to the tax­payer, re­flect­ing an amount payable to SARS. This is in ac­cor­dance with the Supreme Court of Ap­peal de­ci­sion of Singh v Com­mis­sioner: SARS.

The tax­payer would, typ­i­cally, also re­ceive a state­ment of ac­count re­flect­ing the amount payable to SARS and it would is­sue letters of de­mand or notices to the tax­payer re­quest­ing the tax­payer to pay the tax re­flected as payable within a spec­i­fied pe­riod. More of­ten than not, SARS would also tele­phone the tax­payer to ad­vise that the amount re­mains payable and that col­lec­tion steps will be taken should the tax­payer not pay within a fur­ther pe­riod of time. SARS, there­fore, only uses the power in sec­tion 99 of the act once the tax­payer has failed to en­gage with SARS to ei­ther dis­pute the as­sess­ment or to make ar­range­ments to pay the tax re­flected as payable.

Sec­tion 99 con­fers on the Com­mis­sioner the fol­low­ing power:

“The Com­mis­sioner may, if he thinks nec­es­sary, declare any per­son to be the agent of any other per­son, and the per­son so de­clared an agent shall be the agent for the pur­poses of this act and may be re­quired to make a pay­ment of any tax, in­ter­est or penalty due from any monies, in­clud­ing pen­sions, salary, wages or other re­mu­ner­a­tion, which may be held by him or due by him to the per­son whose agent he has been de­clared to be.”

It must be noted also that un­der the pro­vi­sions of sec­tion 75(1)( j), a per­son who fails to com­ply with the pro­vi­sions of sec­tion 99 of the act com­mits an of­fence and may be li­able, on con­vic­tion, to a fine or to im­pris­on­ment for a pe­riod not ex­ceed­ing 24 months.

It is ac­cepted that the pro­vi­sions of sec­tion 99 may ap­pear dra­co­nian, but it must be pointed out that such pro­vi­sions are not unique to SA. Dur­ing 1996, the Com­mis­sioner ap­proached the Con­sti­tu­tional Court for an opin­ion as to whether cer­tain pro­vi­sions of the fis­cal statutes com­plied with the con­sti­tu­tion. Un­for­tu­nately, the Con­sti­tu­tional Court de­cided not to ad­ju­di­cate the var­i­ous mat­ters raised by SARS as it did not re­late to an ac­tual le­gal dis­pute, but was more in the na­ture of an opin­ion be­ing sought from the Con­sti­tu­tional Court by SARS.

In the case of Hindry v Ned­cor Bank Ltd and An­other, Judge Wunsh had to de­ter­mine whether sec­tion 99 of the act was con­sis­tent with the Con­sti­tu­tion. In Hindry, the tax­payer re­ceived a re­fund from the Com­mis­sioner in er­ror. The Com­mis­sioner sought to re­claim the re­fund in­cor­rectly au­tho­rised and even­tu­ally is­sued a no­tice to the tax­payer’s bankers, ap­point­ing them as the tax­payer’s agent un­der sec­tion 99 of the act, in or­der to re­cover the tax due by Hindry. Hindry ap­plied for an in­ter­dict from the court pre­vent­ing the bank from pay­ing the Com­mis­sioner un­der the no­tice is­sued, pur­suant to sec­tion 99, on the ba­sis that the pro­vi­sions were in­con­sis­tent with the Con­sti­tu­tion.

Judge Wunsh de­cided that sec­tion 99 did not vi­o­late the con­sti­tu­tion and, fur­ther­more, that in none of the tax­ing statutes of other coun­tries is the rev­enue author­ity re­quired to give the tax­payer ad­vance no­tice of an at­tach­ment, thereby en­abling the tax­payer to make rep­re­sen­ta­tions to avoid the ef­fect of the agency ap­point­ment.

The judge pointed out that the gar­nishee pro­ce­dure is recog­nised in other coun­tries which con­sti­tute open and demo­cratic so­ci­eties.

Fur­ther, it must be pointed out that the Con­sti­tu­tional Court has up­held the “pay now, ar­gue later” prin­ci­ple in Met­cash Trad­ing Ltd v Com­mis­sioner: SARS, which has the ef­fect that SARS can in­sist on pay­ment even though the tax­payer dis­putes an as­sess­ment is­sued by SARS.

The Value-Added Tax Act, 1991, con­tains a sim­i­lar pro­vi­sion to sec­tion 99,at sec­tion 47. In Con­tract Sup­port Ser­vices (Pty) Ltd and Oth­ers v Com­mis­sioner: SARS and Oth­ers, the tax­payer ap­plied for the set­ting aside of the notices is­sues un­der sec­tion 47 of the VAT Act on the ba­sis that the audi al­teram partem prin­ci­ple had not been ob­served. The court re­fused to al­low the chal­lenge to the notices is­sued pur­suant to sec­tion 47 of the VAT Act, be­cause the notices were not ul­tra vires the con­sti­tu­tion.

How­ever, in Mpande Food­liner CC v Com­mis­sioner: SARS and Oth­ers, the court set aside notices is­sued un­der sec­tion 47 on the ba­sis that the de­nial of the audi prin­ci­ple be­fore is­su­ing the notices un­der sec­tion 47 of the VAT Act, in­fringed sec­tion 33 of the con­sti­tu­tion. How­ever, sub­se­quently, in Smart­phone SP (Pty) Ltd v ABSA Bank Ltd and An­other the court re­ferred ap­prov­ingly to the com­ments made by Judge Brett in the Con­tract Sup­port Ser­vices case. The court pointed out that in de­ter­min­ing whether the tax­payer’s right to ad­min­is­tra­tive jus­tice had been vi­o­lated, it is nec­es­sary to take ac­count of the cir­cum­stances of each case and it was un­able to sup­port the de­ci­sion in Mpande.

Thus the courts have held that the is­sue of notices un­der sec­tion 99 of the In­come Tax Act or sec­tion 47 of the VAT Act, do not un­law­fully vi­o­late the tax­payer’s right to ad­min­is­tra­tive jus­tice as en­vis­aged in the Pro­mo­tion of Ad­min­is­tra­tive Jus­tice Act of 2000.

More re­cently, in the Supreme Court of Ap­peal case of Shaikh v Stan­dard Bank of SA Ltd and An­other, the court was re­quired to de­cide whether the pay­ment of funds made by the bank to SARS was valid, de­spite the fact that the no­tice is­sued ap­point­ing the bank as the tax­payer’s agent, was de­fi­cient un­der the VAT Act. The court held that even though SARS may have re­ferred to the in­cor­rect statu­tory pro­vi­sion, it does not in­val­i­date the ad­min­is­tra­tive act where the de­ci­sion is per­mit­ted un­der the pro­vi­sion in ques­tion.

There­fore based on a re­view of prece­dents in SA, it does not ap­pear that sec­tion 99 vi­o­lates the rights of tax­pay­ers en­shrined in the con­sti­tu­tion. Clearly, where SARS has not is­sued an as­sess­ment to a tax­payer, or has oth­er­wise abused its pow­ers, the tax­payer would be en­ti­tled to ap­proach a court for re­lief and should be en­ti­tled to re­cover dam­ages from SARS.

How­ever, where the tax­payer has ig­nored an as­sess­ment is­sued by SARS and sub­se­quent notices of de­mand, SARS is fully en­ti­tled to rely on sec­tion 99 of the act to en­sure the col­lec­tion of tax due to it. It is im­por­tant though, that sec­tion 99 of the act is used as a last re­sort by SARS, only af­ter the tax­payer has failed to com­ply with their statu­tory obli­ga­tions.

Dr Beric Croome is a tax ex­ec­u­tive at ENS.

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