Pay­ment of tax dur­ing an ob­jec­tion reg­u­lated

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

In de­ter­min­ing whether a tax­payer should be granted a sus­pen­sion of pay­ment SARS must ad­here to the rules of ad­min­is­tra­tive jus­tice

IN JAN­UARY the Gov­ern­ment Gazette con­tained a no­tice de­ter­min­ing the date on which sec­tions 13(1) and 38(1) of the Tax­a­tion Law Sec­ond Amend­ment Act, 2009 will come into op­er­a­tion. Gov­ern­ment No­tice num­ber 50, con­tained in Gov­ern­ment Gazette 33977, pro­vided that 1 Fe­bru­ary 2011 shall be the date on which sec­tions 13(1) and 38(1) of the Tax­a­tion Law Sec­ond Amend­ment Act, 2009 shall come into ef­fect.

In or­der to as­cer­tain the im­port of the above­men­tioned Gov­ern­ment Gazette it is nec­es­sary to re­fer to the pro­vi­sions of sec­tion 13(1) of the Tax­a­tion Law Sec­ond Amend­ment Act, 2009. Sec­tion 13(1) of the said statute sub­sti­tutes the ex­ist­ing pro­vi­sions con­tained in sec­tion 88 of the In­come Tax Act of 1962.

The Gov­ern­ment Gazette pro­vides that the rules con­tained in the new ver­sion of sec­tion 88, which will be dealt with be­low, will come into op­er­a­tion on Fe­bru­ary 1. The South African Rev­enue Ser­vice (SARS) placed the Gov­ern­ment Gazette’s no­tice on its web­site when it was is­sued and sub­se­quently is­sued a me­dia re­lease set­ting out the con­se­quences of the no­tice and how SARS will deal with the new rules.

The old ver­sion of sec­tion 88 of the act reg­u­lated the pay­ment of tax pend­ing an ap­peal. It did not deal with when a tax­payer had lodged an ob­jec­tion and SARS had not made a de­ci­sion on that ob­jec­tion. Sec­tion 88 of the act now reg­u­lates the pay­ment of tax pend­ing an ob­jec­tion or ap­peal lodged by a tax­payer.

It must be re­mem­bered that the Con­sti­tu­tional Court in Met­cash Trad­ing Lim­ited vs the Com­mis­sioner: SARS 2001 (1) SA 1109 (C) held that the pro­vi­sions of sec­tion 36 of the Value-Added Tax Act of 1991 (the VAT Act) which re­quires a tax­payer to “pay now, ar­gue later” was con­sti­tu­tion­ally valid. Sec­tion 88 of the act is iden­ti­cal to sec­tion 36 of the VAT Act.

The Com­mis­sioner has the power to post­pone the pay­ment of tax pend­ing the fi­nal­i­sa­tion of an ap­peal. The old sec­tion 88 did not spec­ify the cri­te­ria that SARS should take into ac­count to de­ter­mine whether a tax­payer should be granted a post­pone­ment of pay­ment of tax pend­ing fi­nal­i­sa­tion of an ap­peal. The Con­sti­tu­tional Court held in Met­cash that any de­ci­sion made by the Com­mis­sioner on a tax­payer’s re­quest is sub­ject to the rules of ad­min­is­tra­tive jus­tice, as a de­ci­sion made un­der sec­tion 88 con­sti­tutes ad­min­is­tra­tive ac­tion as en­vis­aged in the con­sti­tu­tion.

The new pro­vi­sions of sec­tion 88 now deal with the pow­ers of SARS to re­cover tax even though the tax­payer’s ob­jec­tion or ap­peal has not been fi­nalised.

Sec­tion 88 makes it clear that a tax­payer is en­ti­tled to re­quest that SARS sus­pends the pay­ment of any tax or a por­tion thereof due un­der an as­sess­ment when the li­a­bil­ity to pay that tax is dis­puted by lodg­ing an ob­jec­tion or ap­peal.

Sec­tion 88(3) of the act now pro­vides that the Com­mis­sioner may sus­pend the pay­ment of the tax in dis­pute by hav­ing re­gard to the fol­low­ing cri­te­ria:

The com­pli­ance his­tory of the tax­payer; The amount of tax in­volved; The risk of dis­si­pa­tion of as­sets by the tax­payer con­cerned dur­ing the pe­riod of sus­pen­sion;

Whether the tax­payer is able to pro­vide ad­e­quate se­cu­rity for the pay­ment of the amount in­volved;

Whether pay­ment of the amount in­volved would re­sult in ir­repara­ble fi­nan­cial hard­ship to the tax­payer;

Whether se­ques­tra­tion or liq­ui­da­tion pro­ceed­ings are im­mi­nent;

Whether fraud is in­volved in the ori­gin of the dis­pute; and

Whether the tax­payer has failed to fur­nish any in­for­ma­tion re­quested by the Com­mis­sioner un­der the act for a de­ci­sion un­der sec­tion 88.

When a tax­payer re­ceives an ad­di­tional as­sess­ment or an as­sess­ment that does not agree with the tax re­turn sub­mit­ted by them to SARS they have the right to lodge an ob­jec­tion to that as­sess­ment. At the time that the ob­jec­tion is for­mu­lated the tax­payer should de­cide whether to pay the tax and know that if they suc­ceed with their ob­jec­tion or ap­peal they will re­ceive the tax paid by them to­gether with in­ter­est. How­ever, when a tax­payer chooses not to pay the tax they will need to ap­ply for the post­pone­ment of pay­ment un­der sec­tion 88, and in the event that their ob­jec­tion does not suc­ceed they will be li­able for in­ter­est from the sec­ond date of the as­sess­ment is­sued to them.

Tax­pay­ers need to be aware of the re­quire­ments con­tained in sec­tion 88(3) and should sub­mit a for­mal ap­pli­ca­tion by way of a letter re­quest­ing post­pone­ment of pay­ment pend­ing fi­nal­i­sa­tion of an ob­jec­tion or ap­peal, and show that each of the cri­te­ria men­tioned above have been com­plied with.

Sec­tion 88(4) pro­vides that SARS may refuse a re­quest for post­pone­ment or may re­voke a de­ci­sion to sus­pend pay­ment when SARS is sat­is­fied that:

The ob­jec­tion or ap­peal is friv­o­lous or vex­a­tious;

The tax­payer em­ploys di­la­tory tac­tics in the ob­jec­tion or ap­peal;

On fur­ther con­sid­er­a­tion of the fac­tors con­tem­plated in sec­tion 88(3), the sus­pen­sion should not have been given; or

There is a ma­te­rial change in any of the fac­tors de­scribed in sec­tion 88(3) upon which a de­ci­sion to sus­pend the amount was based.

When a tax­payer suc­ceeds with an ob­jec­tion and has paid the tax that was re­flected on the ad­di­tional as­sess­ment he will re­ceive the tax back from SARS to­gether with in­ter­est thereon. Pre­vi­ously sec­tion 88 only re­quired in­ter­est to be paid when the as­sess­ment was re­duced pur­suant to an ap­peal be­ing al­lowed or con­ceded. The new sec­tion is more eq­ui­table than the old rules.

It must be noted that sec­tion 36 of the VAT Act has been amended along the lines re­ferred to above and should a tax­payer re­quest a post­pone­ment of pay­ment for a dis­pute un­der the act the same cri­te­ria re­ferred to above will need to be ad­hered to un­der the pro­vi­sions of sec­tion 36 of the VAT Act.

When a tax­payer re­ceives an ad­di­tional as­sess­ment a de­ci­sion must be made whether to lodge an ob­jec­tion against that as­sess­ment and, if so, a de­ci­sion must be made whether to pay the tax due or al­ter­na­tively to seek post­pone­ment of pay­ment un­der sec­tion 88 or in the case of a VAT mat­ter un­der sec­tion 36 of the VAT Act. It must be noted that when SARS re­fuses a tax­payer’s re­quest to post­pone pay­ment sub­ject to ob­jec­tion or ap­peal the tax­payer may not ob­ject or ap­peal against that de­ci­sion un­der the pro­vi­sions of the act. The tax­payer would be re­quired to pur­sue the mat­ter in the high court on the ba­sis that SARS has not com­plied with its obli­ga­tions un­der the Pro­mo­tion of the Ad­min­is­tra­tive Jus­tice Act of 2000. SARS, in de­ter­min­ing whether a tax­payer should be granted a sus­pen­sion of pay­ment, must ad­here to the rules of ad­min­is­tra­tive jus­tice and where it fails to do so a tax­payer should suc­ceed in hav­ing the de­ci­sion re­viewed by the high court.

Dr Beric Croome is a tax ex­ec­u­tive at ENS.

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