South African taxpayers are increasingly being forced into the courts to challenge the South African Revenue Service (Sars) over its refusal to suspend payment of disputed tax debts.

By law, taxpayers may object to an assessment, but the general rule is ‘Pay now, argue later’. The Tax Administration Act (TAA) allows for relief through suspension-of-payment requests, but these are often denied.

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Sars is not always right

“Recent judgments, and a Tax Ombud complaint [that has been] open for more than 11 years, show that the protection on paper is not reaching taxpayers in practice,” says Schalk Pieterse, managing director at TRM Tax Attorneys.

Suspension of payment

In one of the latest cases before the courts, Devland Cash and Carry won a significant victory for taxpayers.

Devland asked the Johannesburg High Court for an order compelling Sars to disclose all the information on which it based its decision to refuse a suspension-of-payment request.

Sars claimed confidentiality, but the court was unimpressed. It found Sars’s interpretation of the confidentiality clause in the act to be “unconstitutional”.

Nico Theron, founder of Unicus Tax Specialists, says Sars can be held accountable for its decisions and cannot hide behind confidentiality provisions when those decisions are subjected to review.

Sars audited Devland’s 2018 value-added tax and corporate income tax returns and issued additional assessments, including interest and penalties, of R1.9 billion. It refused the suspension of payment and claimed confidentiality as a reason for not disclosing information requested by Devland to prepare its objection.

Read: Continued taxpayer frustration over payment suspensions and debt collection …

The revenue service argued that disclosing information about its opinions, advice and debt-collection plans would jeopardise the effectiveness of its audits.

The court found this to be without lawful merit.

It granted the company access to more than 20 items, including the risk assessment on which Sars based its decision to audit the firm. The review itself had not yet reached the merits.

Reasonable and rational

Taxpayers still need to approach the courts when seeking access to the full decision-making record, but this judgment should ensure that Sars takes proper care when making decisions, says Theron.

Read: Sars must pay up for being ‘unreasonable’

Pieterse also referred to the matter between Ferreira and Sars in February this year, in which Sars raised an additional income tax assessment of R530 million.

Sars denied the request for a suspension of payment, despite Ferreira offering a pledge over his 80% shareholding in TMM Holdings. The shareholding was valued at R1.25 billion.

The court found the refusal was “so unreasonable that no reasonable person would have made it”.

Yet another case in which the rationality of a decision came under scrutiny was that between Sars and Angelo Agrizzi.

Sars accepted that the taxpayer did not have any realisable assets, that there was no risk of dissipation, and that paying the tax debt would cause irreparable hardship. Yet it still refused to suspend payment.

It found that recovery of the debt was in jeopardy. The judge in that case found no rational basis for refusing the suspension.

Read:

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It was “inherently contradictory” to find that there were no assets against which the debt could be enforced while also finding that there was a risk to recovery.

Although the ‘Pay now, argue later’ principle exists to protect the fiscus, Sars’s refusals to suspend payments are not always rational or justified.

The practice has not kept pace with the act, says Pieterse.

“Put plainly, once the request is lodged, Sars may not take judgment, keep the refund or flag the taxpayer as non-compliant – and unless it reasonably believes that assets will be dissipated, it may not appoint the taxpayer’s bank [as collection agent] either. None of that depends on Sars agreeing to anything.”

The middle way

Pieterse believes it is not a question of abolishing the ‘Pay now, argue later’ rule or leaving it as it is. There can be a middle way, he says.

It will require that Sars make a decision on a suspension request within a fixed period. If the deadline is not met, the suspension should be treated as granted until a decision is made.

Where a taxpayer pays a fixed portion of the debt or provides adequate security, the balance should be suspended.

Sars should bear the burden of showing that a dispute is frivolous or that assets are at risk of being dissipated.

Read: When your Sars refund has nowhere to go

It should provide reasons and the record with the decision, so that no taxpayer is forced to go to court and wait six years before knowing (as was the case in the Devland matter) what the committee was told.

Pieterse says the middle way will also require consequences.

“A judgment, set-off or compliance flag made in breach of the moratorium should be reversed by Sars within a short, fixed period, with interest, and a taxpayer forced to court to enforce it should [be able to] recover costs that actually compensate [them for this effort].”

The objective, he says, is balance: the ‘Pay now, argue later’ rule can remain, but Sars’s duty to act lawfully should bind it as firmly as the taxpayer’s duty to pay.