The law now clarifies questions you, as a taxpayer, may have about deferring the payment of your annual debt to the South African Revenue Service because you are dissatisfied with your assessment.
The pay now, argue later syndrome, whether instigated by your local authority or the South African Revenue Service (SARS), is the stuff of which nightmares are made.
When SARS issues a taxpayer with an assessment, the taxpayer can object to the assessment if there are valid grounds for the objection.
Assuming there is a payment that is attached to the assessment, the question then arises as to whether SARS can collect the debt despite an objection lodged by the taxpayer - in other words, whether the taxpayer should pay up now and argue later. If the taxpayer's objection is declined by SARS, the taxpayer can then still proceed and lodge an appeal.
It is a problem compounded by a lack of knowledge as to what your legal rights are.
The rule has at least been clarified - even though not to the satisfaction of all - in the most recent legislative amendments contained in the Taxation Laws Second Amendment Act, 2009, signed by President Jacob Zuma on September 30, 2009.
Previously, there was some uncertainty as to whether SARS could apply the pay now, argue later rule once the taxpayer had lodged an objection against SARS's assessment. (Both the Income Tax Act and the VAT Act make it quite clear, though, that the principle applies at the appeal stage, so there has never been confusion about that.)
The legislative amendments stipulate that a disputed tax debt can be collected despite an objection to the assessment. The taxpayer may, however, request the SARS Commissioner to suspend the payment of any tax due under the assessment.
The amendments provide guidance as to what factors should be considered in deciding whether to agree to a taxpayer's request to suspend payment of the debt. The factors that SARS will consider are:
- The taxpayer's compliance history;
- The amount of tax involved;
- The risk of assets disappearing;
- The ability of the taxpayer to provide adequate security;
- Financial hardship to the taxpayer;
- Whether there is the involvement of fraud;
- Whether there are imminent sequestration or liquidation proceedings; and
- Whether the taxpayer failed to provide information requested by SARS.
There are certain instances where SARS may deny a request to suspend payment or revoke a decision to suspend payment.
SARS may, for instance, deny a request if the objection or appeal is frivolous or vexatious, or if the taxpayer employs delaying tactics.
The legislative amendment makes provision for the payment of interest if an amount is collected and later refunded because the relevant objection has been conceded by SARS.
Interest will be paid at the same rate that SARS normally charges on outstanding debt: a rate of 10.5 percent with effect from September 1, 2009 until further notice.
The legislative changes, which are proposed to both the Income Tax Act and the VAT Act, were not effective at the time of writing in November, although the Taxation Laws Second Amendment Act, 2009, has been signed by the president.
The effective date of this legislative amendment is to be determined by way of a notice in the Government Gazette and will apply to all amounts payable by or to SARS from such date.
A transitional rule will ensure that suspension of payment granted under the previous legislation will carry over to the new legislation and will lapse on the expiry date or six months from the effective date, whichever is earlier.
- Muneer Hassan is project director: tax at the South African Institute of Chartered Accountants (Saica). Before joining Saica he was an audit manager and tax technical adviser at the SARS. He holds certificates in capital gains tax and advanced taxation, and is completing a Master's of Accounting Science degree in taxation through the University of South Africa.
This article was first published in Personal Finance magazine, 1st Quarter 2010.