SARS has the power to remove money out of your bank account. What are your rights as the taxpayer?

The Tax Administration Act No. 28 of 2011 (TAA) came into effect on 1 October 2012, the main objective of which was to align the tax administration provisions of most of our tax Acts and consolidate these into one piece of legislation.

The TAA introduced significant new concepts, powers and obligations. In this respect, the Objects Memorandum claims that “the TAA seeks to achieve a balance between the powers and duties of SARS, on the one hand, and the rights and obligations of taxpayers, on the other”. Some observers claim that this “balance” has not been achieved and that the TAA favours SARS and compliant taxpayers do not (in some cases) have sufficient protection against potential abuses of power by individual SARS officials.  One such power given to SARS is the ability to appoint a third party to settle a tax debt owing to SARS by a taxpayer. Examples of third parties are banks, employers and life insurers who hold or owe money to the taxpayer. On receipt of a notice from SARS the third party must pay the money to SARS in satisfaction of the taxpayer’s outstanding tax debt.

It is important to understand that SARS can issue a collection notice to a third party without any judicial oversight. It is understood that the original intention was for SARS to use this power for problematic collection cases but it appears that in some cases it is being used as the first port of call. It is therefore critical that taxpayers understand their rights and obligations in this regard.

Most importantly, before SARS can recover any tax debt, the taxpayer must have received an assessment, there can be no debt without an assessment. Assessments come in the form of original, additional, reduced, estimated or jeopardy assessments. Assessments can be issued by SARS or can be self-assessments. An income tax assessment is an example of an assessment issued by SARS. A VAT assessment is an example of a self-assessment. Assessments contain crucial deadlines and missing those deadlines could result in SARS making a third party appointment to recover the tax debt owing to it.

However, upon receiving an assessment, a taxpayer “who is aggrieved by an assessment” has a right to lodge an objection against the assessment.  Conversely, if a taxpayer is informed of a tax debt and takes no action i.e. by not lodging an objection, then SARS is legally obligated to collect the debt due to it. 

Another important factor is the “pay-now-argue-later” principle which applies to all tax debt. In terms of this principle the obligation to pay tax is not automatically suspended by an objection or appeal. It is therefore imperative that upon receipt of an incorrect assessment a taxpayer follows these procedures:

  • Submits a “Request for Suspension of Payment” of the purported taxes, and
  • Lodges an Objection to the assessment to dispute all or part of the liability to pay the tax.

By lodging the request for suspension of payment, a taxpayer is protected from all SARS collection procedures from the date the request is received by SARS through to 10 business days after SARS issues its decision to the taxpayer. If SARS denies the request for suspension of payment the taxpayer has bought some time in which to make payment. In the case where SARS agrees to the request for suspension of payment it may not commence collection procedures for the tax debt in dispute while the objection or appeal is in progress.  Only a senior SARS official can decide to suspend payment after taking the following factors into account:

  • Risk of recovery will be put in jeopardy or there will be a risk of dissipation of assets
  • Compliance history of the taxpayer
  • Whether fraud is involved in the origin of the dispute
  • Whether payment will result in irreparable financial hardship to the taxpayer not justified by the prejudice to SARS or the fiscus if the disputed tax is not paid or recovered; and
  • Whether the taxpayer is able to provide adequate security for the payment of the amount involved.

If the senior SARS official denies the request to suspend payment, it is advisable that the taxpayer apply to SARS for a payment plan.  An application for the payment of the tax in instalments can assist a taxpayer while the objection or appeal is ongoing.

Once the objection or appeal has run its course and finality has been reached, either by the issue of a reduced assessment, or the objection or appeal being denied, the resulting assessed tax becomes due and payable. The due date for payment will be reflected on the revised assessment.  If the taxpayer disregards the stipulated payment date, then SARS may commence collection proceedings which includes collecting the tax debt from a third party.

SARS must follow due process when issuing a notice to a third party:

  • A senior SARS official must authorise the issue of the notice to a third party
  • If requested SARS must extend the period over which the amount must be paid to SARS, to allow the taxpayer to pay basic living expenses
  • SARS may only issue the notice after 10 business days of delivery to the taxpayer of a final demand for payment
  • The final demand must set out the following:
    • recovery steps that SARS may take if the tax debt is not paid
    • available debt relief mechanisms contained in the TAA; and
    • if the taxpayer is a natural person he or she may within 5 business days of receiving the final demand, apply to SARS for a reduction of the amount to be paid to SARS based on the living expenses of the taxpayer and his or her family
    • if the taxpayer is not a natural person it may within 5 business days of receiving the final demand, apply to SARS for reduction of the amount to be paid to SARS based on serious financial hardship
  • SARS may issue the notice to a third party without issuing a final demand only if a senior SARS official is satisfied that to do so would prejudice the collection of the tax debt.

In the event that the taxpayer cannot afford to settle the tax debt owing to SARS another relief mechanism afforded by the TAA is a compromise agreement. A senior SARS official must authorise the compromise of a tax debt (or a portion of the debt) upon the request of the taxpayer provided the compromise secures the highest net return from the recovery of the tax debt, and the compromise is consistent with good management of the tax system and administrative efficiency. In addition to other details the request must be accompanied by evidence supporting the taxpayer’s claims for not being able to make the payment of the full amount of the tax debt.

Notwithstanding a taxpayer having successfully applied for a suspension of payment or applied for an instalment payment plan or reached a compromise, SARS might press ahead and issue a notice to a third party to collect the tax debt. In this case SARS is clearly in contravention of the TAA and has acted illegally. If the taxpayer does not want to institute legal action to remedy the situation, another option is to lodge an official complaint to SARS via the Complaint Management Office (CMO).  This office has recently replaced the previous SSMO (SARS Service Monitoring Office).  These complaints are either lodged using the taxpayer’s or registered Tax Practitioner’s eFiling profile or by contacting SARS directly.

Should the CMO not resolve the taxpayer’s complaint satisfactorily the next step would be for the taxpayer to take the matter to the office of the Tax Ombud. The Tax Ombud is independent of SARS and may only review a request once the taxpayer has exhausted all the normal SARS complaint mechanisms available.

In conclusion, it is vitally important that taxpayers understand the procedures that SARS must follow in order to collect tax debts and take action within the strict timelines should SARS breach the authority afforded it by the TAA.  Missing any deadline could seriously affect the outcome of any objection, appeal or complaints lodged with the CMO or Tax Ombud.

It is advisable that taxpayers seek immediate professional assistance in matters of this nature.

Alexandra Gomes

Tax Manager, Cape Town

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